What is a Disqualification Order?

A Director Disqualification Order can be applied by a Court to a person who is in breach of their duties as a director. This usually applies to the directors of limited liability companies, but it can also apply to people who act in the capacity of a director (without being formally registered), as well as shadow directors [click here for more details about shadow directors].

Director Disqualification Orders are granted under the terms of the Company Directors Disqualification Act 2006.

The 1986 Act lays out certain sections under which a director may be disqualified and the 2006 Companies Act also has an influence. For example, the 2006 Companies Act states that one duty of a director is to ensure annual returns are filed with Companies House. Failure to correctly file these annual returns could be cause for a Disqualification Order.

The Director Disqualification Order will make it clear how long the disqualification is to last for. The length of time will ordinarily depend on the severity of the offence and whether it also triggers criminal proceedings.

Disqualification Undertaking

It is important to note that a Director Disqualification Order is different to a Disqualification Undertaking . Disqualification Undertakings, which were introduced in 2001, have exactly the same effect as a Director Disqualification Order – however they are different in they do not require court proceedings. Instead the Secretary of State has the power to accept a Disqualification Undertaking from a director personally.

According to the Insolvency Service, of the1,214 directors who were disqualified in  2016/17, a full 1,014 were made by way of Undertakings, with just 200 actual Orders made.

Director Disqualification Order – the effect

If a director is given a Director Disqualification Order by the Court, this will prevent them from acting as a director of a company for the duration of the order.

It also has several other implications which you need to be aware of and which include:

  • A disqualified director is not be allowed to become an administrator or company liquidator
  • A disqualified director is not able to manage or otherwise receive the property of any company
  • A disqualified director is not able to get involved in the management or formation of any company

Leave to arrange your affairs

In very specific circumstances, a Court might decide to give a director subject to a ban, leave in which to arrange their affairs, meaning that they could continue to operate as a director for a short period before disqualification.

Director Disqualification Order – conditions

The Court can also set out any conditions or exceptions on the disqualification order, such as specific circumstances in which a director is able to take on another managerial role (but not directorial) with a company.

In most cases, however, being given an order by the Court means that while a person is subject to a director disqualification order, they are not allowed to either influence the running of a company in any way or act in the capacity of a director, even if they are not formally appointed.

If you are subject to a disqualification order but you are unsure of exactly what this means for you, it is advisable to seek specialist legal advice to clarify your position. This is important as breaching your disqualification order can have serious consequences.

Worried about a Directors Disqualification Order? Contact us today

If you think that you might be at risk of a Director Disqualification Order, or want to know more about what being a Disqualified Director really means, contact our experienced team.

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