When a company director’s conduct is deemed unfit, the consequences can be severe. Disqualifying a director is a legal measure that prohibits directors from engaging in certain activities, and the grounds for disqualification are diverse.
Grounds for Disqualification:
Under the Company Directors Disqualification Act 1986, directors can face disqualification if they are found guilty of ‘unfit conduct.’ Moreover, the range of behaviours that can be classed as ‘unfit’ is broad and includes actions such as:
- Fraud
- Trading while insolvent
- Failure to assist an appointed Insolvency Practitioner
- Allowing a company to continue trading without the ability to pay its debts
- Failure to maintain proper accounting records
- Neglecting to submit company accounts and returns to Companies House.
- Additionally, non-payment of taxes owed by the company or personal benefit from company funds can also lead to disqualification.
Common Grounds for Disqualification Claims:
The most common ground for director’s disqualification claims is that a director has caused or permitted a company to trade to the detriment of HMRC (or a general body of creditors).
The court typically looks for evidence of a discriminatory practice, such as withholding payments to certain creditors while fulfilling obligations to others. Establishing a deliberate policy of non-payment prompts the court to assess whether the director has fallen below the standards of competence expected of those fit to be company directors.
Duration of Disqualification:
Directors can be disqualified for a period ranging from two to 15 years. During this time, they are legally prohibited from becoming a director or participating in the formation, marketing, or running of a limited company. This restriction aims to safeguard the interests of stakeholders and maintain the integrity of the business ecosystem.
The grounds for disqualification are diverse, ranging from financial mismanagement to fraudulent activities. Directors must be vigilant in adhering to legal obligations, maintaining proper records, and ensuring fair treatment of all creditors. If you are a director facing disqualification, it is imperative to get professional advice. Get in touch with us now at info@iladvisory.co.uk or call us on 020 7692 8456.