A director who fails to fulfil his legal requirements, submit annual accounts, pay the company's tax may be disqualified from acting as a director of a company in the UK (as well as foreign companies operating in the UK). Being disqualified as a director may have serious long-term repercussions and it may result in damaging your career and reputation. Thus, you should know exactly what director disqualification means and how it can affect you.
Disqualification occurs to a director when, while still trading, his business goes into insolvency. It can occur in many situations because of extreme and knowledgeable criminal behaviour. A disqualification can last from two to fifteen years and not only prevents a manager from operating or setting up a company, but also from taking on other positions of trust.
What do you mean by disqualification and who governs it?
For the duration of your disqualification term, you can not serve as a director or run a business. Moreover, even though you are not formally appointed as a director, you can not continue working as a director. The Business Director Disqualification Act 1986 (CDDA) is the key piece of legislation regulating disqualifications by the government.
Much of the cases of disqualification are due to business insolvency. If your business is reported to the Insolvency Service, either your business in general or you as its owner, they will open an investigation. As a company director, they can order the court to have you disqualified if you neglect your legal responsibilities. Companies Home, the Competition and Markets Authority (CMA), the courts or business insolvency lawyers are other organisations and bodies that may examine the conduct.
When you fail to fulfil your legal responsibilities, you can be disqualified from acting as a company director. Anyone can report a company director for being unfit by using the Complain about a limited company feature on the Gov.uk website.
Some examples of unfit actions are given below:
- Failure to pay any tax owed by the firm.
- Failure to file a declaration of confirmation or annual reports.
- Keep improper records of accounting or apply incorrect accounts to Companies House.
- Using the properties of the company for personal use.
- Failure to answer any requests from liquidators.
- Allowing a business to continue trading while it is insolvent.
If you are disqualified as a director, you are prohibited from acting in the role of a director for up to a maximum of fifteen years. You will have to step down from the management of your current company, and you will be barred from taking up the directorship of another UK limited company, becoming a partner in a UK limited partnership, or from becoming a director of an overseas company that has dealings in the UK. You will also be prohibited from forming, running or marketing a new company in any way, including ordering another person to act on your behalf in the management of a company. During your disqualification period, certain limitations may apply, and a suspension can prohibit you from taking on other positions of trust. It implies that you cannot sit on the board of a school, charity or police authority, or act as a pension trustee. You also cannot be registered as a social landlord, sit on a health or social care board and you may not be able to practice as a solicitor, barrister or accountant.
Breaching any of these disqualifications means you run the risk of a heavy fine or being sent to prison for up to two years.
How long does disqualification last?
The duration of your disqualification will mostly depend on the gravity of the offence and the individual facts of your case. Disqualification divides into one of three categories.
- Lower category offences: a disqualification lasts between two and five years. Lower category offences may include things like negligent or reckless conduct, it is usually categorized as a failure of judgment rather than an act carried out with criminal or malicious intent.
- Mid-tier offences: a disqualification period of between six and ten years. Offences are more extreme in this category, possibly impacting the public interest.
- The most serious offences: lead to a suspension of up to 15 years. In general, these cases are due to fraud, embezzlement or serious criminal activity carried out intentionally and for personal gain.
Can it affect a director once his disqualification period comes to an end?
Once he reaches the end of his disqualification period, his name and details will automatically be removed from the Companies House register. The register of Insolvency Service of disqualified directors only lists those who have been disqualified in the past three months, therefore his details will be removed once that time has elapsed.
Once his details have been removed from both registers, people cannot search out details of his disqualification through these channels. But in the digital age, people may still be able to search for details that are elsewhere in the public record, like online newspaper archives.