Director disqualification

One of the risks of being a director of an insolvent company which goes into liquidation or administration is director disqualification. Your conduct will be reviewed and, if it is considered seriously short of proper standards, the Insolvency Service (a Government department) may seek to impose a disqualification order. This prevents you from being a director of another company for anything between two and 15 years.

This applies to large companies (a third Carillion director has recently been disqualified for eight years) and small – it is the nature of the conduct which is important.

Director disqualification: What types of conduct really interest the Insolvency Service?

False accounting

One of the issues in the Carillion cases is making false or misleading statement in the company’s accounts (and market announcements). This gives a false impression of the state of the company, perhaps encouraging other parties to take risks of which they cannot be aware.

Taking money in advance for goods and services then not delivered

Especially taking money in advance from members of the public.

Wrongful or reckless trading

Carrying on trading and incurring losses funded by third party creditors when there was no realistic prospect of avoiding insolvent liquidation.

Using HMRC to fund the company by not paying over VAT or PAYE/NIC

This is even worse if the company is not providing returns to HMRC.

Specific transactional offences

Such as selling assets at less than fair value (especially to an associate) or paying off one creditor preferentially leaving less, or nothing, for others.

Failure to keep adequate financial records for the company

Seek advice to safeguard against director disqualification

One of the defences to criticism, and potential personal liability, is to take (and follow) professional advice.

We can help directors of companies that are facing insolvency by:

• Assisting in reviewing the financial position and prospects of the company
• Explaining the particular risks and exposures the directors may be facing
• Advising on options for the way ahead

This is what we call an options review which can help directors chart the optimal course for the company and allay concerns about director disqualification and personal risks.

If you have concerns about director disqualification or insolvency, do get in touch with a member of the business restructuring and insolvency team for an initial discussion.