Company Directors Disqualification Act 1986 Guide and Overview

The Company Directors Disqualification Act 1986 is a crucial piece of legislation that holds company directors accountable for their actions. It empowers the courts to disqualify directors who have acted in a way that is detrimental to their company or its creditors.

This act was introduced to prevent directors from taking advantage of their position for personal gain. The act allows the courts to disqualify directors who have been guilty of misconduct, such as trading while insolvent, failing to keep proper accounting records, or engaging in other forms of misconduct.

The act applies to all company directors, regardless of the size or type of company they are involved with. It's a powerful tool for protecting the interests of shareholders, creditors, and the wider business community.

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The disqualification process is a serious matter that requires a thorough understanding of the court's role and the liquidator's duties. The court process is adversarial, with the Secretary of State on one side and the defendant director on the other.

The insolvency practitioner liquidator acts as a witness in the case, but remains independent of both the director and the Secretary of State. It's the liquidator's duty to be fair and balanced in their affidavit to the court.

The liquidator must provide a comprehensive report to the DTI, outlining both the pros and cons of the director's conduct. This report is crucial in determining the director's fate.

Alternatively, a director can choose to agree to a disqualification order in negotiations with the Company Directors Disqualification Unit. This can save the director from the heavy cost of litigation.

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A disqualification order can be made against a person, specifying a period they're not allowed to be involved with a company in certain ways. This includes being a director, acting as a receiver, or being concerned in the promotion, formation, or management of a company, unless they have the court's permission.

The Secretary of State may also accept disqualification undertakings from certain individuals, which will have a similar effect to an order.

A disqualification order can last for a maximum of 15 years or a minimum of 2 years.

Here are the key details about disqualification orders:

If you're a company director, you need to know the consequences of being disqualified. A disqualification order can have serious effects on your personal and professional life.

Being subject to a disqualification order means you'll be disqualified from acting as a charity trustee without permission from the court or the Charity Commission for England and Wales. This restriction can limit your involvement in certain types of organizations.

You'll also be disqualified from being a school governor, which can impact your community involvement and leadership roles. Disqualification orders can have far-reaching consequences, affecting not just your business but also your personal life.

A disqualification order can also affect your membership in certain professional bodies. You may be required to notify the fact of such disqualification to the body in question, which can impact your professional reputation and networking opportunities.

Here are some examples of roles you may be disqualified from holding:

Additionally, you'll be listed in the Disqualified Director Database from the Insolvency Service, which can make it difficult to find new business opportunities or take on leadership roles in the future.

The Company Directors Disqualification Act 1986 has undergone several significant amendments since its inception. Effective 20 June 2003, the Enterprise Act 2002 added new sections to the Act, expanding the mandatory disqualification regime to cover specific breaches of competition law.

These breaches include agreements preventing, restricting, or distorting competition, as well as abuse of a dominant position. The factors for determining unfitness in these cases relate solely to behavior concerning the breach of competition law.

In March 2015, the Small Business, Enterprise and Employment Act 2015 received Royal Assent, introducing several key changes to the Act. On 1 October 2015, Part 9 of the 2015 Act came into force, amending the 1986 Act in several important ways.

The amendments introduced by the 2015 Act include the inclusion of relevant foreign offences as grounds for disqualification, and the extension of the regime to persons instructing unfit directors of insolvent companies. The procedure for determining the unfitness of directors and shadow directors was also revised.

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The 2015 Act requires official receivers, liquidators, administrators, and administrative receivers to report to the Secretary of State on the conduct of each person who was a director of a company on the insolvency date or within the three years before. This provision aims to ensure greater transparency and accountability in the administration of insolvent companies.

The amendments also provided for compensation orders and undertakings on persons who are subject to disqualification orders or undertakings, where the person's conduct as a director caused loss to one or more creditors during the time they were a director of an insolvent company.

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A disqualification order can be made against a company director by a court in various circumstances. The court shall make a disqualification order against a person in any case where it is satisfied that a company has become insolvent.

The court may also make a disqualification order where a person is convicted of an indictable offence in connection with the promotion, formation, management, liquidation or striking off of a company. The maximum period of the order is 15 years under ss. 2 and 4.

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In cases of persistent default in relation to company legislation, the court may also impose a disqualification order. The maximum period of the order is 5 years under ss. 3 and 5.

The court may also make an order for a period of up to 15 years where a person has participated in wrongful trading. The court has discretion in making disqualification orders, ensuring that justice is served in each case.

Here are the maximum periods for disqualification orders:

The court's decision to make a disqualification order is based on the specific circumstances of each case. The order is designed to protect the public and maintain the integrity of the business world.