Company Directors Disqualification Proceedings
A disqualification order is not a method of punishing a director for a company’s failure, but a means of preventing unscrupulous persons from being involved in the management of companies.
A Disqualification Order will prohibit the person concerned from:
- Being a Director of a company; or
- Being a liquidator of a company; or
- Being a receiver or manager of a company’s property;
- Or being in any way, whether directly or indirectly, concerned the promotion, formation or management of a company
Breach of a Disqualification Order is a criminal offence and any individual who acts in breach is liable to be prosecuted; the offence carries a maximum of two years imprisonment and/or a fine. A Director can also be made personally liable for the debt of the company concerned.
Is it criminal or civil?
The criminal Courts have powers to disqualify directors under section 2 CDDA – disqualification on conviction of indictable offences, and section 5 – disqualification on summary convictions.
However, in practice most disqualifications are made in the Civil Courts.
How are proceedings commenced?
When a company is placed into either voluntary liquidation, administration or administrative receivership, the appointed Insolvency Practitioner, is required to submit a Report on the conduct of the company directors.
The vetting section of the ‘Enforcement Directorate of the Insolvency Service’ examines the report. If it is considers that it is in the public interest to prepare disqualification proceedings against the company directors, the case is referred to the ‘Disqualification Unit of the Enforcement Directorate of the Insolvency Service’. The Disqualification Unit then undertakes the investigation and preparation of disqualification proceedings.
Penalties?
The disqualification period obtained against company directors can vary from a minimum of two years to a maximum of fifteen years.
The limitation period to issue disqualification proceedings is two years from the date when the company was placed in liquidation, administrative receivership or administration.
Can the action be defended?
Yes, just because a company has gone into liquidation, it does not always follow that the director is completely at fault and should be disqualified.
The DTI are required to demonstrate that a director was negligent, incompetent and acted improperly. A commercial misjudgement is not sufficient to bring an action.
We are experienced in assisting company directors facing disqualification, arguing for example, that a company became involved in horrendously complicated litigation which impacted adversely on cash flow, or that the industry in which the company was involved took a dramatic decline which affected the company’s profitability.
We can also assist in promoting your best mitigation:
- highlighting general good character, which may be relevant to the period of disqualification;
- emphasising an absence of dishonesty, which ensures that a disqualification in the top bracket of ten to fifteen years is unlikely to be ordered;
- outlining losses suffered by the director himself as a result of the matters under consideration ;
- highlighting that a business may have failed due to factors outside of the director’s control such as the business climate inducing false optimism;
- demonstrating a reliance on the professional advice of others;
- establishing that the delay in bring disqualification proceedings has effectively resulted in a ‘de facto disqualification’;
- emphasising, where relevant, the director’s youth and inexperience;
- arguing that a director is unlikely to re-offend due to ill health, which may result in the discontinuation of disqualification proceedings or a shorter disqualification period being imposed;
- contending that a director’s abilities to perform the function expected of a director have been compromised due to other commitments, such as caring for a terminally ill relative or domestic pressure; emphasising the director’s co-operation with the office-holder and those involved in disqualification proceedings, demonstrating an admission of responsibility.