CH282210 - Director disqualification: Introduction

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Director disqualification is a legal process whereby an individual is disqualified, for a specified period between 2 and 15 years, from, without permission of the court:

  • becoming a director of a company
  • directly or indirectly being concerned or taking part in the promotion, formation or management of a company or a limited liability partnership

The disqualification is a result of the director failing to meet their legal responsibilities or misconduct.

Disqualification proceedings are a civil, not criminal, process and are carried out pursuant to the Company Directors Disqualification Act 1986 (CDDA 86) and governed by Practice Direction: Directors Disqualification Proceedings – Civil Procedure Rules. 

The CDDA 86 gives the Secretary of State (SoS) for Business and Trade through their Executive Agency, The Insolvency Service (INSS) or the Offical Receiver (OR) of INSS, the power to seek the disqualification of directors of insolvent, or dissolved companies. Insolvent companies are those that enter one of the following:

  • Compulsory Liquidation
  • Creditors Voluntary Liquidation
  • Administration
  • a Company Voluntary Arrangement

The SoS or OR has 3 years from the date of insolvency, or date of dissolution, to issue directors' disqualification proceedings at Court.

After an investigation has been completed by the INSS, disqualification proceedings will need to be authorised by the SoS, who will also set a disqualification tariff. This initiates the formal process, and a director can then offer a voluntary disqualification undertaking at any point thereafter, which the SoS can accept.

After an investigation has been completed by the INSS, disqulification proceedings will need to be authorised by the SoS. The SoS will also set a disqualification tariff. This initiates the formal process, and a director can then offer a voluntary disqualification undertaking at any point thereafter, which the SoS can accept.

The INSS normally give a slight reduction to the tariff for a voluntary undertaking. For the period 2 and a half to 5 years, the reduction is 6 months. For the period 6 to 15 years, the reduction is one year.

Should the matter not be settled via a voluntary undertaking, disqualification proceedings will be issued at Court and progress to either uncontested disposal, or a trial.

Should the matter go to uncontested disposal, or a trial, under section 6 of the CDDA 86, it is mandatory for the Court to impose a disqualification if it finds the following (there is no Judicial discretion):

  • the person was a director of the company (whether they were or were not registered – so disqualification encapsulates de facto directors and shadow directors)
  • the company was insolvent or dissolved
  • the director's conduct of the company (either taken alone or taken together with their conduct as a director of one or more other companies or overseas companies) makes them unfit to be concerned in the management of a company

Under section 6 CDDA 86 the minimum period of disqualification is 2 years, and the maximum period is 15 years either by voluntary undertaking, or by Court Order.

In the case of Sevenoaks Stationers (Retail) Ltd [1991] Ch 164, The Court of Appeal defined the brackets of director disqualification, as per Dillion LJ:

(i) the top bracket of disqualification for periods over 10 years should be reserved for particularly serious cases. These may include cases where a director who has already had one period of disqualification imposed on him falls to be disqualified yet again.  

(ii) the minimum bracket of 2 to 5 years’ disqualification should be applied where, though disqualification is mandatory, the case is, relatively, not very serious.  

(iii) the middle bracket of disqualification for from 6 to 10 years should apply for serious cases which do not merit the top category.

There are numerous types of misconduct that will be badged under the heading "Crown", which the SoS can pursue for disqualification.