Can I run a Company whilst disqualified ?
Any director who is subject to a Disqualification Order or who has entered into a disqualification undertaking cannot be a director of a company or either directly, or indirectly, be concerned or take part in the promotion, formation or management of a company unless he or she has leave of the court. If he does carry out any of these functions whilst disqualified, then he may have committed an offence under the Company Directors Disqualification Act and can be fined or put in prison for up to 2 years.
Can I work round the disqualification?
It is possible for a director who is subject to disqualification proceedings, to obtain permission from the court to continue to act as a director of another company. He can do so by making an application to court under section 17 of the Company Director's Disqualification Act.
At stevensdrake we act for directors making these types of Application. We advise on the information that needs to be put before the Court to consider the application.
The applicant will need to satisfy the court that permission should be granted to him or her. The application will usually relate only to one company and if permission is granted, then the director is likely to have to act subject to certain conditions and safeguards. The court will want to see, amongst other things :
- Details of the company of which it is proposed the person will be a director, such as copies of accounts of the new company, together with analysis of these accounts
- Details of the board structure and explanation of each director's responsibilities
...and most importantly, in respect of his role, an explanation of why it is necessary for that individual to be a director of the company. Necessity is the main factor looked at by the court.
What kind of safeguards need to be put in place?
Safeguards should be offered to the court with the aim of preventing repetition of the factors leading to the demise of the previous insolvent company and to ensure that the director does not breach any duties or responsibilities. Such safeguards might include:
- That the director shall not sign any cheques or financial agreements
- That the auditors will report to the board of directors on any matters of concern
- That the director shall not be granted or accept any security over the company's assets
What timing is involved?
Applications under section 17 should be made promptly to ensure that the director can work as a director at the new company. Often applications are made to be heard at the same time as the final disqualification hearing. If the company can "get by" without the person acting a director e.g. as an employee, this will prejudice an application to get permission, as it will raise the question whether the person needs to be a director at all. People who are not directors by name, but in realty are acting as directors, will be commit the offence of acting whilst disqualified, so this needs to be considered very carefully.
It is often the case that where an individual director has technical expertise or the ability to carry out a complicated sales/marketing function, then he may be more likely to be granted leave, than in a case where the director has more generic commercial experience. stevensdrake regularly advise on the merits and mechanics of such applications and circumstances where they will be successful.
Published - March 2011
This article is provided for general information only. Please do not make any decision on the basis of this article alone without taking specific advice from us. stevensdrake will only be responsible for the advice we give which is specific to you.
