Directors beware !

Are you at risk of being disqualified as a Director?

One of the potential outcomes following the insolvency of your Company is that you may be at risk disqualification from being a Company Director.  This will obviously have serious consequences for you and this article looks at one the routes open to you to best deal with this situation.

The Introduction of the Directors Disqualification Undertaking

In the past disqualification required a formal Court hearing even if the Director was prepared to accept the disqualification.  To overcome this weakness in the legislation, which inevitably added significantly to the process, the time involved and its costs, a new piece of legislation, the Director Disqualification Undertaking (DDU) was introduced as part of the Insolvency Act 2000.

Before going any further with this overview two important points need to be made about this article:

1. The contents does not constitute legal advice and if a directors disqualification is a possibility for you then you must contact an experienced insolvency practitioner as a matter of urgency as the earlier you address it the better the outcome.
2. Only considers a DDU in the situation where director disqualification proceedings are proposed following the insolvency of a company.

What is a Director Disqualification Undertaking (DDU)?

A director disqualification undertaking is a relatively brief and straightforward document in which the Director admits to being unfit to be a company director for a specified period of time.

• First Page
  • The length of the disqualification
  • The restrictions on the activities of the Director during this period
  • Director’s signature
  • A box for the Secretary of State to countersign
• Second Page – Schedule of Unfitness
  • A list of the reasons why the person is deemed to be unfit to be a company director

If this schedule contains wording that would make becoming a director again in the future problematic, it is possible but difficult to have this changed by the Court dealing with the DDU.

How does a DDU work?

In the case of insolvency, Director Disqualification undertakings are only available where director disqualification proceedings are proposed.  Usually the Secretary of State (or its lawyers) will write to an individual whom they believe should be disqualified giving them the choice of accepting a voluntary director disqualification undertaking instead of dealing with the matter by issuing formal legal proceedings.

A  DDU will be offered when:

• The conduct of the director in the management of an insolvent company is considered by the Secretary of State to make him unfit to be concerned in the management of a company.
• It is in the “public interest” that he should accept a Director Disqualification Undertaking instead of applying or proceeding with an application for a formal Director Disqualification Order.

The Secretary of State will nearly always accept a voluntary director disqualification undertaking if one is offered because it is in the public interest to limit the risk of Court proceedings and the legal costs involved.  Very occasionally there may be a reason why the Secretary of State will decide that the case needs to be dealt with by the Courts.

What are the consequences of a DDU?

Once a DDU is in place it means that the person to whom it relates cannot;

• Be a director of a company
• Act as a receiver of a company’s property or in any way, whether directly or indirectly
• Be concerned or take part in the promotion, formation or management of a company unless (in each case) he has permission of the Court, and
• Act as an insolvency practitioner.

The length of time of the disqualification will depend upon how serious the offences listed in the schedule of unfitness are considered to be. There are three bands known as brackets:

• 2-5 years – lower bracket
• 6-10 years – middle bracket
• 11-15 years – higher bracket

In dealing with this matter negotiation over the bracket being considered is clearly important in minimising the length of the disqualification.

Next Steps

There are also potential more serious ramifications of signing a DDU not raised here so if you are in a position where it might apply to you then call us for an initial chat on on 0330 236 9930, 0330 236 9938 and 07961 116321 or if you or have any questions about this topic then please email me at vee@navigatebr.com.

This article is only intended to give you some idea of what is involved with, and the consequences of, a Directors Disqualification Undertaking.  As with all things connected with insolvency the detail is very complicated and with the right help there is much that can be done to achieve the best possible outcome so long as the issues are addressed early.