The Secretary of State can take disqualification proceedings under the Company Directors Disqualification Act 1986 (CDDA), aimed at preventing a former director (who is alleged to have acted in a manner in contravention of his fiduciary duties, which includes wrongful trading, to the company or its creditors) from being able to act as a director of a limited company for a period up to 15 years.
Some examples of conduct which may lead to directors disqualification proceedings include:
- Continuing to trade to the detriment of creditors at a time when the company was insolvent
- Failing to keep proper accounting records
- Failure to prepare and file accounts or make returns to the Companies House
- Failure to submit tax returns or pay over to the Crown tax or other money due
- Excessive salaries or drawings when the company was insolvent
- Writing company cheques knowing they will be dishonoured
- Directors allowing the company to use a prohibited name
- Failing to co-operate with liquidator or administrator of the company
The Insolvency Service considers the specific involvement of each director when considering prosecutions. Directors who fail to react to misconduct by fellow directors and those who take no part in the management of the company are also liable to prosecution. It is not permissible to claim you were a passive bystander while other directors ran the company.
A disqualification order does not prevent you from taking a job with the company, or from operating as a sole trader. The main issue is not to behave as though you are a director if you take an employed position within a company, or ask others to act on your behalf.
Fulfilling management roles such as hiring staff, controlling the company bank account or taking what might be regarded as executive decisions, may all be seen as breaching the disqualification order or undertaking.
Specific advice should be obtained before taking action, or refraining from taking action, on any of the issues covered above.
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