After a company is liquidated the conduct of its directors is reviewed. Improper conduct could lead to director disqualification. This bars the individual from directorships in any company for up to 15 years.
- What conduct might lead to Director Disqualification?
- The affect of Director Disqualification
- Are you liable for company debt if disqualified?
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What conduct could lead to Director Disqualification?
If a company is Liquidated its directors will not automatically face disqualification. The majority of directors who have been involved with liquidated companies are not disqualified.
However there are various actions which if undertaken by directors could lead to disqualification. One of the main ones is allowing a company to trade while the Director knows or should know that it is insolvent. Disqualification is a risk where this has happened particularly if the position of creditors has been made worse.
If you have allowed the company to trade and ultimately this has made the position of the creditors better you would not risk disqualification. An example of this might be completing a significant order which the company is then able to invoice for.
Other examples of improper conduct which could result in disqualification include:
- Failure to keep proper accounting records
- Failure to prepare and file accounts or make returns to Companies House
- Failure to submit tax returns or pay over to HMRC tax or other money due
- Failure to co-operate with a Liquidator
What is the affect of Director Disqualification?
If you are disqualified you are not allowed to be a director of any company. This includes acting like a director. You are not allowed to be involved with the promotion, formation or management of a company or limited liability partnership. This is either directly or indirectly.
You can be an employee of a limited company. However you are not allowed to act as a shadow director. You cannot continue to run a company in all but name while someone else acts as the director.
You must abide by the restrictions of director disqualification for a specific period of time. This will be determined by the Court. It will range from 2 up to a maximum of 15 years.
Generally speaking the period of disqualification for first time and minor offences will be two years. If you are disqualified for a second time or found to be acting as a director during disqualification the period will be significantly extended.
Are Disqualified Directors liable for Company Debt?
It is rare for a disqualified director to be held liable for company debt. This would only be a risk if the director has willingly allowed the company to continue to trade while they knew it was insolvent. In addition more debt must have been incurred during this time.
It must also be proved that continued trading would have had no reasonable prospect of improving the position of the creditors. Proving this is very difficult. However if it is proved a Court may then hold the directors liable for company debt.
A director will not be held liable for all the company’s debt. They would only be liable for any additional debt incurred after they became aware that the company was insolvent.