Company Directors Disqualification Act 1986
Directors, whether of a limited company or otherwise, face responsibility to promote the company in the interests of its members. Once the company finds itself in financial difficulty the directors have the same responsibility to the creditors. Should the company enter insolvent liquidation, receivership or administration the office holder will be required to submit a conduct report on the directors (or anyone that has been a director in the prior three years). An adverse report could result in a director being disqualified from acting as a director for up to 15 years. In addition to the conduct report that must be submitted the directors could face civil and criminal liabilities for wrongdoing. A summary of the potential liabilities is below:
|Misfeasance||Fraudulent Trading||Wrongful Trading|
|Who can be liable?||Officers of the company- officers include “any director, manager or secretary” Any person concerned in the promotion, formation or management of the company||Any person knowingly a party to fraud||DirectorsIncludes shadow directors “a person in accordance with whose directions or instructions the directors are accustomed to act” “Director” Includes a “de facto” director – i.e. a person who while not registered at Companies House performs the functions of a director|
|Liable for what?||1) Guilty of any misfeasance, breach of fiduciary or other dutyor(2) has misapplied or retained or become accountable for any money or property of the company||(1) Carrying on business with intent to defraud or (2) For any fraudulent purpose||(1) The company has gone into insolvent liquidation and (2) the director(s) knew or ought to have concluded that the company would not avoid going into insolvent liquidation and (3) the director(s) did not take every step to minimise the creditors losses|
|Potential liability?||Breach of duty by directors will include (1) Failure to promote the success of the company in the interests of members (and once the company insolvent the creditors) (s172 CA’06)(2) Failure to exercise reasonable skill care and diligence (s.174 CA’06) (3) breach of the duty to avoid conflict of interests (s175 CA’06) (4) breach of the duty to pay dividends only from profits available for the purpose (s830 CA’06)||(1) defendant had actual knowledge of insolvency and (2) continued to take monies from customers knowing those customers would never receive the goods or services contracted for||The standard required of the director (1) the general knowledge skill and experience that can reasonably be expected of a person carrying out those functions (2) and the general knowledge skill and experience the director actually has|
|Result?||(1) civil liability to repay restore or account for the money or property(2) and/or to contribute to the company’s assets by way of compensation||(1) civil liability as with wrongful trading(2) Criminal liability (s993 CA’06). Maximum prison term of 10 years. (3) Grounds for disqualification (s4 CDDA ’86)||(1) Civil liability – the court may declare that the director is liable to make such contribution to the company’s assets as the court thinks proper (2) The liability equals the amount by which the company’s assets are depleted by the directors conduct (3) Grounds for disqualification (s10 CDDA ‘86)|
Any directors concerned should seek advice NOW. In addition to general advice to directors on insolvency and the options available we can act as an expert witness. Call us on 01932 336149.