Contractors' Questions: Will I be disqualified as a company director?

Contractor’s Question: I've been an IT contractor for over 20 years. But around 2008-09 my business hit hard times and in 2010 had to be wound up. After all the dust settled, I paid the receiver and also set up an arrangement to pay monthly in order to get things squared away.

But the receiver is now talking about disqualifying me as a director. I've explained that I work through an agency as a contractor and that they effectively require me to have a limited company. I’m extremely anxious that if I am disqualified, I will be forced out of being able to earn a living, as the company is my only means of making money and servicing my creditors. What can I do, and is it likely that I’ll be disqualified?

Expert’s Answer: Firstly, some background for you. The receiver has a duty under section 7(3) of the Company Directors Disqualification Act to submit reports about you as a director if they feel your conduct led to the company’s insolvency. They will usually err on the side of caution to avoid being criticised if it later transpires that you breached your duties as a company director, which may explain why there has been talk of disqualifying you.

Generally, if the winding up of the company was due to a downturn in the market and nothing else, then it is unlikely a disqualification order will be sought; there is no justification for spending that amount of time, money and effort where such action is clearly not in the public interest. If the receiver is happy with your current payment plan, then they are unlikely to seek an order against you, particularly if they are relying on the company to trade and where the outlook is positive.

The most relevant reasons for seeking a disqualification order (based on the information you have provided) are summarised below. You should be concerned if you believe any of them may apply to you:

  • Wrongful trading (where you have carried on trading when you knew or should have known insolvency was unavoidable);
  • Your conduct suggests you are unfit to act as a director (Schedule 1 of the Act lists matters taken into account); or
  • General misconduct (e.g. a conviction relating to how you ran the company or persistent failure to file documents at Companies House).

If you believe you have done nothing wrong and an order is sought then it will be vital to get legal advice as soon as possible. For now though, it may be worth speaking with the receiver to gauge how likely they are to apply for a disqualification order.

If you believe your conduct would justify an order being made against you then you could give an undertaking (a legally-binding promise) and voluntarily place your name on the register of disqualified directors. This will save time and money and the disqualification period is likely to be shorter. But this is a last resort, worth considering only as a damage limitation method.

The expert was Aasim Durrani, a solicitor at Lawdit Solicitors.

Editor’s Note: Further Reading –

Upton’s 14-year ban too lenient, say contractor accountants

Contractors’ Questions: Is a company striking-off request bad if I’m unpaid?

Thursday 12th December 2013