Contractors' Questions: Can a dodgy director change his name to bypass a company ban?
Contractor’s Question: If a rogue company director changed his (or her) individual name or surname, could they bypass the ‘managing, forming or promoting’ ban which the Insolvency Service typically imposes on such dodgy directors?
Expert’s Answer: As you and other contractors should know, there is an online form here for reporting instances where an individual who is disqualified by virtue of a disqualification order/undertaking or being an undischarged bankrupt is acting in the managing, promotion or formation of a company.
Reporting a director flouting a directorship ban
There is of course, a distinct possibility that the above form is not known about or circulated enough and actually, I would wager that most members of the public are totally unaware of this reporting mechanism. People are even less likely to realise that the online form appears to be a replacement of the previous rogue director reporting ‘hotline’ (which was in fact just a voice mailbox).
If you were to decide to go on a crusade to unmask a rogue director you suspect to be flouting an Insolvency Service order, it would require you to check both the register of disqualifications and the individual insolvency register and cross-reference the information with Companies House before submitting reports – if you find a match.
Nothing to stop even the same-named
As anyone who regularly reviews Companies House will know, it is common for one individual to have several entries on a record, particularly where middle names either are, or are not, used for different company appointments.
Perhaps for this reason, the sad fact is this. There is broadly nothing in place which would stop a person who is disqualified from registering a company with the Registrar of Companies in the ordinary way, regardless of whether they do so with a change to their name.
Admission, agents and altering your name
Be aware, during a BBC Panorama documentary in 2018, the Accountant in Bankruptcy for Scotland admitted that there is nobody proactively monitoring breaches of Bankruptcy Restrictions. Ironically, if company formation agents are used, a disqualification should be picked up as part of their take-on checks, but there are no such checks when dealing with Companies House direct.
Clearly where an individual does alter their name, tracing a breach of a disqualification would be more difficult using the tools available to the general public. But the reality is that many do not bother even taking the step of renaming to avoid detection.
Does this mean dodgy directors can simply ignore a ban?
Goodness me, no! While the monitoring of disqualifications is perhaps more lacking than many would think (or like), the consequences of breaching a disqualification are very serious.
In one example in 2014, a director breaching a disqualification undertaking was handed a suspended prison sentence, 200 hours unpaid work and a confiscation order of £200,000.
In addition to the criminal aspect, a director acting in breach of a disqualification can be personally liable for debts incurred by a company. This makes sense, as disqualification is effectively a declaration that a person ought not to be entitled to benefit from the limited liability that a company usually provides.
Getting someone else to act as a director while you’re banned: the risks
It is worth noting that disqualification is not just from being a director, but from forming or promoting a company.
It is perfectly possible for someone to be determined to be a director based on facts (a de-facto director) such as by being a signatory on a company account. If this is the case, a person would be breaching their disqualification even if they are not registered as a director.
In addition, remember that a disqualified company director is also banned from directing someone else to act on their instructions or directing a company by proxy. This would be referred to as them being a ‘shadow director’ (hiding in the shadows, pulling the strings). It can result in prosecution not only for the disqualified director but also for the third party who acts on their direction.
There is a further risk that the third party could incur personal liability for company debts by getting involved in company affairs in this way -- just as the disqualified individual would be.
What steps should disqualified directors take to restart trading, legitimately?
Director disqualification is a complex area, and anyone facing such proceedings should take legal advice. If a person who is bankrupt or serving a disqualification intends to setup a business, likewise, they should take legal advice.
There are many solicitors who specialise in director disqualification, and they can assist in applying to court for permission to act as a director despite the ban. This usually involves making disclosure to the court as to the company over which they are to be appointed, an explanation of the circumstances and why they should be allowed to act. These applications are not uncommon and while there will be a cost implication, the consequences of being found to have breached a disqualification would be far worse.
The expert was Gareth Wilcox, partner at Opus Restructuring & Insolvency.