Director Receives an Additional 8 year Disqualification Period for Breach of Terms.
On 3 October 2016, the Insolvency Service reported that a company director, who was already serving a period of director disqualification, had been disqualified for a second time and given a further disqualification period of 8 years.
It was found that he had breached the terms of his existing disqualification ban.
This article looks at the details of this case and concludes that the extended disqualification could have been avoided if Permission to Continue to Act as a director had been applied for and obtained from the Court.
The Details of this Director Disqualification Case
The director, David Thompson, was initially disqualified for a period of 4 years, from 25 November 2013, arising out of his unfit conduct as a director of Interior Service Solutions Limited.
The ‘unfit conduct’ behind his first disqualification involved his allowing the company to trade to the ‘detriment of HMRC’ and not complying with the statutory obligations of the company to HMRC.
It was then discovered, following an investigation by the Insolvency Service, that Mr Thompson had been acting as a director of another company, Concept 9 Limited, which had been placed into Creditors Voluntary Liquidation.
Although he was not an appointed director of Concept 9 Limited, the evidence demonstrated that he was acting as if he was a director. His conduct included dealing with HMRC, signing cheques, being the main point of contact with the bank and generally controlling the company’s affairs.
The Insolvency Service were able to demonstrate that he was acting as a director whilst already disqualified. As a result, he was disqualified for a further 8 years from 6 September 2016.
The Insolvency Service Views Such Breaches Very Seriously
It is not surprising that Mr Thompson received a further significant director disqualification for this conduct. In the words of the Insolvency Service’s Robert Clarke, Group Leader of Insolvent Investigations North:
“Directors who ignore disqualification undertakings that they have previously given, and those who provide cover for them, to allow them to continue to run limited companies will be vigorously pursued by The insolvency Service. The length of the undertakings in this case sends a clear message to the business community that such actions will not be tolerated.”
Are there any options that Mr Thompson could have taken to avoid this second Disqualification?
The answer is yes – by his applying to the Court to obtain ‘permission to continue to act as a director’, despite his first disqualification.
We cannot comment on this particular case, of course, on whether Mr Thompson would have been successful in such an application. In our experience however, Permission to Act would likely have been granted by The Court, albeit subject to conditions, had an application been made.
How to apply for Permission to Act as a Director When Already Disqualified
There is a legal process to follow:
- Step 1 involves the preparation of evidence. This is a detailed process and needs to include affidavits and all supporting evidence.
- Step 2 requires a Claim Form to be completed, including a draft of the order, a list of proposed conditions and copies of the written evidence prepared in step 1.
- Step 3 involves serving the draft order, Application Notice and all evidence on the solicitors of the Secretary of State of Business and Finance a minimum of 3 days before the hearing is due.
- Step 4 is where negotiations take place between the parties.
- Step 5 is the hearing itself, where the case is presented to the Court by a Barrister
Breaching the Terms of a Director Disqualification is Criminal Conduct
Acting in breach of the terms of a Disqualification Order or Disqualification Undertaking is an imprisonable offence. Why take the risk?
It is conceivable that the Secretary of State, in a case like this, may well consider the commencement of Disqualification Compensation proceedings. Worrying times indeed for directors.
It is our experience that many directors who face disqualification, simply do not know of the option of applying to Court for Permission to Act, to allow them to move on with life. Raising awareness of this route forward for directors, within the professional advice community, is a ‘must happen’.
Contact us for help with a Permission to act as a Director Application
If you, or a client, have received a director disqualification and wish to apply for permission to continue to act as a director, please contact us or call us on 0121 200 7040 for a free of charge discussion. The sooner you contact us, the more likely it is we can help.