Fast Growth in Director Disqualification Undertakings, YTD, 2016/2017. Were all of them necessary?
The Insolvency Service has reported that 807 directors were disqualified in the first 8 months of 2016/17. Of this number, 684 were director disqualification undertakings. If the average number of undertakings per month, year to date, continues for the rest of the year, then we expect the total number of undertakings given to exceed 1,000 for the first time since 2013/2014. In this article we argue that many director disqualification undertakings were probably not necessary.
Why were Director Disqualification Undertakings Introduced?
A disqualification undertaking is where a director, having received notice from the Insolvency Service that they intend to start the disqualification process, voluntarily disqualifies him/herself, in order to end court action.
Disqualification undertakings were introduced in April 2001. Before this, all director disqualifications had to go through the Courts. One of the main reasons for the introduction of undertakings was to simplify the process for disqualifying directors. However, in our view, one of the outcomes has been that many directors are likely to have accepted a disqualification undertaking unnecessarily.
This is because the disqualification undertaking process means that directors are disqualified by agreement rather than with the scrutiny of the Court. Our concern is that there is a risk that under these circumstances, a disqualification is not made out on the facts of the case. This leads us to suspect that some of the high number of undertakings accepted this year might not have been necessary.
So What Would Happen if a Director Defended the Insolvency Service’s Accusation?
The alternative to accepting a disqualification undertaking is, of course, to disagree with the Insolvency Service’s allegation of unfit conduct and defend the case in court. Many directors choose not to do that fearing the cost and length of court action as well as an uncertain outcome.
However, in our experience, because the Insolvency Service is duty bound to look at all circumstances of a case, it will not pursue a case if it can be persuaded that it is not in the public interest to do so. In other words, director disqualification is not inevitable. Here are 10 reasons why you might consider talking to us.
The key is to be able to gather the important facts that will support the defence that the insolvency happened despite the best efforts of the director to avoid it, rather than the result of unfit conduct. As always, the devil is in the detail, and we operate on a case by case basis, with the objective of avoiding the disqualification completely or convincing the Insolvency Service to agree to a shorter disqualification period than they were pushing for.
Contact Us for help in defending a Director Disqualification
Much of the increase in Director Disqualifications is due to growing numbers of undertakings. We believe that scrutiny of all of the key facts of a case, and presenting them to the Insolvency Service in a structured way through the court can lead to a shorter period of disqualification or of the case being dropped.
At NPD, we are Director Disqualification experts, with long experience of working both against and with the Insolvency Service in such cases. Click here to see some client testimonials.
So, if you, or one of your clients, is facing director disqualification, contact us or call us on 0121 200 7040 for help and advice and a free initial discussion, because in our experience disqualification is not inevitable.