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Essential Director Disqualification Information

5 Helpful Facts for Directors Facing Director Disqualification

By: Neil Davies, Solicitor and Director at NDP Solicitors and Advisory Editor to the leading text on Director Disqualification law and practice, ‘Mithani: Directors’ Disqualification.’

Overview: Director Disqualification is likely to continue to increase

Here at NDP, we specialise in helping and advising Directors in relation to Director Disqualification Investigations (‘DDI’) and Director Disqualification Proceedings (‘DDP’) brought against them by the Insolvency Service. We work hard to maintain our reputation as the best and most experienced Solicitors in the UK, in this field of work.  Our focus is always on achieving the best outcome for the Director client.

If you are a Director and are facing a DDI or DDP, here are 5 facts to help you deal with the situation.

Contact us if you are facing a DDI or DDP and are in need of help and advice from our experienced team of Director Disqualification Solicitor Specialists.  The Insolvency Service do regularly withdraw and abandon cases when persuaded there is no case to answer – click here to see some of our testimonials.  The key is knowing how best to achieve that.  That is where NDP can and does help.

1. Crown Debt and other allegations of ‘Unfit Conduct’: The Insolvency Service believes that there is a significant public interest in pursuing directors involved in Crown Debt cases.

We monitor carefully the reasons relied upon by the Insolvency Service to seek Director Disqualification, on a case-by-case basis. Crown Debt cases (i.e. where HMRC is owed money at liquidation) figure prominently and remain the most common source of allegation of Unfit Conduct relied upon by the Insolvency Service in seeking Director Disqualifications.  It often manifests itself as an allegation against the Director of ‘trading to the detriment of the Crown’ or ‘improper retention and use of Crown money’.

The Insolvency Service is red hot in identifying and pursuing cases where there is significant Crown Debt at liquidation. There is much the Director can do before and after liquidation, to deal with such allegations of Unfit Conduct by the Insolvency Service.

2. Other common allegations of Unfit Conduct that the Insolvency Service regularly investigate

  • Improper Bounce Back Loan (‘BBL’) applications and/or misuse of such funds.

This is currently a political hot potato, with every liquidation featuring a BBL being subject to investigation.  Director Disqualification is not however inevitable, in such cases.

Such investigations often also result in Director Disqualification Compensation claims against Directors.  

The Government has recently set up the Taxpayer Protection Taskforce to deal with Covid fraud and address specifically, the suspected £4.9 billion of fraudulently obtained BBL’s.  Coupled with furlough fraud and PPE fraud that number is expected to top £15.7 billion.

  • Failure to maintain and/or preserve and/or deliver up adequate books and records of the company to its Liquidator.

This Unfit Conduct allegation also includes elements of Criminal Law conduct, potentially attracting a sentence of imprisonment.  Great care needs to be taken in dealing with this allegation.

The High Court has recently confirmed that such an allegation will be made out if the Director under attack provides no reasonable explanation as to why the records delivered to the Liquidator or Insolvency Service did not include all the accounting records that the company should have kept (Judge Mithani QC in Secretary of State v Rajgar [2021] EWHC 1239).

Even a single allegation of failure to keep, maintain, preserve or deliver up accounting records or failure to keep books written up for a short period of time is sufficient for a finding of ‘Unfit Conduct’ to be made against a Director, particularly if it seriously impedes the Liquidator from ascertaining the true state of affairs of a company.

  • Preference payments to connected creditors.

A number of allegations of Unfit Conduct may also attract Criminal Law consequences (to include imprisonment).  Great care needs to be taken in dealing with and responding to such allegations.

  • Excessive remuneration and undue benefits.

The question here is not whether the Director needed to draw that much, rather whether the package was out of proportion to the company’s then financial health.

  • Improper use of customer deposits.

This remains a ‘red flag’ offence for the Insolvency Service to investigate and pursue.

  • Failure to exercise proper control over the affairs of the company.

This is an allegation of ‘Unfit Conduct’ that we are seeing more commonly.

  • Dishonesty/fraud/serious want or probity.

This type of behaviour will always attract the attention of the Insolvency Service.


The objective of the Director must always be to persuade the Insolvency Service that it is ‘not expedient in the public interest’ (the legal test) to carry on with a DDI or DDP.  That is where NDP comes in.  When the message is properly communicated, the Insolvency Service will and does abandon DDI and DDP. as these testimonials show.

 It is vitally important to remember that the making of an ‘Unfit Conduct’ allegation is only the beginning of the story.  A consideration of all of the circumstances of the case must follow, to give proper context to what has gone before.

3. Parallel investigations by the Liquidator of the failed company.

It is common to see a DDI carried on by the Insolvency Service in parallel with an investigation into the Director’s conduct by the company Liquidator.  The following points are crucially important here:

  • The DDI will have commenced, based on a mandatory report from the Liquidator to the Insolvency Service on the conduct of all Directors (current and recent past).  It should not thus come as any surprise, to discover that the company’s Liquidator may also be pursuing and investigating conduct issues in relation to the Director.  Here at NDP, we are well used to also representing Directors faced with parallel recovery action from Liquidators.
  • The Liquidator and the Insolvency Service may well be investigating the same factual Director conduct issues, but the remedies they seek against the Director are very different.  The Insolvency Service acts in the Public Interest to take delinquent Directors out of the system by seeking their disqualification.  The end game of the Liquidator on the other hand, is to seek a financial recovery from the Director personally, alleging (for example) Misfeasance by the Director (i.e. misapplication of company money or property) or breach of Statutory Duty by the Director. 
  • Both investigations need to be considered together, to ensure consistency of response by the Director and, where possible, parallel outcomes.  Persuading the Insolvency Service to abandon a DDI can be especially important in such cases.
  • Often, the Director may not even initially know at the outset of the Liquidator’s parallel investigation.   Care needs to be taken by the Director to ensure he/she is alive to and takes such matters into account, from the beginning.

4. Directors always have options.  Which option to follow will be apparent once a full review of the case has taken place with the Director.

The options include:

Section 16 Letter

  • The Director will always receive a Letter Before Action if Director Disqualification is contemplated (the Section 16 Letter) inviting the Director to meet the Insolvency Service or make written representations, as to why the Director should not be disqualified, in all the circumstances of the case.  The well-advised Director will use this window of opportunity to make detailed written representations to the Insolvency Service as to why Director Disqualification is ‘not expedient in the Public Interest’. Investigating ‘the full circumstances of the case’ is vitally important.  Only the Director will truly know what has gone before.  He/she lived the history of the company.
  • Enter into a voluntary Director Disqualification Undertaking, to avoid Court proceedings.  The terms of the Undertaking and the length of the disqualification period are matters for negotiations with the Insolvency Service.  A lower period of disqualification can be the difference between obtaining (or not obtaining) Permission to Act in the future (see below), despite disqualification.
  • Defend the claim.  If this route is followed, then that means the Insolvency Service has rejected the Director’s written representations (as to why the Director should not be disqualified).  Directors who choose to defend Court proceedings must do so ‘with eyes wide open’ as to costs and wider risks consequences of litigating.  The Insolvency Service do get it wrong.   The Insolvency Services does continuously review its decision to pursue cases through the Courts and where (for example) the Director puts forward new/further evidence, it does in appropriate cases abandon its Court claim.

Apply to the Court for Permission to Act

  • Permission application by Director.  Notwithstanding Director Disqualification, if a ban is imposed/agreed to for 7 years or less (as a rough rule of thumb), then application to continue as a Director of another company can be given by the Court, albeit subject to conditions (it is more difficult to obtain Permission, as the period of Director Disqualification increases).   We have experience and have enjoyed success in bringing a number of Permission to Act applications.

Meet with the Insolvency Service

  • Such face-to-face meetings with the Insolvency Service can be beneficial, in allowing the Insolvency Service to get a better appreciation of the Director and his or her history of events.
  • It is important that the Director uses that meeting to his/her very best advantage.   That inevitably means taking an experienced Solicitor to such meetings.  We are well experienced in dealing with such meetings.

5.  Compensation Orders

This is a much under used power available to the Insolvency Service.   It has had new life breathed into it by the Insolvency Service in relation to Bounce Back Loans (‘BBL’). 

The Court can make a Compensation Order where:

  • The Director is subject a Disqualification Order or Disqualification Undertaking;


  • The conduct for which the Director is subject to the Order or Undertaking, has caused loss to one or more creditors of an insolvent company of which the Director was a Director.

Such compensation applications need to be carefully considered on a case-by-case basis. They can only, however, bite once a director is subject to a disqualification ban.

Summary for when facing Director Disqualification

The well-advised Director will:

  • Take specialist legal advice early, in response to a DDI letter from the Insolvency Service or its Solicitors.  It is however never too late to seek specialist advice.
  • Be comfortable with the proposed legal advisors, before engaging with them.  People deal with people.   We offer a free of charge chat for that very reason.  A discussion with us, after consideration of the DDI letter or DDP the Director has received, will inevitably help.
  • The Director should learn and understand his/her options, so that informed decisions can be made.


  • Assimilate all relevant documents at the earliest point.  This is vitally important. Depending on the allegation of Unfit Conduct made, that will include email traffic (for example with Accountants, creditors, Lawyers, HMRC, co-Directors) and may include obtaining Witness Statements from third parties, to support the position of the Director.  The written representations to the Insolvency Service are always most persuasive when supported by documents and/or Witness Statements.

Please contact us or call us today for a free no obligation/no pressure initial chat on 0121 200 7040, or why not email a copy of a letter you may have received from the Insolvency Service to law@ndandp.co.uk.