Tuesday, 11 November 2014

Common Mistakes in Director Disqualification Claims - Trying to Deal with the Claim Yourself

Often with the best of intentions, directors will respond to enquiries from the Insolvency Service in the belief that their cooperation will help have the claim dropped against them.

What directors do not realise is that once enquiries are underway, the chances are that the Insolvency Service will carry on the claim unless cogent reasons are given to persuade them to drop the case. Often the initial enquiries seem innocuous and easy to answer. However, this is a standard approach and bluntly directors are often lulled in to a false sense of security and provide answers which are detrimental to their claim.

What is not often realised by directors is that any responses written by them without the benefit of legal advice can later be used against them as part of the evidence in a claim for their disqualification. It is very easy to say things and provide documents which you believe to be helpful but which in reality count against you. Taking early advice avoids these potential problems and can make the difference to the claim being dropped entirely without proceedings being issued.

Tuesday, 28 January 2014

At what period of disqualification does seeking permission become “impossible”?

There is nothing to stop a person trying to seek leave for any period of disqualification. However, the courts are extremely reluctant to grant permission to a person disqualified for anything over 8 years. Even at 8 years it was only with very stringent conditions attached and it was an unusual case.

It is more likely that permission will be granted for someone in the “lower bracket” of 2-5 years. If a person is being offered an “undertaking” for a period higher than that – he/she might want to consider trying to bring the period of disqualification down in to the lower bracket of 2-5 years as it will allow that person a far better chance if he/she later decides they want to be a director of a business. 

Does it matter how long a person has been disqualified for previously?

Bluntly – yes.  

The longer the period of the original disqualification, the harder it is to get leave. This is due to the fact that the court views a longer period of disqualification as more “serious”. Equally, granting leave for someone disqualified for a long period of time is seen as undermining the “deterrence” factor of the Company Director Disqualification Act 1986. 

Is there a requirement to demonstrate a “need” to be a director in the business when seeking permission?

The strict answer no, but it is something which the court will undoubtedly look at and it is true that the greater a person demonstrates a “need” to be in the business, the more helpful it is for that person’s prospects of success.  

We acted for a director in the case of Re Aitch Holdings Limited [2002] All ER (D) 236 when we successfully obtained leave for our client to remain a director for 17 separate companies in a single application. When giving Judgement, Justice Lloyd did comment on the obvious “need” for our client to remain a director of all 17 companies and the importance of it in the success of the application.

Can the court grant permission for a limited period only?

The answer is yes. It may do this because:

a. It wants to be convinced that the company can trade on a solvent basis in the future and thus allow permission for a short period of time to allow the person making the application time to convince the court that leave should then be granted for the entire period.

b. It might not be sure if the conditions can be complied with and wants the company to try to implement them and then come back to court.

c. It might just allow it to enable the applicant time to complete a single transaction which is important to the company.

Can the conditions in a person’s order for permission be varied at a later date?

Yes – so long as the original order is worded in such a way as to allow this.

However, the court is highly unlikely to allow retrospective variations even though the case authorities suggest it is a possibility.

Can a person remain a sole director of his / her business when seeking permission to remain a director pursuant to Section 17 of the Company Director Disqualification Act 1986?

The answer is no. 

The court will require a co-director of sufficient standing to be appointed – normally a qualified accountant or someone of similar standing. The longer the period of disqualification – the more qualified that person needs to be.