fbpx

Director disqualifications in 2022

Sep 13, 2022

Director disqualification in respect of dissolved companies is not a new principle (in fact the key piece of legislation has been in force since 1986), but in 2022 there is certainly a greater risk of it arising as a result of the enactment of new legislation, the Rating (Coronavirus) and Director Disqualification (Dissolved Companies) Act 2021 (the Act).

The new act means that both directors and former directors of solvent companies that were dissolved are now at risk of disqualification. Previous legislation only covered insolvent companies.

This article summarises where this risk may arise, but if anything is learned, it is that directors should: (i) seek advice from a solicitor and an insolvency practitioner before proceeding with any insolvency procedure; and (ii) seek advice to ensure compliance with their directors’ duties at all times.

When did director disqualification previously arise in relation to dissolved companies?

Previously, courts would be under a duty to disqualify directors or former directors of an “insolvent” company where their conduct in respect of the company prior to its dissolution makes them unfit to be concerned with company management in the future.

This was a relatively wide scope for disqualification orders, but it solely related to companies that were legally insolvent. This is no longer the case.

The courts do not have discretion as to whether a director or former director will be disqualified. If a director or former director is deemed as unfit for company management by the court,  it will be duty bound to make a disqualification order.

What is the impact of the Act?

There are strict legal tests in place to determine whether a company is actually “insolvent”. The nature of these tests are beyond the scope of this article, but there have historically been a number of instances where companies have been dissolved without actually being insolvent.

To prevent directors avoiding scrutiny, the Act now states that the actions of directors and former directors may be subject to disqualification orders where a solvent company has been dissolved.

The Act has retrospective effect, so although it came into force on 15 February 2022, it covers companies that were dissolved in the past. However, there are certain limitations in that there is a requirement for the application for disqualification to be made within three years of a company being dissolved. Consequently, any director or former director of a solvent company that was dissolved in the last three years should seek legal advice.

What is the impact of director disqualification?

A director disqualification will prevent an individual from being involved in the promotion, formation or management of a company. However, the disqualified director will  still be able to be involved  with a business in a non-directorial capacity. A disqualified director should always take legal advice prior to engaging in a new venture.

Edward Beedham specialises in the legal and procedural aspects of corporate insolvency, including when there is a concern of director actions in insolvency. If you require advice on corporate insolvency, please contact Edward Beedham at edward.beedham@herrington-carmichael.com or on 01276 686 222.

This reflects the law at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought as appropriate in relation to your own particular matter before action is taken.
Edward Beedham

Edward Beedham

Solicitor, Corporate and Commercial
t:
 01276 854666
e: edward.beedham@herrington-carmichael.com

Latest Articles


 

PODCASTS

The Legal Room UK Podcast features a diverse range of specialists offering expertise on a variety of topics.
You can Subscribe on whatever podcast platform you use.

Top Legal Insights

 

Contract Law

Material Breach of Contract

What is a ‘material’ breach of contract by a party to a commercial contract? This is a critical issue regularly considered by the courts. What constitutes a material breach and what are the remedies?

Property Law

Commercial Lease: The Financial impact on Landlord and Tenant

Coronavirus (COVID-19) and the restrictions now in place to control its spread, are having a significant effect on many business sectors.

Divorce and Family Law

Divorce in Lockdown: Can I get some discreet legal advice?

We have spoken to clients who are unfortunately experiencing some family issues, and would like to obtain expert legal advice, yet don’t know how...

Land & Property Dispute

Restrictive Covenants – The Price of Modification

Having identified that your land is burdened by a restrictive covenant and for the purposes of this article the covenant in question will be that only one residential building can be erected on the land. What do you do next?

Wills, Trusts and Probate

Why is having a will so important?

It is entirely up to you if and when you want to create a Will, but it is important to be aware of the consequences of not having a Will.

Award winning legal advice

We are solicitors in Camberley, Wokingham and London. In 2019, Herrington Carmichael won ‘Property Law Firm of the Year’ at the Thames Valley Business Magazines Property Awards, ‘Best Medium Sized Business’ at the Surrey Heath Business Awards and we were named IR Global’s ‘Member of the Year’. We are ranked as a Leading Firm 2023 by Legal 500 and Alistair McArthur is ranked in Chambers 2022.

Camberley
Building 2  Watchmoor Park, Riverside Way, Camberley, Surrey  GU15 3YL
+44 (0)1276 686 222

Reading (Appointment only)
The Abbey, Abbey Gardens, Abbey Street, Reading RG1 3BA
+44 (0)1276 686 222

Ascot (Appointment only)
102, Berkshire House, 39-51 High Street, Ascot, Berkshire SL5 7HY
+44 (0)1344 623388

London (Appointment only)
60 St Martins Lane, Covent Garden, London WC2N 4JS
+44 (0)203 326 0317

Wokingham (Appointment only)
The Workstation Wokingham, Markham House, 20 Broad Street, Wokingham, RG40 1AH

+44 (0)118 977 4045

Email: info@herrington-carmichael.com

Our Services

Corporate Lawyers
Commercial Lawyers
Commercial Property Lawyers
Conveyancing Solicitors
Dispute Resolution Lawyers
Divorce & Family Lawyers
Employment Lawyers
Immigration Law Services
Private Wealth & Inheritance Lawyers
Startups & New Business Lawyers

© 2022 Herrington Carmichael LLP. Registered in England and Wales company number OC322293.

Herrington Carmichael is authorised and regulated by the Solicitors Regulation Authority with registration number 446245.

Pay Online

Privacy Policy   |   Legal Notices, T&Cs, Complaints Resolution   |   Cookies 
Client Feedback   |  Diversity Data