Applying for permission to be a director while disqualified

Applying for permission to be a director while disqualified

If you are a director who has become subject to a Court Disqualification Order or have agreed to a voluntary Disqualification Undertaking, understanding the restrictions that this places on you – what you can and cannot do as a result – is crucial to how you can or should proceed.

If you fail to comply with the restrictions, and are caught breaching them, then it could result in up to 2 years in prison and/or severe financial penalties – as this article sets out below.

While the Order or Undertaking is in effect, you are prevented from acting as a director of a company or limited liability partnership. You are also forbidden from participating in the formation, promotion, or management of a company or limited liability partnership without permission from the court. It is important that you appreciate that it what you actually do that counts so, simply altering your job title or description, will not allow you to sidestep these restrictions or avoid the implications if you are found to be acting in breach.

Additionally, the Order or Undertaking forbids you from directing a company through others, often referred to as acting as a “shadow director.” If you attempt to manage a company from behind the scenes, you may well be found to have breached the disqualification order and/or undertaking, and both you and those assisting you could face legal consequences for aiding in the breach.

In summary, your disqualification order or undertaking does not prevent you from being employed by a company. However, without you first obtaining the court's permission, you are prevented from:

1. Acting as a company director;
2. Being directly or indirectly involved in the promotion, formation, or management of a company;
3. Being appointed to act as a receiver of a company’s property; or
4. Serving as an insolvency practitioner in a liquidation, administration or other insolvency procedure.

Applying to the Court for “Permission to Act as a Director Despite Disqualification”

If you are disqualified as a director – then it may still be possible for you to be a director of a specific named company or companies during your disqualification, but you would have to apply to the court for permission to act as a director.

You need to use Section 17 of the Company Directors Disqualification Act 1986, as this provision allows you to apply and for the court to grant permission for a disqualified individual to continue acting as a director.

To succeed in obtaining permission from a judge (usually referred to as "leave"), you must demonstrate to the court, by providing sufficient evidence, that:

• granting you permission, in relation to this specific company, would not compromise the public interest, meaning you pose no risk of engaging in further unfit conduct; and
• there is a genuine necessity for you to be able to act as a director, of this specific company – this argument would need to be supported by substantial and persuasive evidence.

While your being able to prove that you have a "need" is not a strict legal requirement, courts are unlikely to grant permission without you being able to explain and evidence both clear and compelling reasons for the permission.

It is usually, in our experience, essential that the application must convince the judge why your continued involvement as a director, of that company, is essential.

Our team is here to guide you through the Section 17 application process, providing expert advice and practical support to maximize your chances of success.

A specialist in insolvency and restructuring work, Richard regularly advises on director disqualification cases. If you would like to discuss anything in this article, please contact Richard Ludlow on 020 8290 0440.