What happens when an individual is faced with director disqualification Proceedings?

News
07 Jun 2009

The Company Directors Disqualification (Northern Ireland) Order 2002 (hereafter “The Order”) is largely similar to that of the Company Directors Disqualification Act 1986 within the jurisdiction of England and Wales. Notably it has taken some time for this jurisdiction to adopt this piece of legislation, and to a certain extent, it remains in its infancy. Therefore, only a limited number of solicitors within Northern Ireland have practical experience in this area of the law.

The Order provides for the disqualification of a director in various circumstances including for example where a director

(a) fails in their duty to file the Annual Returns and Accounts etc with the Companies Registry,

(b) has knowingly continued business when insolvent or been a party to the winding up of the company with the intent to defraud.

The recent “Good Times” in Northern Ireland encouraged the growth of companies and the birth of new companies, resulting in the appointment of many new company directors. The directors of a company have the responsibility for ensuring the company complies with the Articles of Association, the Companies Acts, and the requirements of HM Revenue & Customs.

It is a relatively straight forward administrative exercise to appoint a company director. A director’s duties, many of which are onerous, are detailed in the Companies Act 2006 (sections 170 - 177). It is often in failing to satisfy these duties which can lead to a director falling into difficulties.

In the event that a company has found itself in financial difficulty and is undergoing either voluntary liquidation or a winding up order, the Department of Enterprise Trade and Investment (DETI) may exercise its discretion to investigate the company and the actions of its directors. Such a DETI investigation will pay particular attention to financial liabilities and those creditors which cannot be paid, and to whether the actions of the company directors could and should have prevented same. Public interest is paramount in the DETI’s investigations.

Such an investigation may result in a company director becoming aware that potential disqualification is being considered. A director in this position is strongly advised to seek legal advice sooner rather than later. The Order empowers the Court to disqualify an individual for a period of 2 to 15 years from holding the position of company director. This will have a seriously detrimental effect for any individual in commercial terms, in particular in relation to future dealings with financial institutions. Once the DETI have completed an investigation of a directors actions, proceedings may be issued against that individual making allegations of unfit conduct.

Pursuant to the principles established in the English Court of Appeal case of Re Sevenoaks Stationers Ltd, as confirmed in Re Westmid Packaging Ltd, a period of disqualification is divided into three separate bands, namely:

(a) a period of between 2-5 years for cases involving negligent or inadvertent conduct;

(b) 6-10 years for cases involving an element of self-serving conduct, as a result of which the disqualified individual has benefited personally; and

(c) 10-15 years in respect of cases where an individual has been previously disqualified, or for cases bordering on fraud.

Harrisons Solicitors can assist with:

  • Advice when a director is concerned at the course an investigation is taking.
  • Defending any allegations made.
  • Entering into negotiations with the DETI on a client’s behalf to dispose of the case by way of an agreed undertaking, thus preventing the need to go to Court.
  • Making an application to the Court for leave to continue to act as a director where it is necessary to do so.

Clients who have concerns about director disqualification proceedings, please contact our Insolvency Department.