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Breach of Company Directors Disqualification Orders

Posted on 19 June 2018

Breach of Company Directors Disqualification Orders

The Sentencing Council has published guidelines on the sentences for noncompliance with court orders including failure to surrender to bail and breach of an order disqualifying a person from acting as a director. The new guidelines come into effect from 1 October 2018 and can be found on the Sentencing Council's website.

Company Directors Disqualification Orders

A disqualification order will prohibit an individual from acting as a director of a company, as a receiver of a company's property or in any way, whether directly or indirectly, be concerned or take part in the promotion, formation or management of a company unless he has the leave of the court.

An individual can be disqualified from holding a directorship for a variety of reasons, such as:

  1. as an additional order on conviction for a criminal offence in connection with the promotion formation management etc. of a company,
  2. where it appears that the director has engaged in fraudulent trading (regardless of whether or not the individual is prosecuted or convicted),
  3. for certain convictions abroad, or
  4. for breaches of competition law.

In certain circumstances it is possible to agree a disqualification undertaking without the need for there to be a formal court process.

It is a criminal offence to act in contravention of either a disqualification order or a disqualification undertaking and is punishable by up to two years imprisonment or an unlimited fine or both on conviction on indictment. Lower sentences apply if the case is heard in the magistrates' court.

New Sentencing Council Guidelines

The new guidelines assess two levels of culpability and three categories of harm to determine where on the sentencing range the case falls.

For the most serious cases, for example, those involving deliberate concealment of disqualification resulting in serious risk (or actual) financial loss to the company, then the Sentencing Council Guidelines indicate that the appropriate sentence would be a term of imprisonment.

Sentencing is not an exact science. Aggravating and mitigating factors will have an impact. Such factors may include motivation for personal gain, length of previous compliance (if any) and the duration the position was held for. Holding multiple directorships or receiving continued warnings will be looked upon less favourably by the court. A genuine misunderstanding of the terms of disqualification and making up for any loss caused is likely to be strong mitigation.

What conduct is covered by a Disqualification Order?

Disqualification goes much further than merely an inability to hold the title of statutory Director within a company – the order will prohibit the individual being involved in the "promotion, formation or management" of a company. Given the wide meaning of this statement, many acts may fall within it and could include paying or negotiating with suppliers or customers, hiring or firing employees, or dealing with the company bank account.

As there is scope for interpretation it is important for anyone faced by disqualification proceedings or the potential for being made the subject of an order to seek comprehensive legal advice.

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