Is It Automatic Directors Disqualified If Company Goes Into Liquidation?
When Are Directors Disqualified If Company Goes Into Liquidation?
Once a Liquidator is appointed, he or she acts instead of the Directors and by virtue of Section 103 of the Insolvency Act 1986, the Directors lose their powers.
Director Conduct Reporting Service
The Liquidator has a duty to obtain the company’s records and investigate the conduct of the Directors to enable the Liquidator to then be able to answer the Director Conduct Reporting Service Questionnaire.
What Is The Liquidator’s Questionnaire?
This Liquidator Questionnaire will be considered as part of the Insolvency Service investigations under the Company Directors Disqualification Act 1986 (“CDDA”).
How that Questionnaire is filled in by the Liquidator is important as that will trigger the Insolvency Service algorithm into action. The Insolvency Service will ‘sift in’ cases they think merit the following considerations:
1. Investigation.
2. Potential Director disqualification.
3. Criminal prosecutions (which typically apply to around 143 cases in a government reporting year).
Deemed ‘Unfitness’
A Director will not be banned for any amount of time from acting as a Director after Liquidation except if their conduct is deemed unfit.
Disqualification Undertaking
Directors should only be banned if their conduct is judged to have fallen below a standard that gives rise to deemed ‘unfitness’. More often than not Directors are disqualified by consent and this is known as a Disqualification Undertaking.
Disqualification Order
However, a Disqualification Order can arise when an allegation by the Insolvency Service of alleged unfitness is formally contested by the Director. Typically then the Court will make an Order for a period of disqualification if it is satisfied that the Insolvency Service has successfully made out a case of unfitness.
