Insolvency proceedings put your conduct as a company director under the spotlight. If the Insolvency Service believes you are unfit to act, it will move to disqualify you. In this article, we look at why director conduct is investigated, the causes and consequences of disqualification, and what to do if you are contacted by the Insolvency Service. For tailored guidance, contact us today.
Investigating director conduct
To protect the public against fraudulent or negligent behaviour by directors of limited liability companies, the Insolvency Service investigates and disqualifies directors who have not met their legal responsibilities. Since the financial failure of a company may be a symptom of such conduct, insolvency proceedings can trigger an investigation.
If you’re a director and your company is made subject to a compulsory or voluntary liquidation or an administration, your actions and conduct in the period preceding the company’s failure will be examined as part of the process. The liquidator must assess whether any wrongdoing has occurred. If something seems amiss, the Insolvency Service may investigate more closely to establish whether there are grounds to disqualify you as a director.
Director conduct leading to investigation and disqualification
The Insolvency Service will determine whether your conduct as company director has been ‘unfit’. Such behaviour might include:
- allowing a company to continue trading when it is unable to pay its debts;
- taking excessive drawings or salaries when the company was insolvent;
- failing to keep proper company accounting records;
- failing to send accounts and returns to Companies House;
- failing to pay the company’s tax owings;
- using company assets for personal benefit;
- continuing to take credit without reasonable prospects that the creditors will be repaid;
- misrepresenting facts about the company;
- failing to respond to or comply with a liquidator.
How you behave during the liquidation process can affect the likelihood of you being more closely investigated and even disqualified. If you have any concerns around the process or are unsure of how to manage communications with a liquidator, you should talk to us urgently.
What are the consequences of disqualification?
If you are disqualified, you will be banned from acting as a director for two to 15 years in any UK-registered company, or any overseas company with connections to the UK. You also cannot be involved in forming, marketing or running a company.
Other restrictions might also apply. For instance, you may be unable to sit on a school or charity board, or engage in certain professions.
Breaking the terms of your disqualification could mean you are fined, sent to prison for up to two years, or both.
What to do if you have been contacted by the Insolvency Service
If the Insolvency Service decides to investigate your conduct, you may receive enquiries from them regarding your company’s performance, decisions you have made and action taken by you and other company officers.
These initial questions may seem innocuous, however your answers can determine whether or not the Insolvency Service decides to continue with director disqualification proceedings. Without proper guidance, you may disclose information that disadvantages you and makes it more likely that you will be disqualified.
Therefore, if you receive any correspondence from the Insolvency Service following liquidation or administration proceedings, it is crucial that you seek specialist legal advice immediately.
Receiving a ‘section 16’ letter
A ‘section 16’ letter is a formal notification that the Insolvency Service plans to disqualify you. It will set out the misconduct alleged against you and the intended length of your disqualification.
You have a choice in how to respond to the letter. It will offer you the opportunity to undertake a voluntary disqualification and avoid formal proceedings. Doing so can save you considerable time and money, however ultimately you will still be disqualified and have restrictions imposed upon you.
You can also choose to defend the disqualification by making a representation to the Insolvency Service. Your response should clearly evidence why you believe you should not be disqualified and demonstrate to the Insolvency Service that the case against you is not strong enough to merit court proceedings.
Receiving a section 16 letter is a serious matter. You should contact Lewis Nedas Law straight away. We can help you to decide on your best way forward and, if you plan to defend your disqualification, we can assist you in presenting a sufficiently compelling, well-evidenced letter of representation.
Contact our Director Disqualification Solicitors in Central London Today
Insolvency Service investigations into director conduct must be handled with care. If you are facing scrutiny following insolvency proceedings or you have been contacted by the Insolvency Service, speak to our specialist team as soon as possible. Call us on 020 7387 2032 for round-the-clock legal support or complete our online enquiry form.
