If you are a director in a company, it is important to understand that there could be a disqualification which could stop you from acting like a company director in case you fail to fulfill the legal duties or display inappropriate conduct. A company directorship will bring with it a legal obligation to act in a certain manner when you undertake the business. If it is found that you have acted improperly, you could end up with a disqualification in addition to other fines and penalties. The outcome of a director disqualification will range from a poor reputation to a prison sentence in severe cases.
An unfit conduct means continuing to trade after knowing that the company is insolvent, failure to make the tax liability payment, failure to maintain accounting records, engaging in a fraudulent activity, not filing the statutory returns and accounts and using the funds of the company for personal benefit. If there is enough evidence, the proceedings in case of insolvency of the company will lead to director disqualification.
Court Procedure
The other party will notify you of their intention to start with the court proceedings related to insolvency. They will mention the grounds for taking action and the ways in which you could respond. If you disagree with the evidence provided by them, you can argue the case in court. There will be two options or you, one is to wait for a disqualification order from the court and the other one is to agree to make the disqualification undertaking, this means you will disqualify yourself and the court proceedings will cease.
Rules Of Disqualification
When you are disqualified as a director, it means that during the period stated, you cannot act as the director of the company without a sanction from the court. You will not be a director of any company in the country or a company based abroad which has connections with the country you reside in. You cannot be involved in the formation or running of a company or for its management and promotion. You cannot legally act in the manner of a director of the company. You cannot take any decisions for the company and you cannot instruct the third party to manage a company under your direction. It could lead to prosecution for yourself as well as the third party. If you want to take the case to a court, you will have to involve experienced solicitors and lawyers for the same.
However, you will not be legally barred from working as an employee in the same company but you will always have to remain very cautious about how you represent yourself and what roles you are involved in. You can also choose to be a sole trader or be a part of a partnership. It is considered to be criminal to break the rules of disqualification and this could lead to a prison sentence of up to two years. It can also extend the period of disqualification for you. In addition, you could become personally liable for the debts of the company which were incurred during the time when disqualification order was being served.
Other Restrictions
There are a number of restrictions on disqualified directors. It could prevent you from being a solicitor, an accountant or a barrister if the professional body objects. Further, your eligibility to act as a trustee for a charity can also be affected. Depending on the profession and the industry you are engaged in, there will be additional restrictions on you and you will have to adhere to the same. If the government or a professional body objects from your position or your actions, you will be restricted from performing the same.
Once disqualified directors have the right to apply to the court act as a director again. However, you need to have a reasonable need for the same. If the court agrees to your request, you will be able to get back your directorship but there will be restrictions in place on the duties that you can perform. Director disqualification is a serious matter and if you are disqualified, you need to seek professional advice on how to go ahead. The purpose behind director disqualification is to ensure that no director makes use of the power that he holds. You need to place the company ahead of yourself and then make decisions. If you fail to perform your duties as a director and if it is proved so, you could be disqualified.
