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It is important to understand that acting as a company director involves taking on substantial responsibilities to comply with obligations set out in various acts of Parliament including the Companies Act 2006 (one of the longest Acts in British Parliamentary History including 1,300 sections covering 700 pages and containing 16 schedules)  the Insolvency Act 1986 and associated Insolvency Rules and the Company Directors Disqualification Act 1986.

When a company enters into a formal insolvency process such as compulsory or creditors voluntary winding up or Administration, the insolvency practitioner or Official Receiver acting as the company’s liquidator or administrator will investigate your conduct as a director and report to the Department for Business Innovation and Skills (DBIS).  In approximately 5% of all insolvency cases DBIS will take action typically requesting the Court to make an order disqualifying the company’s directors from acting as directors of limited companies.

Disqualification and Other Penalties

If DBIS decides to take action the process can be time consuming and expensive for you as a director. Typically the case against a director will involve a large amount of documentation and if you are going to be professional represented this will inevitably be a costly exercise.

If the case against you is proved then an order may be made by the Court disqualifying you from acting as a director for up to 15 years. Details of the Order will be published on the web site of the Insolvency Service and could affect your ability to obtain employment in the future.

In addition to being disqualified from acting as a director you could face financial penalties and be ordered to contribute personally to the company's assets to compensate the company for the losses for which you are held to be responsible for.

How to Avoid Directors' Disqualification

Books and Records - Keep up to date accurate records of all the company's income and expenditure.

Companies House - Make sure you submit annual accounts and reports to Companies House by the due dates for filing these.

Creditors - Communicate with creditors. Once it is clear your company is in financial difficulty make sure that you always consider how your actions may affect creditors going forwards and make sure you are looking to protect creditors' best interests.

Cease Trading -Be realistic and if it is clear from to an outsider that your company cannot trade out of its difficulties then stop trading so that the company's position does not get worse. DBIS will investigate whether directors have drawn excessive salaries when the company was insolvent.

Professional Advice - If you are in any doubt about your actions then obtain professional advice from a licensed insolvency practitioner immediately.

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