Court permission to remain a director despite disqualification

If an individual finds themselves threatened with disqualification or has already been disqualified from acting as a director, there is still a possibility of obtaining court permission to resume their directorial duties.

In certain circumstances, where it can be demonstrated that the disqualification would cause undue hardship or if there are exceptional reasons justifying the need for the person to continue as a director, the court has the authority to grant permission for their reinstatement.

This process involves presenting a strong case, highlighting the individual’s competence, integrity, and the potential benefits they can bring to the company.

Ultimately, the court will carefully assess the situation and make a decision based on the merits of the case and the interests of all parties involved

Why would a court grant permission following a disqualification?

Contrary to popular belief, being a disqualified director does not necessarily mark the end of one’s professional journey in that capacity.

Thanks to the provisions outlined in section 17 of the Company Director Disqualification Act, individuals facing disqualification have the opportunity to make an application to the court, seeking permission to continue or resume their directorial roles, or be involved in the management of a business, despite the disqualification order they may be facing.

These applications, commonly referred to as Section 17 applications, empower individuals to take proactive steps towards reclaiming their position and actively contribute to the business’s future, regardless of whether the disqualification was imposed through a trial or a disqualification undertaking.

Disqualification proceedings serve a crucial purpose by aiming to deter any recurrence of the behaviors that originally resulted in the disqualification order. The fundamental concept behind disqualification is to:

• Safeguarding the public interest is a paramount objective of disqualification proceedings, as they strive to uphold accountability and transparency in the conduct and dealings of directors.
• By acting as a strong deterrent, disqualification works in synergy with other legal remedies to ensure that directors maintain utmost transparency, thus fostering a business environment built on trust and integrity.

Regardless of whether an individual is subject to a court-ordered disqualification or chooses to undertake a disqualification, it is essential to consider the potential implications and subsequent claims that may arise as a result. It is crucial to acknowledge that such disqualifications can have wide-ranging consequences.

Nevertheless, it is worth noting that the process of reaching a decision to disqualify an individual, facilitated by the Secretary of State through the Insolvency Service, often requires a significant amount of time. This extended timeline allows for thorough evaluation and consideration of the circumstances surrounding the disqualification, ensuring a fair and informed decision is made.

The disqualification process entails several sequential steps, designed to ensure a fair and comprehensive assessment of the director’s conduct:

• The initial step involves conducting interviews with the director to gather crucial information. Simultaneously, investigations are initiated, encompassing inquiries made not only to the director but also to relevant third parties.
• Subsequently, a formal section 16 letter is issued, initiating the official proceedings. This stage may lead to extensive exchanges of correspondence, where relevant details and arguments are presented and addressed.
• If necessary, the director has the opportunity to defend themselves by initiating legal proceedings, ensuring a fair and transparent adjudication of the matter.
• Once this stage is concluded, there is typically a period of at least six months before the trial commences, allowing sufficient time for all parties involved to prepare their cases thoroughly.
• Even if a director opts to offer a disqualification undertaking, it is important to note that the process still requires time to reach its finality, as all relevant factors and legal considerations must be taken into account.

Throughout this multifaceted process, the aim is to ensure a comprehensive and fair evaluation of the director’s actions and circumstances, in order to arrive at a just outcome.

In practice, the time span between the company’s insolvency commencement and the director’s disqualification can vary significantly, typically spanning from 1 to 4 years. During this period, it is plausible that the director may have embarked on a fresh business venture, learned valuable lessons, and achieved success. Alternatively, the individual or business may be fulfilling a crucial role or providing a vital service that necessitates their continued involvement in a managerial or directorial capacity.

Considering these circumstances, the courts adopt the perspective that if someone has managed to rebuild their professional standing and provided that the original disqualification period has been served, while ensuring public protection, the concerned individual should be given an opportunity to reapply for directorship, despite their prior disqualification.

It is crucial to recognize that the primary aim of disqualification regulations is to safeguard the public interest by preventing a recurrence of previous misconduct. Rather than solely focusing on punitive measures for the individual director, these rules are intended to act as a safeguard against the repetition of harmful behaviors, thereby ensuring public confidence and protection

When to apply for court permission

Section 17 of the Company Directors Disqualification Act 1986 provides the avenue for individuals to seek permission to act as directors despite being disqualified. This application, made within the framework of formal court proceedings, entails the following requirements:

• an application
• evidence in support
• the Secretary of State is required to attend the hearing and draw the court’s attention to public interest considerations

Timing emerges as a pivotal concern that directors must carefully address when making such an application. This holds true, especially when considering the court timetable, and becomes even more critical when a disqualification undertaking is proposed, necessitating meticulous preparation and strategic timing.

• When considering an application following a disqualification hearing and potential disqualification order, it is crucial to engage in thorough and proactive preparation well in advance. Additionally, addressing the associated risks in significant detail is essential for a successful application.
• In cases where an application is intended during the disqualification proceedings, it becomes imperative to ensure the smooth facilitation of the litigation process. This includes making the application properly and strategically, taking into account the director’s personal circumstances, and ensuring it is done at a time when they are not at risk of criminal proceedings.

Process for applying for court permission

The process itself is characterized by its relative simplicity, involving the filing of an application notice at the court along with supporting witness statement evidence.

However, it is essential to recognise that the substance and quality of the evidence provided hold utmost importance, necessitating expert legal guidance to ensure a compelling case.

• Without being persuaded that the public is safeguarded against what went wrong the last time happening again, the court will not make an order granting authority to continue serving as a director or to become a director again.
• It is crucial to prepare the proof, frequently in collaboration with other directors, accountants, or other third-party suppliers to the firm.
• An application will fail if the appropriate proof is not properly written.

Moreover, we have established strong connections with highly knowledgeable director disqualification barristers who possess a deep understanding of the legislation. They are adept at making the appropriate representations to the court, strategically maximizing your prospects of achieving a successful outcome.

With our expert links and legal expertise, we strive to provide you with the best possible support throughout the process of seeking court permission in director disqualification cases.

Conditions attached to any court permission

Upon the issuance of an order, it is crucial for directors to acknowledge and understand the specific limitations and restrictions imposed upon them. Compliance with these requirements is of utmost importance, as any failure to do so would constitute a breach of the order.

It is important to note that such breaches not only violate the underlying director disqualification order but can also potentially lead to criminal charges being filed against the director. Hence, it is imperative for directors to diligently adhere to the stipulations of the order to avoid any legal complications or criminal offences.

Read more:

• Reasons for disqualification of directors
• Directors’ disqualification compensation orders
• Consequences of disqualification
• Company Directors Disqualification Act 1986
• Directors disqualification undertaking

Conclusion

While director disqualification may initially seem like a definitive end to one’s involvement in a company, there are legal avenues to explore, such as applying for court permission to act as a director despite the disqualification. This process requires careful preparation, presentation of compelling evidence, and expert legal advice to maximize the chances of success.

It is essential to recognize that the overarching goal of disqualification proceedings is to protect the public interest and prevent the recurrence of past misconduct, rather than solely punish the individual director. Adherence to the limitations and restrictions imposed by the disqualification order is crucial to avoid breaching the order, as it may lead to criminal charges.

By understanding the implications and taking appropriate steps, directors can navigate the complexities of director disqualification with the potential to rebuild their professional standing and contribute positively to the business landscape.