Company Directors Disqualification Act (CDDA) proceedings are where the Insolvency Service, on behalf of the Secretary of State, makes allegations against a former director claiming the former director is “unfit” to be concerned in the management of a company.
Company Directors Disqualification Act (CDDA) proceedings are where the Insolvency Service, on behalf of the Secretary of State, makes allegations against a former director claiming the former director is “unfit” to be concerned in the management of a company. The Insolvency Service would then seek to issue court proceedings for a disqualification order. However, in most circumstances the Insolvency Service will accept disqualification undertakings to save the costs of court proceedings. If CDDA proceedings are alleged, an individual could face disqualification from being a company director or being involved in the management of a company for any period of between 2 and 15 years.
The Government amended the CDDA in October 2015 to allow the Insolvency Service to apply for a compensation order.
When would you need this service?
As a former director/officer of a liquidated company, if you have received one of the following from the Insolvency Service, we recommend you seek legal advice immediately, to explore the options available to you:
- A letter seeking further information from you in connection with your conduct relating to the former company; or
- A letter labelled as a “section 16” letter; or
- A letter stating that the Secretary of State will accept an undertaking; or
- A claim form and an affidavit, setting out the claim against you; or
- Correspondence from the Insolvency Service threatening to apply for a compensation order or seeking a compensation undertaking.
CDDA proceedings can also be taken against individuals who were not directors but were involved in the management of a company and are commonly referred to as “de facto” directors or “shadow” directors.
When a company goes into liquidation or administration, the Liquidator or Administrator will produce a report to the Insolvency Service and provide a recommendation, as to whether they think, based on their investigations, the director should be disqualified. The Insolvency Service will then carry out its own assessment (and if required, further investigation) to see if they should initiate CDDA proceedings.
Often before informing you that CDDA proceedings will be brought against you, the Insolvency service or the Liquidator will ask you to complete a questionnaire. If later disqualification proceedings are brought against you, the content of the questionnaire may be used against you. We would therefore strongly recommend that you obtain legal advice from the outset and shortly after your Company has gone into Liquidation/Administration.
There are a range of matters that may determine that a director is “unfit” including:
- Any misfeasance or breach of any fiduciary duty by the director;
- Allowing a company to continue trading when it can’t pay its debts;
- Failing to keep proper company records;
- Using company money or assets for personal benefit;
- Breaches of the Companies Act 2006; and
- The frequency of any conduct of the director falling within the above matters
A full list of matters are available in schedule 1 of the Company Directors Disqualification Act 1986.
Can I challenge the allegations being made against me?
Yes you can! Each case is dependent on its own merits, however, depending on the circumstances and the nature of the allegation. There are some examples of possible challenges that can be raised, as set out below:
- The threshold for “unfitness” has not been met;
- The Insolvency Service is time barred from bringing CDDA proceedings, as there is generally a two-year time frame for the Insolvency Service to issue proceedings.
- The director has acted honestly and reasonably;
- Considering all the circumstances the director ought to be fairly excused; and
- There has been a procedural or technical error in respect of the allegations raised by the Insolvency Service.
Disqualification Undertakings
In most circumstances, rather than commencing court proceedings against a director, the Insolvency Service will offer the director with an opportunity to provide a disqualification undertaking, which effectively means that the director would admit responsibility and provide an undertaking that they will not be a director or act in the management of a company for a period of time.
Legal advice should be sought before deciding whether or not you should accept the undertaking. There may be a number of options available to you if you are offered an undertaking or sent a “section 16” letter including the following:
- Challenge the allegation;
- Seek to negotiate the proposed terms of the disqualification undertaking;
- Seek to negotiate the time period in which disqualification is sought.
Consequences of disqualification
If you are disqualified as a director either by way of a court order or by providing an undertaking, you will be subjected to the following consequences:
- It could result in the Secretary of State seeking a disqualification compensation order against you, if it forms the view that your conduct has caused loss to one or more creditors of an insolvent company;
- You cannot be a director of a company in the UK or an overseas company that has connections with the UK;
- You cannot be involved in the formation, marketing or management of a company;
- If you breach a court order or undertaking it could lead to imprisonment for up to 2 years and/or a fine;
- If you breach a disqualification order or undertaking, you could also be personally held liable for company debts;
- Your details will be published in a public database of disqualified directors;
- In many cases the Insolvency Service will also issue a press release, detailing the disqualification on the gov.uk website;
- You will not be able to sit on the board of a charity, school or police authority;
- You will not be able to be a pension trustee;
- You will not be able to be a registered social landlord; and
- It may even be difficult for you to obtain credit.
If you are contacted by the Liquidator or the Insolvency Service, you should explain your wish to seek legal advice before reverting to them. You should get in touch with us immediately at this point.
How much does it cost?
You will be provided with an estimate of costs based on the type of work required at the outset.
Our lawyers have extensive experience in advising clients who are faced with directors’ disqualification proceedings and have successfully defended clients who were subjected to such proceedings. Our lawyers can provide bespoke and cost effective advice tailored to your circumstances.
For more information, please contact our team of experts by emailing insolvency@bankruptcy-solicitors.com or call 020 8308 3610 today.