A bankrupt must not act as a director or be involved in any way in the management of a company until discharged from bankruptcy. However, a bankrupt may be a director of a company if permission is granted by the court.
Acting as a director without permission
If a bankrupt acts as a director or is involved in the management of a company without permission of the court
- They will be guilty of a criminal offence which is punishable with up to 2 years in prison and an unlimited fine.
- They can be personally liable for certain debts of the company.
- Someone who knowingly assists a person to break the law in this way can also be liable to prosecution and for the debts of the company.
The fact that the bankrupt is not registered as a director at Companies House will not prevent these consequences if in reality the person is taking any part in managing the company. Management can occur even where the person’s involvement in the company’s business is limited, if the actions in question are those that are normally carried out by a manager.
Application to the court
In order to avoid these consequences, the bankrupt can apply to the court for an order for permission to act as a director or a manager. This entails
- An application notice containing the information as required by the insolvency legislation
- Payment of the court fee
- A witness statement with specified information
- Service on the trustee within the specified time limits
- The preparation and service of a report by the Official Receiver
- The court hearing
To grant the application, the court must be satisfied that giving the bankrupt permission to act as a director or manager of a company would not be contrary to the public interest. The court will look at the circumstances of the bankruptcy, the role that the bankrupt wishes to play in the company and at who else will be responsible for the company and the supervision of the bankrupt’s involvement with it. Concerns may be addressed by individuals being required to give undertakings to the court or by the permission being conditional upon certain precautions being put in place. The court will also address the question of whether income received by the director or manager should be the subject of an income payments order.
Taking legal advice
Being involved with the management of a company during bankruptcy can have very serious consequences for the bankrupt and those working with him or her. Taking advice when such a situation is being considered is very important. Our solicitors are able to provide advice in this area and to assist with a court application where necessary.
For more information proceed to What a bankrupt must not do