In light of the recent decision on 5 September 2013 at Falkirk Sheriff Court, it is worth looking at one type of conduct that may trigger a director disqualification.

A company director was sentenced to two years in prison for constructing false invoices worth £57,000 of VAT repayments involving two companies. He pled guilty, with HMRC noting that he “knew he was breaking the law”. For more information, see HMRC’s press release.

Directors need to be aware of the type of conduct that may elicit an investigation by the Insolvency Service, an agency that examines improper conduct connected with financial failure. One of the areas they are involved with is dealing with director disqualification under the Company Directors Disqualifications Act 1986.

Whilst not exhaustive, the current legislation provides some guidance on what the Insolvency Service will consider when determining whether or not to raise proceedings for a disqualification order. The guidance ranges from failure to comply with statutory obligations (such as registering and filing documents with Companies House timeously) to breach of fiduciary or other duties expected of a director.

What is particularly important is the disqualification period that might apply should directors fail to comply with these rules. Given that the potential disqualification period can range from anywhere between two to 15 years, directors need to be mindful of what the legal repercussions might be should they act improperly. Directors may believe that they can get around the problem simply by resigning as a director whilst continuing to work in a managerial or senior role of the company during the disqualification period. However, the legislation expressly prohibits an individual from being involved in the management of a company, whether directly or indirectly.

What is clear from this decision is that the authorities are clamping down on improper conduct and directors are now more likely to face prosecution and imprisonment for misconduct, as evidenced by the two year sentence handed down earlier this month.

Corporate and Commercial