The simple answer is yes, there is no automatic restriction on being a Director of a Limited Company if you have been a Director of a Company that has gone through an insolvency process.

Key figures relating to Disqualification

• There are on average around 1,200 disqualifications per year compared to around 16,000 company insolvencies per year. As most companies have more than one Director, it can be estimated that less than 5% of insolvencies result in a disqualification.
• The average period of disqualification is 5.5 years.
• 83% of disqualifications are undertakings whereby the Director has agreed to the disqualification without the case proceeding to Court. The other 17% are Court orders.
• Over half of all disqualifications fall in the 2 to 5 year bracket.

However, in every Administration and Insolvent Liquidation, the appointed Insolvency Practitioner is required to submit a report to The Insolvency Service on the conduct of anyone who has been a Director in the 3 years preceding the date of insolvency. This report takes the form of an online submission which asks fact based questions about the Company insolvency such as the overall debt level, the percentage of debt due to any one creditor, the time period over which the debt has been outstanding and other similar questions. There is no conduct reporting in a Company Voluntary Arrangement as the Company is continuing to trade.

The purpose behind this report is to enable The Insolvency Service to make an assessment as to whether it should consider taking disqualification action against the Directors under the Company Directors Disqualification Act (“CDDA”). You should note that this report is entirely fact based and any decision about whether to seek a disqualification order or undertaking is made by The Insolvency Service and as such, the appointed Insolvency Practitioner has no influence over the decision.

Because taking disqualification action requires significant resources, The Insolvency Service does not take action in every case. The decision about whether to take action is based on whether The Insolvency Service feels it is the public interest to do so.

Common issues that can influence the decision to seek a disqualification

Whilst not exhaustive, the list below should give you an idea of the types of issues that might lead The Insolvency Service to take disqualification action:

• Unfair treatment of the Crown, meaning that the Company has tax debts which far exceed its other debts and / or have been outstanding over a far longer period (these make up more than half of all disqualifications).
• Failure to keep adequate accounting records.
• Transactions that are to the detriment of creditors as a whole such as payments being made to clear connected party debts whilst other creditors remain unpaid.
• Misuse of customer deposits.

What steps can a Director take to protect themselves from disqualification?

Based on the list above, there are a number of obvious steps that a Director can take to help to protect themselves from being selected for disqualification action by The Insolvency Service:

• Treat all creditors equally. This means paying creditors based on the amounts owed and the dates payments are due rather than prioritising any one creditor over others.
• Complete and file tax returns on time. Consider using an Accountant to assist you with this if you are unsure of how to complete the returns.
• Ensure any deposits you take are held in accordance with your agreed terms and conditions. This may mean opening a separate bank account for the deposits if the deposits are refundable.
• Don’t continue to trade on without taking specialist advice from an Insolvency Practitioner when you know that your Company is in financial difficulty. Not only do you risk trading whilst insolvent but you also risk making poor decisions as a result of the financial pressure which may contribute to potential disqualification action further down the line.

You can find more practical guidance on our Directors' Duties page.

How We Help

If you are looking to place your Company into a formal insolvency process it is important to make sure that you get the right advice. This is particularly true if your Company is experiencing financial difficulties as you are likely to be under pressure from creditors and may be beginning to suffer with the stress of the situation. In these circumstances, finding supportive and well structured advice as soon as possible ensures that you have the maximum number of options available and can also go some way to alleviating some of the pressure you are under.

At The Insolvency Helpdesk, we aim to provide you with online access to the information you need to understand your duties as a Director and the potential pitfalls to be aware of. You can then call us for advice specific to your business circumstances in the knowledge that you will better understand these options and the advice given. We operate throughout the UK and all advice is provided by Licensed Insolvency Practitioners with years of practical experience.

Whatever your situation, getting high quality professional advice as soon as possible will give you the knowledge and support needed to help you meet your statutory duties as a Director. We will always work with you to help you achieve the best outcome you can in the most affordable way possible so please call us free on 0800 066 3122