The power of the courts to disqualify directors from acting has existed for many years. The Company Directors Disqualification Act 1986 (CDDA) came into force in 1986. It consolidated all the previous disqualification legislation and also introduced new, tougher provisions directed at those involved in the failure of a company and whose conduct calls into question their fitness to be involved in the management of other companies.

The purpose is to maintain the integrity of the business environment. Those who become directors of limited companies should carry out their duties with responsibility, and exercise adequate skill and care with proper regard to the Interests of the company's creditors. The majority of directors do this effectively but those who abuse the privilege of limited liability will be subject to the sanctions of the CDDA. The CDDA applies not only to persons who have been formally appointed as a director but also to those who have carried out the functions of a director.

Schedules and Rules governing its operation. Disqualification orders can be made for example, for certain criminal offences in connection with the Companies Acts legislation, wrongful trading, failure to comply with filing requirements to Companies House and unfit conduct in insolvent companies. More than 2,500 disqualification orders have been made by the courts because of unfit conduct in failed insolvent companies since 1986 for periods up to the statutory maximum of 15 years.

An insolvent company is defined by section 6 of the CODA as one which goes into creditors voluntary liquidation or into administrative receivership or has an administration order made against it or is compulsorily wound up by the court.

The liquidators administrative receiver, administrator or Official Receiver has a duty to send to the Secretary of State for Trade and Industry a report on the conduct of all directors who were in office in the last three years of the company's trading.

The Secretary of State has to decide whether it is in the public interest that a disqualification order should be sought against a director.

Examples of the most commonly reported conduct

• continuing the company's trading at the time when the company was insolvent;
• failure to keep proper accounting records;
• failure to prepare and file accounts or make returns to Companies House; and
• failure to submit returns or pay over to the Crown any tax which may be due.

Who brings the proceedings in relation to a failed company?

The proceedings are brought by the Secretary of State or the Official Receiver in compulsory winding up cases under the direction of the Insolvency Service's Disqualification Unit. The matter is heard, and decided by the court.

When an order is made the person will be disqualified from acting as a director of or being a liquidator or an administrative receiver or manager of or taking part directly or indirectly in the promotion formation or management of a company during the period of the order.

Under section 6, the minimum period of disqualification is 2 years and the maximum 15 years. In addition the disqualification order usually carries with it an order to pay the costs or expenses of the Secretary of State or the Official Receiver.

The disqualified person will be Committing a criminal offence and is liable to be prosecuted. He or she may also be held personally liable for all the debts of that company which were incurred after involvement in any role from which he or she is disqualified.

Yes. An application can be made to the court for leave to act whilst disqualified. The court may grant leave but will need to be satisfied that there are adequate safeguards to protect the public interest and may impose conditions.

Yes. The courts in both England and Wales and Scotland inform the Registrar of Companies of every disqualification order. This information is put onto a Register of Disqualified Directors which is open to the public for inspection.

The Hotline Number is 0845 6013546

A person's name is removed from the Register at the end of the disqualification period. In addition the disqualification may be reported in the press.

By ensuring that:

• the company is under proper control, including compliance with Companies Acts and other legislation (for example by ensuring that accounting records are properly kept and that annual accounts are prepared and filed),
• there is an effective system of financial control and supplies, crown departments and other creditors are properly dealt with;
• early corrective action is taken (including when necessary taking financial advice) where the company shows signs of getting into financial difficulties.

These are only a few examples.

We have another page dedicated to this subject. Click HERE to find out more

You should see your accountant, solicitor or insolvency practitioner who can provide you with more detailed information about the CDDA.

Further information can be found at the

The Disqualification Unit The Insolvency Service P O Box 203 21 Bloomsbury Street LONDON WC1B 3QW

or in Scotland from

The Disqualification Unit The Insolvency Service J Floors B Block Argyle House 3 Lady Lawson Street EDINBURGH EH3 9SA

This guide provides general information only. Whilst every effort has been made to ensure that the information is accurate it is not a full and authoritative statement of the law and you should not rely upon it as such.

You are advised to seek professional advice about the application of the law to yourself or your business.