When a company becomes insolvent and is thus ‘wound up’, the Insolvency company has two years in which it can prosecute directors. The courts can however extend this time limit at their own discretion.
If the Insolvency Service is seeking the disqualification of a director he or she will be written to. They will be sent a summary of the allegation of unfit conduct. Crucially, the director will be given the opportunity to make an explanation. Before this is done it is highly recommended that the director seeks the advice of a solicitor who specialises in disqualified directors cases.
He will also be given the opportunity to offer a disqualification undertaking. If this is accepted the director will still receive a ban, but will not be brought before a court. Once again it is very important to seek the advice of a solicitor who specialises in disqualified company directors cases before a disqualification undertaking is contemplated.
Should the director not wish to make a disqualification undertaking, or does not respond to the Insolvency Service’s communication, then the case for disqualification is passed on to the courts. In this case potential disqualified directors are able to give an explanation to the courts with a ‘Statement of Truth. If he has already sought legal advice and assistance the director’s solicitor will be able to assist in the drawing up of the Statement of Truth document.
Another advantage of a director seeking legal advice is that the solicitor will represent him in court. This is especially important as the court will listen to evidence before deciding whether or not someone should be declared a disqualified company director. The solicitor will advise his client about who to bring in as witnesses. The aim of the witnesses is to prove that the director was not negligent and neither is he unfit to carry on his duties so should not be disqualified.
There are times when the director may not have any defence. While one option may be to try and negotiate a disqualification undertaking, there is another alternative. If there were mitigating circumstances and they can be proved to the court then then the length of any Disqualified Directors ban could be shortened.
This proves the advantage of those facing the dire prospect of being declared disqualified company directors seeking legal advice and representation. The lawyer, with his experience of such cases, will be able to discover if his client has a defence. If there is no defence the solicitor will then try and discover whether there are mitigating circumstances.