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What triggers director disqualification?

Directors can face disqualification if they engage in conduct deemed unfit. This encompasses a broad range of actions and behaviours. The penalties for disqualification can be severe, including substantial fines and, in cases of fraudulent activity, criminal charges.

Disqualification periods can last anywhere from two to 15 years, during which directors are prohibited by law from serving as a director or participating in the creation, promotion, or management of a limited company.

The mechanics of director disqualification


The Company Directors Disqualification Act (CDDA) of 1986 outlines the conditions under which a director can be disqualified, as well as their responsibilities during a disqualification order.

In the event of a company’s insolvency, an administrator or liquidator is appointed to examine the cause of the company’s decline. They provide a report to the Secretary of State detailing the conduct of directors who held office in the preceding three years. If evidence of inappropriate behaviour is discovered, the Insolvency Service may take action, including the disqualification of directors.

The public interest aspect of director disqualification


The purpose of disqualification is to safeguard the public from directors who intentionally exploit the limited company structure, where the finances of the company are kept separate from their own. 

However, it is possible for directors to unknowingly cause harm to creditors by continuing to operate an insolvent company with the intention of improving outcomes for stakeholders. To avoid this, it is highly recommended to seek assistance from a qualified insolvency professional as soon as financial difficulties arise.

Characterising inappropriate behaviour


Disqualification as a company director can result from a variety of actions classified as “unfit conduct”. The following is a non-exhaustive list of examples that could lead to disqualification:

  • Trading a company while it is insolvent
  • Misusing company funds
  • Not paying taxes owed by the company
  • Not submitting required accounts and returns to Companies House
  • Not maintaining proper business records
  • Not cooperating with the appointed official or the Insolvency Service

It is worth noting that disqualification is not limited to just directors, and can also apply to other individuals who hold a position of influence in the company, such as shadow directors.

The distinction between disqualification orders and disqualification agreements


Director disqualification can occur through either a court order or a disqualification agreement.

A court order for disqualification is a judicial ruling that prohibits a director from serving in their position for a designated period of time. These proceedings, which are considered to be civil in nature unless fraudulent behaviour is found, may also result in a financial penalty for the affected director.

On the other hand, a disqualification agreement is a voluntary agreement made by a director to disqualify themselves, avoiding the publicity of court proceedings. The outcome is similar, with a ban on serving as a director or being involved in the establishment, promotion, or operation of a company for a specified time frame.

It is worth noting that directors who have been disqualified may also face restrictions from organisations such as charities, pension trustees, police forces, and legal or accounting practices due to their disqualification.

Consequences of violating a disqualification order or agreement


If a director breaches the terms of a disqualification order or agreement, they may be subject to criminal charges and face imprisonment. Additionally, an extended period of disqualification may be imposed. It is crucial for directors to adhere to the terms of the order or agreement for the entire duration, as violating a disqualification order or agreement is a serious offence.

If you require further assistance or information regarding director disqualification, don’t hesitate to reach out to our knowledgeable team at We offer complimentary, same-day consultations to help you quickly understand your responsibilities as a director.

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