For company directors facing insolvency, one of the biggest concerns is the risk of being disqualified as a director. If a business goes into liquidation or administration, the Insolvency Service has the power to investigate director conduct and, in some cases, ban individuals from acting as a company director for up to 15 years. But how likely is disqualification, and what factors increase the risk?
At Aurora Recovery, we help directors understand their obligations and protect themselves from serious consequences.
How Does Director Disqualification Work?
Under the Company Directors Disqualification Act 1986, directors can be disqualified if they are found to have engaged in misconduct. This means they cannot act as a director of any UK company (or, in some cases, foreign companies) for a set period of time.
The Insolvency Service investigates director behaviour when a company becomes insolvent, particularly if there is evidence of mismanagement. If misconduct is found, they may seek a Director Disqualification Order (DDO) or offer a Director Disqualification Undertaking (DDU)—a voluntary agreement to step down without going to court.
What Increases the Risk of Director Disqualification?
While not all directors of insolvent businesses are disqualified, the likelihood increases if the following factors are present:
1. Trading While Insolvent
If a director continues trading while knowing the company cannot pay its debts, they risk wrongful trading accusations. This happens when a director fails to take proper action to minimise losses to creditors.
2. Fraudulent or Misleading Activity
Directors who engage in fraudulent trading, such as deliberately deceiving creditors or falsifying records, are at high risk of disqualification. In serious cases, this could also lead to criminal prosecution.
3. Poor Financial Record-Keeping
Failing to maintain accurate financial records is a major red flag. If an insolvency practitioner finds that financial transactions are missing or unclear, a director may be held responsible.
4. Failing to Cooperate with Insolvency Practitioners
Directors are legally required to assist insolvency practitioners during an investigation. Withholding information, refusing to provide records, or not attending meetings could be seen as misconduct.
5. Unfair Treatment of Creditors
Giving preferential payments to certain creditors (e.g., repaying friends, family, or personal loans before other debts) can result in disqualification. Insolvency law requires fair distribution of company assets.
6. Personal Use of Company Funds
If a director withdraws money from the company for personal use, particularly before liquidation, they may be found guilty of misfeasance (misuse of company funds). This could result in both disqualification and personal liability to repay creditors.
What Are the Chances of Being Disqualified?
Not all directors of failed companies are disqualified, but thousands face disqualification each year. The severity of misconduct determines the likelihood of action.
- Low Risk: If the company failed due to market conditions and the director acted responsibly.
- Moderate Risk: If there were questionable financial decisions, but no clear intent to defraud creditors.
- High Risk: If the director ignored financial warnings, mismanaged funds, or traded while insolvent.
If disqualified, a director cannot:
✅ Act as a company director
✅ Be involved in company management (even unofficially)
✅ Form, promote, or run a business under another person’s name
Breaching a disqualification order is a criminal offence and could result in fines or even imprisonment.
Need Advice? Contact Aurora Recovery Today
f your business is facing financial difficulties and you’re worried about your chances of disqualification, speak to Aurora Recovery for confidential, professional support.
📞 Call us: 01134 800 397
📧 Email us: hello@aurorarecovery.co.uk
🌐 Visit our website: https://aurorarecovery.co.uk
Don’t leave it too late—take action today and protect your future.
Contact us now to see how we can help you: https://aurorarecovery.co.uk/contact/
Read more about director disqualifications on the government’s website here: https://www.gov.uk/company-director-disqualification
