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What action can be taken against a director?

Posted on01 November 2023

As a company director, you will no doubt be aware that you have a various duties relating to your position, all of which centre around making sound strategic decisions and ensuring that the company meets its statutory obligations.

However, breaching any of these duties could leave you susceptible to action, either from the company itself, an aggrieved director or shareholder, or from the Government’s Insolvency Service.

The potential actions that can be taken against directors for any alleged breaches of their duties are wide-ranging. In this article, we discuss some of the potential actions you could face as a director, as well as our how solicitors can support you if you find yourself in such a situation.

If you are concerned about actions being taken against you as a director, including director disqualification, we recommend speaking to our expert solicitors today. You can do so by filling in the enquiry form on the right hand of this page or, alternatively, you can call any of our offices in London, Portsmouth and Norwich.

Director disqualification

When a company enters into administration or liquidation, a confidential report must be submitted to the Insolvency Service regarding the conduct of a director.

In certain cases, this report could lead to a director’s conduct being subject to further investigation. Under the Company Directors Disqualification Act 1986, the Government has the power to disqualify a director where it deems that it would be in the public interest to do so.

The period of disqualification can range from 2 to 15 years depending on the seriousness of the alleged misconduct.

It should be noted that, as a director, disqualification will not just affect you for the duration of the disqualification. It could also have a permanent impact on the remainder of your business career as it is often necessary to disclose a previous disqualification, possibly limiting potential employment at an executive level.

At Isadore Goldman, we have specialist expertise with the disqualification of directors and insolvency investigations. If you have been contacted in relation to an investigation into your conduct, and you are concerned about the potential of facing disqualification or a compensation order, our team are ready to advise you.

Office Holder claims

If a company enters administration or liquidation, an Insolvency Practitioner (also referred to as an Office Holder) will conduct an investigation into the company’s financial position, with the aim of establishing why the business failed.

The focus of said investigation will be to establish whether any financial claims can be made against the directors of the company or others.

As a director, you could be on the end of various types of claims following an Office Holder investigation including:

Breaches of duty by the director
Repayment of director’s loan accounts and unlawful dividends
Antecedent transactions such as preferences and transactions at undervalue
Clawback of dissipated assets
Wrongful or fraudulent trading

Guarantee Claims

Banks and other lenders that provide overdraft facilities and loans to owner managed businesses will often require director guarantees.

This can cause serious complications, especially if the guarantee is backed by a mortgage over a director’s home.

Property Issues

In some cases, a director may be the tenant, sharing occupation with the company, leaving them without an income stream to pay the rent. Conversely, as a director, you may be the landlord, with the failure of the company leaving you without a regular income stream – meaning you are unable to pay the rates.

HMRC Claims

HMRC are increasingly looking to see whether direct claims can be brought against company directors where any sums have been left unpaid. For example, these could include taxes and national insurance contributions.

HMRC can issue a Personal Liability Notice against directors via a special unit, where evidence suggests that a company’s failure to pay was due to neglect or fraud. HMRC can also claim a Loan Charge that directors must repay in respect of the use of certain tax schemes, such as Employee Benefit Schemes (EBTs), Employer Financed Retirement Benefit Schemes (EFURBs) and ‘Loan Note’ schemes.

How our solicitors can help

As a director, the potential actions that can be taken against you can be extremely serious. In addition to supporting you with the disqualification of directors and insolvency investigations, our expert solicitors can advise you in relation to the various other claims you could face, ensuring that you have the level of support you need.