Administration is akin to calling in a rescue team to salvage what they can. Receivership, while less common now, is like a more targeted rescue, disqualification of directors concerning specific assets. Section 164 of the Companies Act, 2013 also provides provisions for appeal against the disqualification order. Catherine Doran, barrister of Radcliffe Chambers regularly acted for the Secretary of State and Official Receiver in disqualification claims against directors when she was on HM Attorney General’s Panel.
Form DIR 10- Substituted vide MCA Notification dated 20.01.2023
Whilst it is tempting to bury your head in the sand, it is important to cooperate with the investigator, and respond to requests in a timely manner. In the event a directors disqualification claim is made, your responses are likely to be exhibited by the Secretary of State, so you want to give a good impression to the judge who will be reading them. If an application is made to the court for a disqualification order against you, you will have the chance to respond to the case and provide written evidence. Again, it is recommended that you seek professional legal advice in drafting this document as it is your chance to explain the situation and defend the Insolvency Service’s allegations.
What measures can directors take to avoid fraudulent activities?
It’s crucial you’re aware of the specific requirements in your jurisdiction – think of it as knowing the house rules in a friend’s game night. And if you’re unsure, it won’t hurt to consult a legal expert, just like you’d double-check the game rules for clarity. When stepping into the role of a director, you’ve got to toe the line carefully.
The Board of Directors, elected by shareholders, acts as their representatives and plays a pivotal role in shaping the company’s direction and strategy, managing its affairs, and ensuring that it operates in the shareholders’ best interests. After the end of his disqualification period, a person may be appointed as a director of his previous company or even incorporate a new company. In a broader perspective, director disqualification underscores the commitment of the Indian legal system to enforce accountability in business operations. It is this commitment that enhances investor trust, protects stakeholder interests, and maintains a level playing field for all businesses. If the company director has committed fraud (fake man-made acts) or ought by law to be determined to have done so, he shall be immediately disqualified as a director and cannot serve in that position. A breach of fiduciary duty occurs when directors fail to act in the best interests of the company, such as engaging in self-dealing, conflicts of interest, or prioritizing personal gains over the company’s needs.
Direct involvement or even association with fraudulent practices can result in the curtains closing on your directorial career. While the Companies Act establishes minimum disqualification standards, private companies can impose additional restrictions through their Articles of Association. This flexibility allows companies to set higher standards based on their specific needs, industry requirements, or stakeholder expectations.
Convicted of a crime
He then put his company into liquidation, at which point the Insolvency Service started an investigation. The director pleaded guilty to a range of charges under the Companies Act 2006 and the Fraud Act 2006. He repaid the loan prior to sentencing, when his six-month sentence was suspended for 18 months. A director who is aware that he/she is likely to be disqualified may choose to resign from his/her position. However, resignation does not absolve the director from liability for any acts or omissions that occurred during his/her tenure.
A Detailed Guide to LLP Form 8 – Statement of Account & Solvency: Due Date, How to file, Fees etc.
A director is required to file DIR-10 to the Registrar for removal of disqualification and removal of his/her name from the list of disqualified directors. The Companies Act, 2013 primarily addresses director disqualifications under Section 164, which specifies several grounds that render a person ineligible to be appointed as a director. If the company’s constitution contains a clause which requires the director to sell his shares upon the cessation of his directorship, the director will be required to do so. Alternatively, the company’s constitution may also include a clause governing the removal of directors in certain situations. The implications of disqualification are profound, not only placing personal constraints on the director but also signaling to the market that malpractices in governance will not be tolerated. Reflecting on the remedies, while the road to overturn a disqualification is arduous, the avenue for due legal process mirrors the law’s fairness.
- At the core of disqualification are several pivotal reasons codified within Section 164 of the Companies Act, 2013.
- In 2016 a total of 183 directors were restricted (increasing from 177 in 2015) and 19 were disqualified (increasing from 14 in 2015).
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- However, the directors were able to show that all of their relevant decisions were taken on the advice of solicitors, accountants and estate agents independently engaged by the company.
- Vacant positions would be filled up as per the Articles of Association of the Company or Board of Directors.
In the world of business today, directors play an irreplaceable role in the running and supervision of a company. Yet, while the role of a director is indeed grand and imposing, there are a number of disqualifications which prevent certain people from being appointed or serving as directors. It is essential to recognize and understand these disqualifications in order to maintain a company’s integrity and good-running smoothness. Disqualifications of directors that we will explain in this blog post, which under the Companies Act 2013 may provide interest to corporate governance specialists. It’s important that company directors understand their legal responsibilities, as they can be at risk of disqualification if they breach their duties.
- Actions that can lead to director disqualification include wrongful or fraudulent trading, failing to keep proper accounting records, and not paying taxes.
- On the other hand, directors of companies which have been wound up on reasons of national security or interest will be disqualified for 3 years from the date that the winding up order is made.
- Corporate governance is like a tightrope walk, and the disqualification of directors constitutes an indispensable role while seeking to maintain just, lawful and effective corporate structure.
You can also be banned from being a company director if you’re subject to director disqualification sanctions. You can be banned (‘disqualified’) from being a company director if you do not meet your legal responsibilities. Above criteria for disqualification apply to all companies, be it private companies, one-person companies, small companies and public companies (whether listed or not). It may happen that all the directors of a company get disqualified by virtue of default(s) committed by that company. In such a scenario, promoters of a company will appoint the required number of directors till the time new directors are not appointed by shareholders in a general meeting. Where a person is appointed as a director of a company which is in default of clause (a) or clause (b), he shall not incur the disqualification for a period of six months from the date of his appointment.
Navigating the Legal Quagmire: Remedies against Disqualification
Struggling businesses have restructuring options such as Company Voluntary Arrangements (CVAs), administration, and receivership, which aim to reorganize the company’s debts and operations to improve financial stability. Imagine you’re steering a ship across unpredictable seas; as a captain, your crew trusts you to navigate towards the safety of the harbour, not into the storm. Likewise, directors must put the company’s interests first, much like a trusted captain prioritises the safety of their crew.
You might think, for example, that doing business with a company you have a personal interest in is okay as long as you’re getting a good deal. But, this can be a classic case of conflict of interest, inadvertently breaching your fiduciary duty. These insolvency procedures can be complex, akin to exploring through a maze of legal requirements. You’d do well to have a seasoned insolvency practitioner or accountant as your navigator.