At what stage can a Director Disqualification Undertaking be given?

by Andyfwj on January 17, 2014

An undertaking can be given either before or after the issue of formal legal proceedings by the Secretary of State.

Prior to issuing of proceedings

As set out already in this blog, before issuing formal proceedings, the Secretary of State will send a section 16 letter to an individual asking whether he/she will agree to give a voluntary undertaking not to act as a director.

It is of course open to that person to challenge the appropriateness of the threatened disqualification by defending the formal legal proceedings, but if the person is unable or unwilling to fight a claim (for example due to financial reasons), then he/she can sign a Disqualification Undertaking which would mean that formal legal proceedings are no longer necessary.

The question of costs is important as if a Disqualification Undertaking is given by a person prior to the issue of legal proceedings, the Secretary of State will nearly always waive any claim for payment of its legal costs. It is often the “carrot” the Secretary of State dangles to get people to sign disqualification undertakings.

After the issue of proceedings

A disqualification undertaking can be given by a person after the issue of legal proceedings as well. Indeed it can be given at any time up to and including trial of the claim (or even during the trial, although not recommended).

However, it is important to understand that if a disqualification undertaking is given after the issue of legal proceedings, the person nearly always becomes liable for the Secretary of State’s legal costs up to and including the time it is accepted (although very early on the Secretary of State may waive any such costs to conclude matters quickly).

However, for tactical reasons, a person might want to simply “buy time” and give an undertaking nearer to trial.  For example, a person might want to prepare his/her current business for sale – something which might only be possible whilst they remain a director. It must be remembered that even where formal proceedings have been issued, a person can remain a director of a business.  It isn’t until a formal court order is made, or a disqualification undertaking accepted, that a person has to cease to be a director. A case can take up to 2 years to reach a formal trial – 2 years in which a person can reorganize his / her affairs.

Andy Wilks is the head of commercial litigation at Francis Wilks & Jones LLP. Andy completed his articles at Davies Arnold Cooper solicitors and then joined niche receivables finance firm, Wildes. Before setting up Francis Wilks and Jones LLP, he also spent a year at city firm, Hammond Suddards Edge. Andy’s range of expertise includes the following: Undertaking many thousands of debt recovery cases for clients, from lower value claims to high value complex contractual disputes. Undertaking high value fraud cases on behalf of clients, often requiring the need for urgent injunctive relief at court and the obtaining of relevant freeing orders and ancillary disclosure orders. Andy is currently running a $20m claim for an invoice finance and trade finance client involving allegations of fraud. Conducting all manner of director disqualification claims, both pre and post issue. Andy is one of the country’s leading lawyers in this specialist area and has built up a highly specialised director disqualification team at FWJ over the last decade. Undertaking numerous types of insolvency litigation claims, including preference claims both for and against directors and advising directors generally on their fiduciary duties.

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