Company Directors Disqualification Act – CDDA 1986 [2024 Guide]

Welcome to our free industry leading guide on the Company Director Disqualification Act 1986 (also known as the ‘CDDA 1986’ or simply the “CDDA”).

Francis Wilks & Jones solicitors have been advising directors on all types of director disqualification claims since 2002. We are the leading UK legal experts in this specialist area of the law.

Over that time, we have successfully helped significant numbers of directors – defending claims completely or and mitigating the worst effects of a disqualification order. Not only do we keep completely up to date on the law as it develops, we have also helped shape the law too with a number of reported legal decisions.

This comprehensive guide will take you through the key aspects of the Company Director Disqualification Act 1986 and provide links to other useful content on our website. We have focused on what we believe to be the most important sections of the CDDA that you need to know although our team is well versed on all the provisions in the Company Director Disqualification Act and related CDDA legislation.

For more immediate help – call one of our expert Director Disqualification team today for a free consultation. There is no situation we haven’t come across in the last 20 years. Our experience can help you too.

Or simply call Stephen Downie, or Doug McEvoy for immediate help and a free consultation.

Contents

One of the most astute appointments I have ever made.

A company director we successfully defended against disqualification

Section 1 of the Company Director Disqualification Act 1986

Section 1 of the CDDA– General overview

Overview

Section 1 of the CDDA deals with general provisions and prohibitions relating to disqualification orders. It is worth noting that the CDDA is not a piece of legislation that only deals with company directors but has since been expanded to deal with members of insolvent partnerships, limited liability partnerships and shadow directors. We comment further on this below.

Purpose of the director disqualification regime

The power to make a disqualification order against directors has existed since the 1947 Companies Act.

Since that time there has been differing opinion as to whether the purpose of a disqualification order is a punishment, the protection of the public or the promotion of good behaviour amongst other directors. Whilst all three of these outcomes do have a bearing in these claims, it is the protection of the public argument that we most commonly hear cited by the Insolvency Service as justification in bringing disqualification cases against directors.

The deterrent effect and desire to raise the standards of responsibility amongst other directors is also important. In our opinion it is a core reason why we have also been seeing an increase in related compensation claims (to recover lost monies taken in COVID-19 related schemes) being brought by the Insolvency Service against disqualified directors. Whilst there has been some prior debate as to the effectiveness of disqualification proceedings per se as a deterrence, the increasing use of compensation claims following on from disqualification is no doubt have a wider impact.

A further important note at this stage is to state that these disqualification proceedings are civil in nature but can have criminal consequences depending on the nature of the offence by the relevant director. This is discussed further later in the guide dealing with Section 2 of the CDDA.

Restrictions imposed by the CDDA

If you are disqualified under the CDDA 1986, then you are prohibited from the following:

Furthermore, it is important for directors to be aware that this does not simply relate to action within a company, and you are also prohibited from being involved in the following organisations:

Periods of disqualification imposed by the CDDA.

Generally speaking, directors can be disqualified under the CDDA for a period ranging from 2 – 15 years, depending on the gravity of the misconduct concerned. There are certain exceptions to this which we will explain in more detail below

How we can help

One example is helping individuals facing director disqualification understand whether they are allowed to carry on in their current employment or business role is a disqualification order is made. Others ways we can help relate to the offences the individual is accused of and what the most likely period of any director ban would be – and how it might be reduced.

Free Guides, Booklets & Useful links

We offer a wide range of free Guides and Booklets for prospective clients to take away and read. Our full library is available for all to review in our free “FWJ Takeaway” resource hub – and we would encourage you to help yourself! We don’t just say we are the leading experts in this area of the law – we can prove it.

Examples of some of our Guides and Booklets include:

We have over 100 other free CDDA Guides and Booklets for you to look at – covering every element of the act and giving practical help on many different disqualification issues.

What our clients say about us

FWJ exceeded my expectations by not only avoiding an order for my disqualification as a director but also negotiating a complete withdrawal of the prosecution. This has been such a relief and weight off my mind after many years and I am very grateful to them. I strongly recommend instructing them at the very earliest opportunity. Timely advice, realistic expectations, prioritisation and logical legal presentation were key.

A company director we successfully defended against a director disqualification claim by the Registrar of Companies

Read the section in full

Disqualification orders: general

  1. he shall not be a director of a company, act as receiver of a company’s property or in any way, whether directly or indirectly, be concerned or take part in the promotion, formation, or management of a company unless (in each case) he has the leave of the court, and
  2. he shall not act as an insolvency practitioner.

Section 1A of the Company Director Disqualification Act 1986 – Undertakings

Section 1A of the CDDA – Undertakings

Overview

S1A of the CDDA has been included within the general provisions of Section 1 and represents one of the major reforms made by the Insolvency Act 2000.

For the first time, this allowed the Secretary of State and the relevant director to enter into an undertaking (agreement by contract) to agree a period of disqualification. Prior to this the process was much more cumbersome to agree a voluntary disqualification, the so called ‘Carecraft’ procedure, which still required the order of the court and therefore legal costs being incurred. The Carecraft procedure has now fallen into disuse as a result of the undertaking reforms brought in by S1A of the CDDA 1986.

An undertaking is a very useful route to consider should the director subsequently wish to seek permission to be a director of a company while disqualified via S17 of the CDDA (discussed below).

How we can help

It is vital to take legal advice prior to agreeing a voluntary disqualification undertaking. Whilst they might seem at first sight to be a quick and easy way to resolve a director disqualification claim, they can cause significant issues for a director which are best understood before accepting the offer of a voluntary undertaking. These include

At Francis Wilks & Jones our team have helped 100’s directors since 2002 negotiate and resolve voluntary undertaking issues.

Free Guides, Booklets & Useful links

We have a range of useful Guides and Booklets dealing with Disqualification Undertakings. In particular

Read the section in full

Disqualification orders: general

  1. he shall not be a director of a company, act as receiver of a company’s property or in any way, whether directly or indirectly, be concerned or take part in the promotion, formation, or management of a company unless (in each case) he has the leave of the court, and
  2. he shall not act as an insolvency practitioner.

1A Disqualification undertakings: general

  1. will not be a director of a company, act as receiver of a company’s property or in any way, whether directly or indirectly, be concerned or take part in the promotion, formation or management of a company unless (in each case) he has the leave of a court, and
  2. will not act as an insolvency practitioner.

Section 2 of the Company Director Disqualification Act 1986 – Indictable Offences

Section 2 of the CDDA – Indictable (criminal) offences

Overview

Section 2 of the CDDA covers director disqualification on conviction of indictable offence.

The pre-condition that must be satisfied for the operation of Section 2 of the CDDA is that the relevant person has been convicted for an indictable offence. These are criminal sanctions arising out of serious crimes such as murder and manslaughter. An indictable offence is more serious than a summary offence (section 5 of the CDDA – see below) and will be dealt with in the Crown Court. Section 2 of the Company Director Disqualification Act 1986 therefore provides for the disqualification of a person who has engaged in criminal behaviour (this can be done by the same criminal court, or by a separate application). This power is, of course, discretionary pursuant to the wording of CDDA section 2(1) and a director disqualified under this section does not need to be ‘unfit’ (as you would have under CDDA section 6).

Interestingly, the burden of proof is much heavier for an application for a permission of the court to act as a director while disqualified (made pursuant to CDDA section 17) if the person is disqualified under s 2 of the CDDA. Successful applications are almost non-existent due to the court’s reluctance to give permission where a director has engaged in serious criminal misconduct. There is no doubt that the criminal elements of this are the reason for this reluctance.

Section 2 of the CDDA was also bolstered by the Small Business, Enterprise and Employment Act 2015 and the insertion of section 2(1A) and 2(2)(aa). These allow for the courts in the UK to bring director disqualification proceedings in relation to a person’s conduct in an overseas company (for example criminal behaviour abroad). An important expansion of the Secretary of States powers of which directors should always be aware.

Period of disqualification under section 2 of the CDDA

The minimum period of disqualification under section 2 of the CDDA is 2 years. The maximum period is 15 years

Read the section in full

(1A) [Overseas company included] In subsection (1), “company” includes overseas company.

  1. any court having jurisdiction to wind up the company in relation to which the offence was committed, or

(aa) in relation to an overseas company not falling within paragraph (a), the High Court or, in Scotland, the Court of Session, or

  1. the court by or before which the person is convicted of the offence, or
  2. in the case of a summary conviction in England and Wales, any other magistrates’ court acting in the same local justice area; and for the purposes of this section the definition of “indictable offence” in Schedule 1 to the Interpretation Act 1978 applies for Scotland as it does for England and Wales.
  1. where the disqualification order is made by a court of summary jurisdiction, 5 years, and
  2. in any other case, 15 years.

Section 3 of the Company Director Disqualification Act 1986 – Persistent Breaches

Section 3 of the CDDA – Breach of company legislation

Overview

Section 3 of the CDDA 1986 outlines disqualification action taken for persistent breaches of company legislation.

This section runs together with section 5 of the CDDA below, which allows the court when convicting someone for a summary company law offence, to make a disqualification order if that person has two or more similar convictions in the preceding five years.

Persistent default, as referenced in subsection (1), is often something that we see raised by the Companies House prosecution team where the director has ignored the filing instructions for annual accounts. As stated in Section 3 CDDA subsection (2), three or more defaults in the previous 5 years is considered to be persistent. Further it is established that the director has to evince a deliberate disregard of the statutory requirements. It is at this stage we often see the Companies House prosecution team seek a disqualification order against a director in the criminal courts.

Importantly, as per Section 3 CDDA subsection (3), the requirement to file documents with the registrar of companies is placed on the company itself. However, the limited liability element of this does not protect the director as the company, together with any ‘officer in default’, shall be guilty of an offence here. The company will breach the act, and the director will be then convicted.

Period of disqualification

The minimum period of disqualification under section 3 of the CDDA is 2 years. The maximum period is 5 years.

Read the section in full

Disqualification for persistent breaches of companies legislation

  1. he is convicted (whether on indictment or summarily) of an offence consisting in a contravention of or failure to comply with that provision (whether on his own part or on the part of any company), or
  2. a default order is made against him, that is to say an order under any of the following provisions–
    1. section 452 of the Companies Act 2006 (order requiring delivery of company accounts),
    2. section 456 of that Act (order requiring preparation of revised accounts),
    1. section 41 of the Insolvency Act 1986 (enforcement of receiver’s or manager’s duty to make returns), or
    2. section 170 of that Act (corresponding provision for liquidator in winding up),

    in respect of any such contravention of or failure to comply with that provision (whether on his own part or on the part of any company).

    (3A) [Overseas company included] In this section “company” includes overseas company.

    1. any court having jurisdiction to wind up any of the companies in relation to which the offence or other default has been or is alleged to have been committed, or
    2. in relation to an overseas company not falling within paragraph (a), the High Court or, in Scotland, the Court of Session.

    (4A) [“The companies legislation” in s.3] In this section “the companies legislation” means the Companies Acts and Parts 1 to 7 of the Insolvency Act 1986 (company insolvency and winding up).

    Section 5 of the CDDA 1986 – Summary Conviction

    Section 5 of the CDDA – Summary Conviction

    Overview

    CDDA Section 5 looks at director disqualification on summary conviction.

    Here, as with section (3) of the CDDA above, we have the same situation except that an order under CDDA section (3) may only be made by the court which has the jurisdiction to wind up one of the companies concerned (High Court mainly). Therefore, prosecutions for failure to comply with company law regulations will usually be brought under section 5 of the Company Director Disqualification Act 1986 (summarily) and therefore the court can exercise its jurisdiction to make a disqualification order for ‘persistent default’.

    Similarly, Section 5A of the CDDA permits a disqualification order to be brought in relation to a person’s conduct in relation to an overseas company. Section 5A of the CDDA 1986 broadly corresponds with section 2 of the CDDA above but relates to the disqualification of a person on summary conviction of an offence (including overseas in accordance with CDDA section 5A).

    For reference, a summary conviction is one that is only triable in the magistrate’s court. In limited circumstances, such as if the matter is defended, then a disqualification matter will then be dealt with by the Crown Court.

    Common types of offences leading to disqualification

    Disqualification can take place for as a result of a failure to comply with a range of statutory requirements including

    How we can help

    We regularly act for directors who find themselves threatened with disqualification by the Magistrates Court for failing to file documents at Companies House and / or breaching company legislation.

    The head of our disqualification team is Stephen Downie – and he lives in Cardiff and is able to attend the Cardiff Magistrates court where all these cases are heard. We often defend directors in these claims, preparing evidence and dealing with the less formal way in which Magistrates cases are dealt with.

    Free Guides, Booklets & Useful links

    It is also possible to find details regarding Magistrate Court sentencing guidelines on the sentencing council website.

    Read the section in full

    5 Disqualification on summary conviction

    1. the definition of “summary offence” in Schedule 1 to the Interpretation Act 1978 applies for Scotland as for England and Wales, and
    2. “default order” means the same as in section 3(3)(b).

    (4A) [“The companies legislation” in s.5] In this section “the companies legislation” means the Companies Acts and Parts 1 to 7 of the Insolvency Act 1986 (company insolvency and winding up).

    (4B) [Overseas company included] In this section “company” includes overseas company.

    5A Disqualification for certain convictions abroad

    1. in connection with–
    1. the promotion, formation, management, liquidation or striking off of a company (or any similar procedure),
    2. the receivership of a company’s property (or any similar procedure), or
    1. which corresponds to an indictable offence under the law of England and Wales or (as the case may be) an indictable offence under the law of Scotland.
    1. the person has been convicted of a relevant foreign offence, and
    2. it is expedient in the public interest that the Secretary of State should accept the undertaking (instead of applying, or proceeding with an application, for a disqualification order), the Secretary of State may accept the undertaking.

    Section 6 of the CDDA 1986 – Unfit Directors

    Section 6 of the CDDA– Unfit Conduct

    Section 6 Overview

    Section 6 of the CDDA 1986 sets out the general provisions relating to the duty of the disqualification court to disqualify unfit directors of insolvent companies.

    This is the key section (or ‘flagship’ provision) of the Company Director Disqualification Act that directors often find themselves getting entangled with. Section 6 of the Company Director Disqualification Act 1986 gives the Secretary of State the ability to bring legal proceedings against a director where they consider the court will be satisfied that the person concerned was a director of an insolvent company (or it was dissolved without becoming insolvent), and the directors’ conduct makes them a ‘person unfit to be concerned in the management of a company’.

    New changes – Company Dissolutions now caught

    It used to be the case that only companies which became insolvent were covered by this section. However, a major new change occurred in 2021 with the introduction of the Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act 2021. This change was in response to the abuse by directors of the Bounce Back Loan scheme which was introduced following the COVID-19 pandemic. What had been happening was that a lot of directors tried to dissolve their companies without going through the correct insolvency procedures in an attempt to avoid paying back COVID-19 related bounce back loans. The new law allows the Secretary of State to pursue proceedings more easily against these directors as well – something we are seeing in practice today.

    Key Points to consider under section 6 of the CDDA 1986

    There is a lot of case law and commentary concerned with section 6 of the Company Director Disqualification Act 1986 and our team at Francis Wilks & Jones are happy to provide specialist advice should you require.

    Some of the key points directors might consider taking into account when dealing with this section

    Director’s conduct and unfitness to act – what does it actually mean?

    At any court hearing, a director disqualification case under section 6 of the CDDA 1986 must determine whether the complaints about the conduct of the director concerned are sufficient to render him / her ‘unfit’ to be a director for a period of time moving forwards.

    It is important to understand that not all types of misconduct lead to a finding of unfitness. Only misconduct of sufficient seriousness leads to a finding of unfitness – and thus a disqualification order being made.

    There is a wide range of factors which a court will take into account when making this decision. Dishonesty by a director is not a prerequisite to a finding of unfitness. A director can be equally unfit by virtue of his incompetence or his negligent conduct as a director although dishonesty is likely to lead to a longer period of disqualification being ordered. This must all, additionally, be considered within the lens of the public interest. The Secretary of State will only come to their determination that disqualification is needed if the behaviour of the director falls below such a standard that it is in the public interest, they be prohibited from taking that office again.

    Below are some examples of director conduct which can lead to a finding of unfitness under section 6 of CDDA 1986:

    How we can help

    We have been advising directors on this area of the law since 2002. We have dealt with every conceivable scenario when it comes to the question of misconduct and unfitness. We don’t just read the law– we help make it and have a number of reported cases dealing with misconduct and director defence. One example if the case of Re Integra Construction Ltd, Secretary of State for Business Innovation & Skills v Chalkley which became the leading case about how the Secretary of State should be specific in the allegations it makes against directors rather than simply invite the court to make a decision based on an overall evaluation of the directors’ conduct.

    We have written lots of helpful guidance on the specific allegations of misconduct which can be pleaded by the Secretary of State – and how best to defend directors from these claims. For further read any of the following guides or links below

    Free Guides, Booklets & Useful links

    FWJ Tips booklets

    Read the section in full

    6 Duty of court to disqualify unfit directors

    1. the court is satisfied–
    1. that the person is or has been a director of a company which has at any time become insolvent (whether while the person was a director or subsequently), or
    2. that the person has been a director of a company which has at any time been dissolved without becoming insolvent (whether while the person was a director or subsequently), and
    1. the court is satisfied that the person’s conduct as a director of that company (either taken alone or taken together with the person’s conduct as a director of one or more other companies or overseas companies) makes the person unfit to be concerned in the management of a company.

    (1A) [Conduct as director] In this section references to a person’s conduct as a director of any company or overseas company include, where that company or overseas company has become insolvent, references to that person’s conduct in relation to any matter connected with or arising out of the insolvency.

    1. the company goes into liquidation at a time when its assets are insufficient for the payment of its debts and other liabilities and the expenses of the winding up,
    2. the company enters administration,
    3. an administrative receiver of the company is appointed.

    (2A) [When overseas company becomes insolvent] For the purposes of this section, an overseas company becomes insolvent if the company enters into insolvency proceedings of any description (including interim proceedings) in any jurisdiction.

    1. where the company in question is being or has been wound up by the court, that court,
    2. where the company in question is being or has been wound up voluntarily, any court which has or (as the case may be) had jurisdiction to wind it up,
    3. where neither paragraph (a) nor (b) applies but an administrator or administrative receiver has at any time been appointed in respect of the company in question, any court which has jurisdiction to wind it up.
    4. where the company in question has been dissolved without becoming insolvent, a court which at the time it was dissolved had jurisdiction to wind it up.

    (3A) [Application of Insolvency Act 1986 ss.117 and 120] Sections 117 and 120 of the Insolvency Act 1986 (jurisdiction) shall apply for the purposes of subsection (3) as if the references in the definitions of “registered office” to the presentation of the petition for winding up were references–

    1. in a case within paragraph (b) of that subsection, to the passing of the resolution for voluntary winding up.
    2. in a case within paragraph (c) of that subsection, to the appointment of the administrator or (as the case may be) administrative receiver,

    (3B) [Wrong court] Nothing in subsection (3) invalidates any proceedings by reason of their being taken in the wrong court; and proceedings–

    1. for or in connection with a disqualification order under this section, or
    2. in connection with a disqualification undertaking accepted under section 7, may be retained in the court in which the proceedings were commenced, although it may not be the court in which they ought to have been commenced.

    (3C) [“Director”] In this section and section 7, “director” includes a shadow director.

    Section 7 of the CDDA 1986

    Section 7 of the CDDA – Procedure & Process of a claim

    Section 7 Overview

    Section 7 of the CDDA 1986 discusses general provisions relating to disqualification orders, disqualification undertakings and disqualification reporting provisions.

    Procedure

    Section 7 of the CDDA is procedural and sets out the method and process for other sections of the Company Director Disqualification Act 1986.

    CDDA section 7 sets out:

    On a procedural basis, when the claimant issues the director disqualification application in the court, the first thing to happen is the listing of an initial 15-minute hearing of the matter. This hearing can go one of two ways. Should the director wish to defend his / her position, they (or their representatives) can seek “directions” (procedural steps in the ongoing claim) in this 15 minute hearing (or before it), normally relating to service of witness evidence in the case (eg for Claimant and the Defendant). This is a form of case management hearing and if any other timetabling can be done at this hearing, it will be.

    Evidence

    Evidence in director disqualification claims is done by way of affidavit. This is written statement (a bit like a witness statement) that is confirmed by an oath of affirmation. In a normal case, the Insolvency Service investigator will supply one affidavit and include an exhibit of documentary evidence to support it. In more complex cases, other accusing parties will also supply affidavits. As above, the evidence the defendant may wish to supply in response will also need to be in affidavit form.

    Engagement with the Process

    However, should the defendant not respond to the proceedings up until the point of this first, initial hearing, then, the court may impose a disqualification order on a summary basis (ie at the 15 minute hearing itself). This can only be done if the disqualification period sought by the Secretary of State is below 5 years. Should the judge believe a longer period be needed, then the matter will be adjourned / postponed to a further hearing.

    Importantly, therefore, it is key that a director take immediate advice if they become aware of disqualification proceedings issued against them and the listing of a hearing date. There will be an initial panic at the proposed deadlines for the submission of evidence (as they can be quite short). However, such deadlines can all be extended and postponed by your instructed representatives by their engaging with the claimant in the proceedings. Getting proper director disqualification lawyers involved early on is vital to your prospects of success.

    Disqualification Report

    Indeed, this is the first step of any investigation against a director and is how the Secretary of State will substantively discover the conduct of the relevant director and then consider whether to commence an investigation. Therefore, it is important to be mindful that if you do not deliver the appropriate documentation to the liquidator (or administrator as it may be) such conduct may result in an unfavourable report being filed. Once the Insolvency Service commences an investigation, it can be difficult to get them to stop. Therefore, at all times, it is wise to engage with the process and be as receptive to requests for information and documentation as possible.

    How we can help

    We have helped defend many director disqualification claims and are fully versed in all the court procedure and how best to use our experience and tactics to maximise success for a director. Key to this is getting a proper timetable in place, not being bullied in to agreeing to do things before you are ready, ensuring proper access to company books and records to properly prepare your claim and if needed, asking for formal clarification of the Claimant’s case – as they are often poorly drafted and the allegations against the director unclear.

    We can also advise on all aspects of disqualification undertakings – whether they should be accepted, when they should be accepted and for what period. Getting this right can have huge implications for an individual facing a director disqualification claim.

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    Read the section in full

    7 Disqualification orders under section 6: applications and acceptance of undertakings

    1. by the Secretary of State, or
    2. if the Secretary of State so directs in the case of a person who is or has been a director of a company which is being or has been wound up by the court in England and Wales, by the official receiver.
    1. in a case where the person is or has been a director of a company which has become insolvent, the day on which the company became insolvent, or
    2. in a case where the person has been a director of a company which has been dissolved without becoming insolvent, the day on which the company was dissolved.

    (2A) [Acceptance of undertaking where s.6(1) satisfied] If it appears to the Secretary of State that the conditions mentioned in section 6(1) are satisfied as respects any person who has offered to give him a disqualification undertaking, he may accept the undertaking if it appears to him that it is expedient in the public interest that he should do so (instead of applying, or proceeding with an application, for a disqualification order).

    1. to furnish him with such information with respect to that person’s or another person’s conduct as a director of a company which has at any time become insolvent or been dissolved without becoming insolvent (whether while the person was a director or subsequently), and
    2. to produce and permit inspection of such books, papers and other records as are considered by the Secretary of State or (as the case may be) the official receiver to be relevant to that person’s or another person’s conduct as such a director, as the Secretary of State or the official receiver may reasonably require for the purpose of determining whether to exercise, or of exercising, any function of this under this section.

    7A Office-holder’s report on conduct of directors

    1. on the insolvency date, or
    2. at any time during the period of 3 years ending with that date.
    1. the company is in liquidation and at the time it went into liquidation its assets were insufficient for the payment of its debts and other liabilities and the expenses of the winding up,
    2. the company has entered administration, or
    3. an administrative receiver of the company has been appointed; and subsection (1A) of section 6 applies for the purposes of this section as it applies for the purpose of that section.
    1. the period of 3 months beginning with the insolvency date, or
    2. such other longer period as the Secretary of State considers appropriate in the particular circumstances.
    1. the references in subsection (1) to the insolvency date are to be read as references to the first such date during the period in which the company is insolvent, and
    2. subsection (1) does not apply to an office-holder if at any time during the period in which the company is insolvent a conduct report has already been prepared and sent to the Secretary of State.
    1. in the case of a company being wound up by the court in England and Wales, the official receiver;
    2. in the case of a company being wound up otherwise, the liquidator;
    3. in the case of a company in administration, the administrator;
    4. in the case of a company of which there is an administrative receiver, the receiver.