Introduction
The director disqualification regime plays a vital role in maintaining accountability within companies. There are numerous reasons why a director might be disqualified; these include financial mismanagement, dishonesty and a failure to promote the success of the company or comply with other duties placed on directors. The disqualification regime is governed by the Company Directors Disqualification Act 1986 (the Act).
Director Disqualification
The purpose of the disqualification regime is to protect the public and creditors from individuals who have demonstrated unfit conduct. This preserves the integrity of the marketplace and acts as a deterrent, helping to prevent misconduct.
The most common grounds for disqualification are dishonesty, fraudulent trading, abuse of financial schemes and mismanagement causing a company to fail. Most disqualifications will stem from an investigation into a company’s affairs by the Insolvency Service and, if so ordered, a director can be disqualified from holding office for up to 15 years. During this time the individual is prohibited from acting as a director or being involved in company management without the court’s prior permission. Breaching this restriction can result in criminal penalties (including imprisonment) and personal liability for company debts.
Applying for Court Permission
While disqualification is a serious restriction, Section 17 of the Act provides a potential route back to directorship by offering individuals the option to apply to the court for permission to act as a director or be concerned in the management of a company. The permission, if granted, is often subject to strict conditions and monitoring.
The application process is not automatic and places the burden of proof on the applicant. Courts assess each case on its merits and are guided by principles of public protection and deterrence. The court considers the seriousness of the misconduct, the applicant’s credibility, historic compliance, risks posed and if the applicant’s involvement is essential for the continued operation of the company.
There is an obligation on an applicant who applies under Section 17 to present a full and honest account of their prior conduct and satisfy the court that they are reformed.
Wilson v The Secretary of State for Business and Trade
The importance of credibility and full disclosure in Section 17 applications was recently highlighted in the High Court’s decision in Wilson v The Secretary of State for Business and Trade [2025] EWHC 691. Mr Wilson had been disqualified for ten and a half years due to serious misconduct involving the misuse of bounce back loans across four companies that entered liquidation between 2020 and 2021. The court had found that the loans were improperly obtained, and some of the loan funds were misapplied for Mr. Wilson’s personal use.
In 2024, Mr Wilson applied for permission to act as a director for 15 companies. Although interim permission was initially granted, the court ultimately refused the application. Whilst the court refused to make a formal ruling regarding dishonesty, the judge did consider that Mr Wilson’s misconduct as regards to the bounce back loans well within the most serious bracket. Ultimately, it was held that granting permission would contradict the objectives of the disqualification regime and pose an unacceptable risk to the public. Of note is the fact that Mr. Wilson was also found to have acted in breach of the conditions attached to the interim permission that had been granted. The judgment contains a helpful summary of the law surrounding applications under Section 17.
Key takeaways
Director disqualification and the courts’ discretion under Section 17 exists to reinforce public confidence in corporate governance. Permission under the Act is not a formality but an exception, granted only when the court is satisfied that the director will uphold the highest standards of conduct moving forward.
For directors seeking to manage risks associated with disqualification, proactive legal guidance and a commitment to good governance are essential.
How can we help?
If you have any questions relating to director disqualification or directors’ duties, get in touch with our Commercial Disputes team.
