One of the most important positions held in a company is that of a director. These individuals are responsible for all major decisions taken within a company for its development and growth. However, when a director fails to meet the expectations, the other members may appeal to remove the director from their position of power. This process is called the director disqualification. Today, we will take a thorough look at what it is and various other details about it so that you can have a clear idea right off the bet. Let us begin.
What does it mean to get a director disqualified?
If the director is found unfit for the role, members of the company, which may be the other board members, the stakeholders, or the shareholders, may appeal to disqualify the director. By disqualifying, the person in question will have to give up their position, be subjected to fines, and may face problems in their careers in the future.
Either way, being disqualified is a public matter that can cause great humiliation and embarrassment to the person in question. As such, it is a legal procedure that will require thorough investigations, reports, and shreds of evidence.
What can cause a director to get disqualified?
There are quite a few circumstances that may lead to getting a director disqualified. Let us take a look:
- If the company gets insolvent: In such cases, an immediate investigation of the conduct of the director is ordered. If the director is found to have misconducted, disqualification will ensue immediately. However, if the director’s conduct is found to be satisfactory, there is no problem.
- If the director goes bankrupt:
If the director gets bankrupt, they will be immediately asked to step down from their position and relinquish their powers. That way, they are not allowed to be the director of any company.
- For misconduct and criminal activities:
This is the most common reason for disqualification. It may include involvement in criminal offenses or simply being unfit for the role of a director.
We have also listed a few of the reasons why a director may be considered unfit for their role:
- If they allow the company to trade even though it cannot pay back the debt it owes
- If they do not maintain a proper record of the company accounts
- If they utilize company money for private investments and personal assets
- If they avoid paying company taxes
- If they are involved in fraudulent schemes
How long is the disqualification period?
The disqualification period for a director may depend on the reasons why they were disqualified in the first place. As such, the duration may last from 2 to 15 years.
- 2 to 5 years: recklessness and negligent behavior as a director
- 6 to 10 years: serious offenses causing harm to the public interest
- 11 to 15 years: criminal offenses and fraud
What happens after director disqualification?
After the director disqualification, there are various rules and regulations that a director may need to follow, avoiding which can lead to criminal charges. Let us take a look at the effects that director disqualification has:
- Prohibition on holding the position of a director for the disqualification duration
- Prohibition on holding any position of trust
- Prevention of professional practice by the authorized professional body (if any)
- Liable for losses and fines incurred due to misconduct or criminal activities
What can be done in such a situation?
If an individual faces director disqualification, there are a few things that they may be able to do. We’ve explained these things below for you to understand.
- Approach the court and defend their own case
One may want to defend themselves against the appeals of the director disqualification, which they very well might. The court will judge on the standards of whether they are capable of being a director fit for the role or not.
- Offer a disqualification undertaking
One may also offer an undertaking— opting for voluntary disqualification. This will allow them to move on without holding anything from the past. However, if accepted, this undertaking becomes as good as a court order. Thus, high legal advice is recommended before opting for this option.
