What is a Directors’ Conduct Report?
What is a directors conduct report? – Director conduct reporting service
Part of the liquidation duties of a liquidator in the liquidation of a limited company remain to examine how the company operated and operated. They must submit a confidential report under the section 7A of the Company Directors Disqualification Act 1986, only to the Insolvency Service on behalf of the Secretary of State, and not to the directors or other parties.
However, it covers the conduct of the director and whether the failure of the company involves mismanagement or fraud.
Access to this service is restricted to licensed insolvency practitioners and their authorised staff, and is not in the public domain.
What may be considered misconduct?
- trading while insolvent to the detriment of creditors;
- deliberately depriving creditors of assets;
- acting fraudulently;
- not keeping or producing suitable accounting records.
- causing significant harm to customers, suppliers, etc.
- breaking the law, e.g. fraud, scams;
- having a significant irregularity in its affairs;
- some Companies Act breaches;
- other serious misconduct.
Three Types of Director Conduct Reporting Service by the Liquidator
The liquidator remains REQUIRED to complete a report on directors conduct. The information helps the Insolvency Service only.
Three types of the report exist:
- D2 final report, completed when the liquidator deems their inquiries ended with nothing to inform;
- D2 interim report, completed so the appointed IP may need added time with their inquiries;
- D1 report, a report highlighting concerns the IP believes contemplated company mismanagement on the running of the failed company by the previous company directors.
The insolvency service examines the confidential director’s report online for review. So they can take into account the director’s business record.
The main concern of the insolvency service is always whether directors have colluded and face disqualification for a certain period.
In the case of the D1 report, the liquidator treats directors individually concerning conduct.
If directors have not colluded, the director who is at fault will not bring down the rest.
How long does the Insolvency Service Have to Respond?
The insolvency service has a two-year period in which it can conduct inquiries. The purpose remains to determine whether any action is required, which leads to a disqualification order for directors. If they think there is a reason to do so, they can appeal to obtain a court order for an extension beyond that period. Many of this timeframe involves gathering evidence, including talking to former directors of the company, to ensure the validity of the evidence gained.
Once they have made the decision, they can appeal to the High Court for a disqualification order.
What happens to company directors when a company is liquidated?
As the Company approaches the final phase of liquidation, its realised assets will be distributed to the Company’s creditors. In their capacity as shareholders, the directors will not receive any proceeds from the Company, as it remains insolvent.
Suppose you were a director of a company or shadow director in compulsory liquidation or creditor’s voluntary liquidation? In that case, you are therefore prohibited for five years from setting up, managing or promoting a limited company with the same or similar name as your liquidated company. These include the registered name of the company and any trade names (if any).
Can any assets of the company director be appropriated from a limited company?
When a limited company remains unable to meet its liabilities, you are granted limited liability protection as director. Essentially, directors ordinarily cannot be held personally responsible for a limited company’s debts, except when they have signed personal guarantees on behalf of the company.
What is a directors conduct report? – Can I lose my house if my business goes into liquidation?
As director of a limited liability company, you have limited liability protection against the debt of a limited liability company. Therefore, after your company’s insolvency and liquidation, you usually do not have to worry about insolvency personally or the loss of your house.
For further assistance on business rescue and insolvency services, please contact John Waller on 0800 612 5448.
Contains public sector information licensed under the Open Government Licence v3.0.