Operating as a Sole Trader Following Director Disqualification

Directors who have been disqualified for fraudulent or wrongful trading in insolvency, or for other reasons, are bound by the restrictions placed upon them by the Company Director Disqualification Act 1986.

Disqualification can last between 2 and 15 years. Many directors wonder what they can do in terms of working.

The fact is, no disqualified director can go on be the director of any UK registered company or an overseas company connected with the UK. Neither can they form, market or run a company or sit on the board of a charity, police authority, school or social care body. There is also a ban on practising as a solicitor, barrister or accountant. Any breach of the terms of the disqualification order can lead to a prison sentence of up to two years.

Continuing Working After Disqualification

It is however still possible for most ex-directors to carry on working in some way. If there is a wish to continue running a business, then setting up as a sole trader is an option, as the restrictions laid down by the Company Director Disqualification Act only apply to the forming, running and marketing of limited companies and limited liability partnerships.

Setting up as a sole trader will of course require a degree of reorganisation. Tax and legal implications will come into play, so it is essential to take professional advice. Here are the main differences:

Remuneration and tax

Before: As a director you were paid through a salary and dividends. Corporation Tax and dividend tax applied. Now as a sole trader, you will keep your earnings which will be subject to tax on a Self-Assessment basis.

Liability

As a director, you enjoyed freedom from personal liability for company debts and negligence. As a sole trader however you will face unlimited personal liability, which means your personal assets could be called upon to settle any debts connected with the business or partnership.

The Importance of Expert Advice

If you have been disqualified as a director and want to carry on trading in the sector that you know, it is vital to exercise due consideration when restructuring your business. Always bear in mind that a breach of the terms your disqualification order could land you with a custodial sentence.

It is therefore wise to seek advice from an accountant who will be able to guide you on the right way to proceed. They will also be able to make certain you are following the right guidelines when it comes to tax and filing commitments.

Why not make your first port of call your local bookkeepers? They can help you with a general overview of your obligations as a sole trader and how these will differ from your previous role as a director. They can then introduce you to an accountant for the full guidance you need.

A Guide to Misfeasance Claims

Misfeasance is the misapplication of money or company property. As far as directors of a company are concerned, misfeasance is considered a breach of fiduciary duty. For directors facing a misfeasance claim, there are certain steps that must be taken.

Step 1: Respond to the claim letter without delay

When you receive a letter of claim, be sure to deal with it straight away. The liquidator will expect a response within a particular time period. If you fail to respond within this time then you could face court proceedings, the costs of which could be very damaging. You should however not respond on a whim and without taking legal advice, because doing so could scupper your chances of minimising the impact of any claim.

Step 2: Take Professional Advice

Misfeasance claims can be for considerable sums of money which could be seriously damaging for a business. It is therefore essential to seek specialist legal advice as early on as possible. You should never respond to a claim before you take such advice. This is your opportunity to clearly present the facts of the situation. With a well-structured response, you will stand a much better chance of avoiding the claim altogether, or at very least, mitigating the consequences.

Step 3: Arrange to Meet the Liquidator

If you can sit across the desk from the liquidator and discuss your circumstances and put across a good case (as assisted by your solicitor) then your chances of a more advantageous outcome will be boosted.

Step 4: Decide What You Want to Achieve

It may be that you are intent on completely denying the claim and you wish to have it set aside. Then again, you may be satisfied to settle the claim in part, with the goal of minimising the amount being claimed.

Some directors are happy to accept the claim in full and settle with as little hassle and time spent as possible. If you are in agreement with most of the claim being made, or you just want everything to be settled quickly, you may be best advised to settle early. Sometimes the liquidator will accept a payment plan for settlement over a period of time.

If you wish to completely defend the claim, you will need to be realistic. It is going to take time and money to reach a settlement. Some claims can take up to two years to reach even a final hearing, with costs spiralling as more time passes.

Next Steps

Whatever you decide to do, be sure to take professional advice. You’ll need an accountant and a lawyer who specialises in misfeasance claims. Be sure to choose one with particular skills in negotiation and strategy planning. Why not ask your local bookkeepers if they can recommend anyone?