What Is Director Misconduct?

In the UK, company director misconduct is governed by the Companies Act 2006, which sets out specific rules and obligations that directors must follow to prevent misconduct. These rules include the promotion of the company's success, exercising reasonable care and diligence, and avoiding conflicts of interest

Misconduct is a serious issue for company directors that could ultimately lead to a directors disqualification. Many directors are accused of misconduct when their company faces company insolvency and company liquidation. The Insolvency Service may investigate any suspected misconduct if they feel a director has acted improperly in the running of the company before it went into liquidation. In this article, we will explore the common allegations of misconduct during director disqualification proceedings.

Theft, Fraudulent Trading or Fraud

One of the most common allegations in a director disqualification case is theft, fraudulent trading or fraud. Directors are accused of misappropriating company funds for their own personal use, instead of ensuring that the creditors are paid first after liquidation has been declared. Directors may also try to falsely obtain credit from suppliers, although such fraud would be difficult to prove. In some cases, directors have tried to get around creditors by relocating assets to a foreign jurisdiction in order to prevent them from retrieving the money they are owed

Bounce Back Loan Abuse

Bounce Back Loans were a government scheme to help keep businesses afloat during the COVID-19 pandemic. Under the rules of the scheme, companies could apply for loans of up to 25% of their 2019 turnover, up to a maximum of £50,000. All loan money had to be used for the economic benefit of the business. If a company director misstated their company's turnover in order to acquire the Bounce Back Loan, this would be a clear reason for the Insolvency Service to issue a banning order.