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Emergency protocol for director disqualification

by John Saunders
11th May 21 4:00 pm

A director’s position is always under scrutiny, and so is their work and ethics. Small misconduct or inadequate business affairs may pave the way towards his/her disqualification.

Directors’ disqualification is enacted via Company Director Disqualification Act, 1986(CDDA). It should be thoroughly studied to be aware of all its terms and conditions. Here is a guide that chalks out the emergency protocol in such a situation.

1. CDDA is exclusive to CVL

Company Voluntary Liquidation(CVL) acts as a mitigator in the situation when the company faces bankruptcy or is on the verge of insolvency. A collaborative decision is taken after consultation with creditors to stop all forms of trading.

An urgent appointment of a liquidator is required to begin with the valuation of assets. Thus, CVL saves the director from allegations of misconduct and unjustified trading.

2. CDDA is not applicable on CVA

Company Voluntary Arrangement(CVA) is a legal agreement between the unsecured creditors and the company that in case of insolvency, the company will pay debts only under its capacity and not the actual amount. No creditors can legally ask for the full payment of the debt if bound by CVA. In maximum situations, only 75% of the debt is supposed to be rolled back.

This saves a director from legal proceedings of disqualification. It gives him/her time to reframe the problems and save the assets from liquidating. For businesses that do not achieve immediate success but promise long-term benefits, CVA is a safeguard for the directors of such companies.

Mostly, extended up to 5 years CVA will ensure funds for running the business in the current times. It will save your stakeholders and board of directors from dissolutions and secure the business framework.

3. Hire an expert corporate lawyer

An expert is important to deal with the nooks and cranny of its field. A corporate lawyer, along with the litigation team, will fight your defence in court. Director Disqualification experts present a proper justification for a director’s unfit conduct. They prepare him/her for relief petitions and guide them for interviews with insolvency agencies.

They try to change the course of the matter and persuade the authorities to hold back on the proceedings.  Making a director aware of basic rights while simultaneously negotiating for decreasing the insolvency period is some basic duty of a solicitor. They make sure of a stable future career of a director and resumption of his/her position as soon as possible.

4. Voluntary disqualification

Disqualification undertakings serve the advantage of overcoming the legal costs involved in the whole process. It is imperative to take into account that voluntary disqualification can only be taken before the issue of Section 16 Letter that is the first official notice to a direction for his disqualification.

In short, this method helps in the early resolution of the issue. But, it is also accompanied by certain financial penalties and compensation orders. Advice from a legal expert is always recommended for a better future course.

5. Justify your incompetence

Misconduct has been defined in different standards and parameters. Here, a director gets the advantage to justify his/her incompetence concerning the time frame and demand of the situation. If valid shreds of evidence are submitted before the secretary of state prior to the trial to justify the director’s incompetence, then there are chances of remission of disqualification orders.

Know the differences between legal affairs of insolvency disqualification and competition disqualification because the latter gives you special rights to stay in the director’s position for the sake of upholding the strategic functionary of the company.

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