Director disqualification: your position when a company fails

What is director disqualification?

Director disqualification is a ban under the Company Directors Disqualification Act 1986, imposed by a court order or a disqualification undertaking, that stops a person being a director or helping run a company for up to 15 years without the court's permission.

Disqualification proceedings are civil, not criminal. Most of the Insolvency Service's cases are brought on behalf of the Secretary of State for Business and Trade under section 6 of the Act, after a company has become insolvent or been dissolved, and Companies House, the Competition and Markets Authority and insolvency practitioners can also apply in some circumstances.

A disqualification is public. It goes on the register of disqualified directors kept by Companies House, and the Insolvency Service publishes recent results with the conduct behind them. In 2025 to 2026 it disqualified 1,153 directors for misconduct.

What happens to directors when a company goes into liquidation?

When a company goes into liquidation its directors lose control of the company and its assets to the liquidator or Official Receiver, must hand over the records and answer questions, and a report on their conduct goes to the Insolvency Service.

GOV.UK puts it plainly: once a liquidator is appointed, directors no longer control the company or anything it owns and cannot act on its behalf. In a creditors' voluntary liquidation your powers end when the liquidator is appointed, under section 103 of the Insolvency Act 1986, and the directors must prepare a statement of affairs within seven days of the winding-up resolution. In a compulsory liquidation the Official Receiver takes control and may ask to interview you. Four more points affect you personally.

• You must co-operate. Section 235 of the Insolvency Act 1986 requires current and former officers to give the office-holder the information it reasonably needs and to attend when asked. Failing to do so without a reasonable excuse is an offence.
• The company's debts stay with the company. A limited company is a separate legal person, so you are not liable for its debts unless one of the exceptions in the next section applies.
• You may be owed money too. A director who is also an employee may be able to claim redundancy pay for directors, with unpaid wages and notice pay, from the Redundancy Payments Service.
• You can start again. You can be a director of another company unless you are bankrupt or disqualified, but the rules on phoenix companies and reusing a company name apply for five years.

Are directors personally liable for company debts?

Directors are not usually personally liable for their company's debts, but they can become liable through a personal guarantee, an overdrawn director's loan account, a wrongful trading claim, a breach of the rules on reusing names, or a compensation order.

In the ordinary course a limited company's debts stay with it when it fails. Bounce Back Loans are different: lenders were not allowed to take personal guarantees, so you do not owe a Bounce Back Loan simply because the company cannot repay it, although misusing one can lead to disqualification and a compensation order.

In 2025 to 2026 the Insolvency Service secured 125 compensation orders and undertakings, worth about £4.5 million between them. The Secretary of State has two years from a disqualification to apply, and the amount reflects the loss caused, the conduct and anything already repaid. These are the main routes to personal liability.

Paying off a debt you personally guaranteed ahead of other creditors can also be reversed by the liquidator as a preference if it happened in the two years before the insolvency, and the law presumes the company meant to prefer a connected person such as a director.

How does a director disqualification investigation work?

A director disqualification investigation starts with the conduct report that the liquidator, administrator or Official Receiver must send the Insolvency Service within three months of the insolvency, covering everyone who was a director in the previous three years.

Section 7A of the Company Directors Disqualification Act 1986 sets that deadline, and the Insolvent Companies (Reports on Conduct of Directors) (England and Wales) Rules 2016 require the report to be filed online through the Insolvency Service's portal. A practitioner can only ask for more time before the three months run out, and SIP 2 says extensions are only considered in rare cases. The report is confidential, and it must be made even when there is no money in the case.

What conduct leads to director disqualification?

Conduct that leads to director disqualification includes trading on to the detriment of creditors while insolvent, failing to pay tax or file returns, keeping inadequate accounting records, using company money for personal benefit and misusing a Bounce Back Loan.

The Insolvency Service's guidance on GOV.UK says there is no set list. Its other examples include removing assets that should have been available to creditors, failing to file accounts at Companies House, fraudulent behaviour and failing to co-operate with the Official Receiver or insolvency practitioner. When deciding whether someone is unfit, the court must weigh the factors in Schedule 1 to the Act: how far the director was responsible for the company's failure or for any breach of the law, how often the conduct happened, the loss it caused or could have caused, and any breach of their duties as a director.

Covid support schemes dominate the current figures. In 2025 to 2026, 773 of the 1,044 disqualifications under section 6 involved allegations of Covid financial support scheme abuse, and those bans averaged 9.4 years. The Bounce Back Loan cases the Insolvency Service publishes involve allegations such as overstating turnover to borrow more than the scheme allowed, which was 25% of turnover up to £50,000, or not using the money for the economic benefit of the business as the scheme required. Our guide to liquidating a company with a Bounce Back Loan covers the loan itself.

How long does a director disqualification last?

A director disqualification under section 6 lasts at least 2 and at most 15 years, and the courts place each case in one of three brackets set by the Court of Appeal in Re Sevenoaks Stationers (Retail) Ltd.

Bans obtained by the Insolvency Service in 2025 to 2026 averaged 8.1 years, and about one in five ran for more than ten years. Where a case falls within its bracket depends on the facts, which is why the explanations you give the Insolvency Service matter.

Should a director give a disqualification undertaking or go to court?

Giving a disqualification undertaking usually makes sense when a director accepts that the alleged conduct happened, because it has the same effect as a court order but avoids court proceedings and, if offered before they start, the Insolvency Service's investigation costs.

You can offer an undertaking at any stage, and the Secretary of State accepts one only where that is in the public interest. Once proceedings have started, you may have to pay the costs up to the date of the undertaking.

If you think the allegations are wrong, you can defend the case. You set out your answer in an affidavit, other witnesses may give evidence, and the court decides whether you are unfit and for how long. A director who loses will usually be ordered to pay the Secretary of State's costs, so take independent legal advice before you decide.

What can a disqualified director not do, and what happens if they break the ban?

A disqualified director cannot, without the court's permission, be a director of a UK company, act as a receiver of company property, or take part in promoting, forming or managing a company or limited liability partnership, and cannot act as an insolvency practitioner at all.

You must resign any directorships, and changing your job title or having someone else run a company on your instructions does not get round the ban. The Insolvency Service reads management widely, giving examples such as negotiating with suppliers or customers, hiring or firing staff and dealing with the company bank account. A ban does not stop you having a job with a company in a role with no management in it, trading as a sole trader or in a partnership, or holding shares. Other rules can bar a disqualified person from being a charity trustee, a school governor or a pension scheme trustee.

Breaking a ban has three consequences.

• A criminal offence. Acting in breach of an order or undertaking can lead to up to two years in prison, a fine or both, and a further disqualification.
• Personal liability. Section 15 of the Act makes you personally responsible for the debts a company incurs while you are involved in managing it in breach of the ban.
• Others are caught too. Anyone who acts on your instructions knowing you are disqualified can be prosecuted, disqualified and made personally liable for the company's debts.

Can the directors of a dissolved company be disqualified?

The directors of a dissolved company can be investigated and disqualified because the Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act 2021 extended the Insolvency Service's powers to companies struck off without going through liquidation or administration.

The Act received Royal Assent on 15 December 2021. Its investigation powers applied from that day and the rest from 15 February 2022, and both reach back to conduct and dissolutions from before the Act was passed. The Insolvency Service said at the time that the aim was to tackle directors who dissolve companies to avoid paying their liabilities, including government-backed Covid loans.

The three-year limit for starting proceedings runs from the date of dissolution, and a disqualified director of a dissolved company can also face a compensation order. Striking off a company that still owes money is not a clean way out either, because a former creditor or the Secretary of State can apply to the court under section 1029 of the Companies Act 2006 to restore it to the register.

How can a director protect themselves when a company is failing?

A director protects themselves when a company is failing by taking advice from a licensed insolvency practitioner as soon as insolvency looks likely, stopping any trading that makes creditors worse off, keeping full records and treating every creditor, including HMRC, fairly.

The defence to a wrongful trading claim is that, from the point you knew or ought to have known that insolvent liquidation or administration could not be avoided, you took every step you should have taken to minimise the potential loss to creditors. Early advice, and a written record of the decisions you made and why, help to show that. The same habits count when the Insolvency Service weighs your conduct.

• Keep the accounting records up to date, and file accounts and returns at Companies House on time.
• Do not move assets out of the company, or pay yourself or a debt you have guaranteed ahead of other creditors.
• Keep HMRC informed and pay what you can. Allegations of unfair treatment of the Crown featured in more than one in ten section 6 disqualifications in 2025 to 2026.
• Co-operate fully with the liquidator or administrator, and reply to any letter from the Insolvency Service.
• Take independent legal advice as soon as the Insolvency Service proposes disqualification.

Why speak to NTF about director disqualification?

NTF Corporate Solutions is a specialist insolvency practice whose practitioners, James Kaye and Nick Morgan, are licensed by the Institute of Chartered Accountants in England and Wales and explain plainly, before any appointment, how a director's conduct will be reviewed.

As part of the NTF group, we have helped company directors since 2009. Acting early leaves a director the most room, and the first conversation with us is free, confidential and without obligation. If we are appointed, our report on your conduct must be accurate and complete, so we will also tell you when you should take your own legal advice.