Permission for company directors in a DRO
A debtor must apply for permission to be the director of a limited company when subject to a debt relief order.
Prohibition against acting as a director
Once a debt relief order application is approved, the debtor must apply for the court's permission before they can:[1]
be formally appointed as a director of a company
continue to act as a director of a company
directly or indirectly take part in the promotion, formation, or management of a company
Failure to obtain permission from the court before taking any of the prohibited steps is a criminal offence.
The debtor must terminate their appointment and cease all relevant activities before they apply for a DRO.
Scope of the prohibition
The prohibition applies to debtors appointed as a company director, including people who are inactive in their roles.
The prohibition has a wider application than banning debtors from being formally appointed as a company director. Any activity that could include taking part in or being concerned with a company's management is included.[2]
This means the debtor must not arrange for another person to manage the company on their behalf or upon their instructions.
When the prohibition applies
The prohibition applies during the debt relief order moratorium.[3]
It also applies to debtors subject to a debt relief restrictions undertaking or order, including an interim order.[4]
Termination of director appointment
The debtor must terminate their appointment as a director and cease any activity that could amount to a breach of the prohibition before the debt relief order application is approved.
Companies House form TM01 terminates a director's appointment. It can be filed by post or online.
The debtor can apply to court for permission to become a director once the debt relief order application is approved.
Impact on livelihood
The debtor cannot revoke the debt relief order if the application for permission is refused. Debtors whose livelihood depends on obtaining the court's permission to run a company should consider other debt options.
People who are not formally appointed directors
Debtors acting in the formation or management of a company but who are not officially named as directors should stop their activities as soon as the debt relief order application is submitted.
That way they can ensure they are not continuing the activities at the point the application is approved.
When the debtor can resume director duties
A person who has ceased to be a director can resume their duties once the DRO moratorium has ended. The debtor should check the official receiver has not extended the moratorium period beyond 12 months before they resume director duties.
If a debt relief restrictions order or undertaking has been imposed, the debtor must wait until it has expired before resuming director duties. A debt relief restrictions order or undertaking can last between 2 and 15 years.
Read more about Debt relief restrictions orders and undertakings on Shelter Legal.
Debtor's application for permission
A debtor already acting as a director must apply to court for permission to continue at the point when:[5]
the debt relief order application is approved
a debt relief restrictions order or undertaking is made
People who want to start acting as a director during a debt relief order moratorium or debt relief restrictions must apply to court before they begin.
The debtor cannot apply for permission until they are in a moratorium or subject to debt relief restrictions.
The application for permission is not a mere formality. The court examines all the circumstances of the case. There is a significant risk permission will be refused, especially if the official receiver opposes the application.
How the debtor makes the application
The debtor applies to court for permission on form IAA (the general insolvency application form).
The form must be accompanied by a witness statement from the debtor which specifies:[6]
the name of the company
the nature of the business
the place or places where the business operates
whether it is a private or public company
names of all the people who are directors or managers
how the applicant will be involved in the formation, promotion, or management of the company
the income and benefits the applicant will receive from the directorship
Read more about witness statements on Shelter Legal.
Where the debtor makes the application
The debtor must make their application for permission to the hearing centre that serves their insolvency district.[7]
Cost to make the application
The cost to make an application is £308.[8]
The debtor might qualify for a fee remission if their household income is low. Information about help with court fees is available on Gov.uk.
How the court deals with the application
Once the court receives the application it must set a hearing and deliver notice of the hearing to the debtor.[9]
The court considers all the facts of the case to reach a decision on whether to allow the debtor permission to be a director. It will take into account the conduct of the debtor and the risk to the public if the debtor is permitted to run a company.[10]
Consequences of failure to get permission
A debtor who is still a director of a company when a debt relief order is approved, or debt relief restrictions are imposed, is committing a criminal offence.
This applies if they are inactive in running the company, or if an application for permission is pending.
Punishment and liability for the debtor
The offence is punishable by a fine, or a prison sentence of up to two years, or both.[11]
In addition, the debtor is personally liable for all the relevant debt of the company.[12]
Defences against conviction
A breach of the prohibition is a strict liability offence.
That means the debtor is guilty whether they were aware of the rules or not.[13] There is no defence of innocent intention.
The court has the power to grant retrospective permission. Case law suggests it is unlikely to grant permission after the fact except in extreme cases.[14]
Last updated: 26 June 2024