According to the latest figures published by the Insolvency Service, the number of company directors being disqualified for misconduct continues to rise. Whilst the overwhelming majority of directors act responsibly and comply with their legal obligations, the figures serve as an important reminder of the significant personal consequences that can arise where directors fail to meet their statutory and fiduciary duties.
The Insolvency Service performs an important role in the UK insolvency framework, dealing with company liquidations and bankruptcies, conducting investigations into alleged misconduct, and providing guidance to directors on issues such as solvency, financial distress and corporate governance.
Enforcement
The Insolvency Service has wide-ranging powers to investigate the conduct of directors of both insolvent and dissolved companies. Following an investigation, it may take enforcement action where it considers a director's conduct renders them unfit to be concerned in the management of a company.
As part of its wider duty to protect the public and deter misconduct, the Insolvency Service regularly publishes information regarding disqualifications and other enforcement measures taken against directors.
The latest annual figures, covering the period from 2025 to 2026, reveal:
- 2,202 directors were disqualified following enforcement action under the Company Directors Disqualification Act 1986;
- 1,153 directors were disqualified for misconduct, representing an 11% increase on the previous year;
- All but three of those disqualifications related to the alleged abuse of Covid-19 financial support schemes;
- 93 bankruptcy and debt relief restrictions were imposed;
- 81 individuals were convicted following criminal proceedings; and
- 125 civil compensation orders and undertakings were secured, resulting in compensation totalling almost £4.55 million.
A director who is disqualified may be prohibited from acting as a company director, forming a company, promoting a company or becoming involved in the management of a company without the court's permission. Disqualification periods can range from two to fifteen years depending upon the seriousness of the conduct in question.
In practice, many cases are resolved without a contested court hearing. Rather than defend proceedings, a director may offer a disqualification undertaking to the Secretary of State – a voluntary but legally binding promise, carrying the same prohibitions and the same two-to-fifteen-year range as a court order, not to act as a director or be involved in the management of a company for an agreed period. This can avoid the cost, delay and publicity of a trial.
Breaching a disqualification order or undertaking can have severe consequences, including personal liability for company debts and potential criminal sanctions.
Investigations
If a complaint is made concerning the conduct of a director, shadow director or other individual exercising control over a company, the Insolvency Service may commence a formal investigation.
Investigations are conducted by specialist teams and may involve reviewing accounting records, company books, correspondence and banking information, as well as interviewing directors and other key stakeholders. The investigator will then prepare findings and make recommendations regarding any further action.
Following an investigation, the Insolvency Service will consider whether there is sufficient evidence to justify issuing disqualification proceedings. A key consideration will be whether pursuing disqualification is in the public interest. Where disqualification is pursued on the ground of unfitness following a company's insolvency or dissolution, proceedings must generally be commenced within three years of the date on which the company became insolvent or was dissolved, unless the court gives permission to bring them out of time.
Examples of conduct which commonly give rise to disqualification proceedings include:
- Trading to the detriment of creditors;
- Failing to maintain adequate accounting records;
- Non-payment of taxes and statutory liabilities;
- Misuse or misappropriation of company funds;
- Breaches of directors' fiduciary duties;
- Fraudulent trading; and
- Abuse of government-backed financial support schemes.
Directors should therefore ensure that they keep accurate records, maintain appropriate financial oversight and seek professional advice at an early stage if their company experiences financial difficulties.
Directors of Dissolved Companies
In recent years, the Insolvency Service's powers have been expanded to enable it to investigate the conduct of directors of dissolved companies, even where the company has not entered into a formal insolvency procedure. This development was designed to address concerns that some directors may seek to avoid scrutiny by dissolving companies with outstanding liabilities.
Directors should therefore not assume that dissolution necessarily brings an end to potential regulatory investigations or enforcement action.
Key Takeaways
Whilst the latest figures demonstrate continuing enforcement activity by the Insolvency Service, they should not cause concern for directors who comply with their legal obligations and take appropriate advice when required.
However, directors should remain alive to their responsibilities and understand that investigations can arise both following insolvency and following the dissolution of a company. Early legal advice can often assist in addressing concerns before they develop into formal proceedings.
For expert advice and representation concerning directors' duties, Insolvency Service investigations and director disqualification proceedings, it is always advisable to seek professional advice at the earliest opportunity.
How We Can Help
Our specialist Commercial Litigation and Insolvency Team regularly advises company directors, shareholders and businesses on insolvency-related disputes, directors' duties, allegations of misconduct and regulatory investigations.
To discuss your circumstances, please contact mfg Solicitors on 01562 820181 or email chianna.weaver@mfgsolicitors.com.