A bankrupt must not act as a director or be involved in the management of a company until they are discharged from bankruptcy. An undischarged bankrupt may only act as a company director if permission is granted by the court.
If a bankrupt does act as a director or is involved in the management of a company without court permission, they will be guilty of a criminal offence that is punishable with up to two years imprisonment alongside an unlimited fine, they also can be personally liable for certain company debts. Anyone who knowingly assists a person to break the law in this way can also be liable to prosecution and be personally liable for the debts built up by the company. A bankrupt can be guilty of this offence, even if he/she is not registered as a director at Companies House as the offence is widely drafted to include being “directly or indirectly involved in the management, promotion or formation” of a company as well.
Application to the court
As a measure of avoiding the above consequences, the bankrupt can apply to the court for an order for permission to act as a company director.
This application will require:
- An application notice containing the information as required by the insolvency legislation
- Payment of the court fee
- A witness statement with specified information
- Service on the trustee within the specified time limits
- The preparation and service of a report by the Official Receiver
- The court hearing
To grant the application, the court must be satisfied that giving the bankrupt permission to act as a director or manager of a company would not be contrary to public interest. The court will look at the history and the events leading up to, and resulting in, the commencement of the bankruptcy(including the culpability of the bankrupt) , the role the bankrupt intends to play within the company and who else will be responsible for the company and the supervision of the bankrupt’s involvement. The court will also address the question of whether income received by the director or manager should be the subject of an income payments order.
Being involved with the management of a company during bankruptcy can have very serious consequences for the bankrupt and those working with them. Taking advice when such a situation is being considered is very important. Our solicitors are able to provide advice in this area and to assist with a court application where necessary. For more information, please get in touch today by emailing litigation@grantsaw.co.uk or contact our insolvency experts directly on 020 8858 6971.
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