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A director whose conduct is found to be unfit by the Insolvency Service can be disqualified from being director of another company. The Insolvency Service has produced a guide on what happens during an Insolvency Service investigation into companies that have entered into formal insolvency proceedings - including administration, administrative receivership, voluntary and compulsory liquidation.
In most cases directors who have been involved in a failed company are able to try again with another company. However, if the Insolvency Service finds evidence that a director's conduct has been unfit or evidence of wrongdoing by a director, the director can be disqualified.
The Company Directors Disqualification Act 1986 (CDDA 1986) aims to maintain the integrity of the business environment. Those who become directors of limited companies should:
o carry out their duties honestly and responsibly
o ensure they and the company comply with the law and all relevant regulations
o exercise adequate skill and care with proper regard to the interests of the company's creditors, customers, shareholders, employees and, in some circumstances, the public
The Insolvency Service can use the CDDA 1986 against those who abuse the privilege of limited liability. More information about director disqualifications can be found on the Insolvency Service's website.
The guidance also gives information on:
o what counts as unfit conduct by a director
o what directors of insolvent companies are able to do
o the statutory functions of the Insolvency Service
o what and who the Insolvency Service is allowed to investigate
o how the Service carries out its investigations
o how it decides when to take disqualification action
For more information see: Guidance: Insolvent company investigations--What we do
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