Every company has to have a board of directors. They are ultimately responsible for the management of the company and answer to the shareholders who elected them. Being a company director is a huge responsibility with equally huge perks. Therefore, you need to balance both when you are a company director.
Many company executives are also company directors which can present a conflict of interest. However, such executives are compensated both as employees and board directors. A board director can get disqualified from the board by the power of other directors and shareholders. The following are some of the main reasons why company directors can get disqualified:
Excessive Compensation or Withdrawal in an Insolvent Company
When a company is insolvent, it means that it can no longer manage to pay its bills. Therefore, when a company director is indulging in luxurious expenses at the cost of the company, it is cause for disqualification.
The money the director was using would have otherwise been used to make the company more solvent. The same goes for whether the director was taking funds from the company legally or illegally.
The director of a company should have the best interest of the company at heart not their own. Disqualification from the board might be the only way to ensure that the company does not go bankrupt.
Misrepresenting the Facts About the Company
Companies are required to disclose certain information about their operations to the necessary authorities. However, not all companies do and some are very good at withholding such information.
When a company director is found to be misrepresenting facts about the company, it is grounds for disqualification. It may be that they were misrepresenting the facts to make the company appear in a better light or to hide a massive mishap. Regardless, it is the job of the directors of the company to disclose all information at the request of the authorities. Failure to do so by a single director puts the entire company in jeopardy.
Fraud may seem as representing the facts but it is slightly different. Fraud involves physically altering documents to mislead a particular party. Fraud is one of the most common reasons for director disqualification. However, if you are charged with fraud, you can get disqualification solicitors to help you. You need to be innocent and have overwhelming evidence in your favor to win the case. The good thing with fraud is that there is either evidence to prove it or not. The fraud may include defrauding the company or other entities for personal gain.
Failure to Submit Company Accounts to Companies House
All companies are required to submit company accounts for audit to the Companies House or registrar of companies. Failure to do so is the prime reason for director disqualification. It is quite easy to determine whether a director was responsible for a company’s failure to submit company accounts. Corporate structures have very clear definitions as to the roles of the company’s employees and directors. Failure to submit company accounts is a sign that the company has something to hide. Even though it was an error or they were repeatedly late to submit the accounts, a director can still be disqualified.
Trading While the Company Was Insolvent
Company directors, especially company executives like the CEO or CFO are largely responsible for conducting business on behalf of the company. They sign off on the deals and ensure that payment is complete.
Therefore, when such a company director is responsible for the company trading with other entities when they know that the company is insolvent is a great crime. It is an undeniable reason for getting disqualified as a company director.
The responsible thing to do is to tell all parties that you are unable to pay them and prevent the company from further insolvency. Doing the opposite shows that you took the money knowing you cannot pay them back which is tantamount to theft.
Failure to Respond or Comply with a Creditor’s Request
The creditors of a company are the ones who get paid when a company is liquidated. The rest is divided among the shareholders depending on their stake in the company. Credit is a part of any business and the ability to pay back a creditor later is a seminal part of modern business. When a creditor calls to ask for their money, a company director should ensure that they are paid or at least communicate with them. If you fail to respond or comply with a creditor’s request director disqualification is imminent.
There are several other reasons why a director may be disqualified from the board of directors. Over a thousand company directors are disqualified every year. If you can avoid the above cases, your position as a company director should be secure.