Directors disqualification

As a rule, you cannot be a company director if you are already bankrupt or under a debt relief order. You have to wait till your disqualification ends. For this purpose, the provisions for directors disqualification is contained in the Company Directors Disqualification Act 1986.

First and foremost, the Company Directors Disqualification Act 1986 is introduced to stop incompetent or unscrupulous individuals from leading and managing companies for a period of time with the intention to abuse the law.

For this purpose, the Secretary of State maintains the Register of directors Disqualification Orders and it is open for public inspection.

Concurrently, you may also search Companies House database of disqualified directors. All you have to do is “search the register” by entering the company name, number or officer name. On the other hand, Companies House would automatically remove the director’s details from the database when his/her disqualification expired. Accordingly, the record is updated weekly.

Unfit conduct

Universally, you can be disqualified from being a company director if your conduct is deemed unift. For this purpose, unfit conduct include the following.

  • You allow your company to trade even when you know your company cannot pay it’s debts.
  • Intentionally not keeping proper accounting records.
  • Deliberately not deliver your company accounts and confirmation statement to Companies House.
  • Not paying your company taxes to HM Revenue and Customs.
  • Use your company’s money and assets for personal benefits.

Circumstances lead to director disqualification

Generally, you would be disqualified and banned from being a director if you are guilty and convicted of the offences.

  1. On conviction for an offence connected with promotion, formation, management or liquidation of the company.
  2. The company continued to trade with intent to defraud creditors (suppliers) even in the process of winding up.
  3. Guilty of a fraud in relation to the company.
  4. For non-compliance with the Companies Act with persistent default that is at least three offences within five years.

Length of disqualification

Generally, you can be disqualified up to 15 years. The court has the discretion whether or not to make the order. It must however, disqualify a director whose conduct in relation to the company, alone or together with his conduct as director of another company, make him in the court’s opinion, unfit to be concerned in the management of a company.

Company debts

In the event you are disqualified as a director, you are still jointly and severally liable for the debts of your company. Without reservation, the liability extends to anyone acting on your instructions.

Other restrictions

Furthermore, once you are disqualified from being a director, you would not be able to take on the following responsibilities.

  • Not allowed to sit on the board of a charity, school or police authority.
  • unfit to be a pension trustee.
  • Cannot be a registered social landlord.
  • Banned to sit on a health board or social care body.
  • If you are a solicitor, barrister or accountant, your professional bodies will remove you and you no longer able to continue your practice in your profession.

How director disqualification works

Commonly, you can be disqualified from being a director by the following bodies. Either of them can make an application to have you being disqualified.

  • The Insolvency Service
  • Companies House
  • The Competition and Market Authority (CMA)
  • The Courts
  • A company insolvency practitioner.

Director report

Director report is prepared and form part of your company accounts. You must present director’s report together with your company accounts to your shareholders. At the same time, submit a copy with Companies House. In addition, send another copy together with your corporation tax return to HM Revenue and Customs.

Additionally, you would need to include an Auditor report if your company is subject to an audit as required by law.

Generally, your company may file an abridged account or micro entity account with Companies House if your company meet the eligibility criteria either or both according to Companies Act. For this purpose, you do not require to include a director report with the abridged account and a micro company account and they put less information for the public.

Broadly, your director report would present the following.

Principal activity

First of all, you must specify your company’s principal activity including any significant changes during the accounting period. Your principal activity in your director report must closely match your SIC code in your confirmation statement.

Business review

Secondly, you are to include a true and fair review of your business performance during the year. Hence, provide description of its principal risks and uncertainties plus analysis of performance indicators. Where possible reference it to amounts included in the accounts.

Future developments

You must disclose information about your company future plus any events happened after the balance sheet date. This is to give a true and fair view of your business future affairs to the readers of the accounts.

Employee policy

Equally important, you must disclose a staff policy pertaining staff involvement in matters of concern to them. This includes employment of disabled employees.

Political and Charitable donations

Your company is to disclose donations made if any. You must provide the details of amounts and the name of each person or organization receiving such amounts. However, expenditure on charitable purposes outside UK may not be disclosed.

However, a wholly owned subsidiary company may choose not give this information. But the parent company must give any such donations made by the subsidiary company.

Dividends

Your company must include information about dividends proposed and paid during the accounting year.

Payments to suppliers (creditors)

You must disclose the following if your company is a public limited company. Or that your company have been classified as large private limited company that is a subsidiary of a public limited company.

  • A statement of policy on the payment to suppliers.
  • If your company subscribes to a code on payment practices, such as the CBI code. This must be stated, and it must also be stated how details of the code may be obtained.
  • A statement of the average number of days’ credit outstanding at the balance sheet date.

Directorships

On the other hand, you must disclose the names of all persons who were directors during the financial year. For this purpose, If a person was not a director for the whole of the year. Then, you must give the date of appointment and/or the date of resignation or removal.

Correspondingly, you must submit relevant Companies House forms for director appointment and termination with Companies House.

Land and Building

You must disclose any difference in market value of interests in land or buildings over book value at the balance sheet date. Especially if the difference between the cost of and market value for the land and building is considerable. Hence, the directors believe that the members should be aware of this fact.

Share Capital

You must present the changes in share capital during the accounting year. For this reason, you must disclose new shares issued and the acquisition of your company’s own shares, if any.

Accounting principles

You must disclose the accounting principles adopted in your accounts preparation.

Going concern

If applicable, directors should report:

  • Any material uncertainties, of which your directors are aware. For instance, in making their assessment of the going concern status. Your director has cast significant doubt on your company’s ability to continue as a going concern.
  • Disclose the fact where the foreseeable future considered by your directors in their assessment of the going concern status of your company. The period is less than one year from the date of approval of the financial statements.
  • Disclose the fact where the financial statements are not prepared on a going concern basis. Also, the basis on which you prepare the financial statements. For instance, you prepare your accounts on break up basis. Additionally, you include the reasons why you do not consider your company as a going concern.

Disclosure statement to auditors

Lastly, if your company is to produce an audited financial statements. Then, your director report must include a statement to the effect that. In the case of each of the persons who are directors at the time the report is approved.

For example, so far as the director is aware, there is no relevant audit information of which your company’s auditor is unaware.

In addition, the director has taken all the steps that he ought to have taken as a director in order to make himself aware of any relevant audit information. Concurrently, to establish that your company’s auditor is aware of that information.

Cash handling

Business to have a cash handling policy for efficient cash management and to prevent fraud.

It is good idea your business to draw up internal control procedures for your staff who handle your business cash and monies matters in your business premises.

Genrally, the cash handling procedures shall consider cover the following.

Bank Deposits

Firstly, when paying a cheque or cash into a bank account, a deposit or paying in slip must be completed. Deposits can be made in person, by mail, or at automated teller machine (ATM). Cash should not be made by mail.

Receipts From Customers

Secondly, you must update Cash book, individual customer’s ledgers and trade debtors control accounts to keep track of your customers’ outstanding balances.

At the same time, send reminders to follow up on outstanding sales invoices. Document the payment methods your customers used to settle their invoices. For example, cash or cheque or by bank transfer or combination of the three.

For high volume transactions business, it is advisable to maintain your accounting records using well known bookkeeping software like Clearbooks, Xero, Sage or Quickbooks. As this will cut down administrative burden and less errors.

Issue cheque

On the other hand, the cheque must be signed by authorized signatory only and approval must be obtained for payment.

Ideally, the person authorizing the invoice for payment should not be the same person signing the cheques.

There are computer software packages available that write cheques and reconcile a bank amount automatically. Using computer software is the quickest and accurate way of writing cheques. The computer prints the cheques and records the payments for accounting purposes.

Regularly, prepare bank reconciliations. The use of computer-prepared cheques simplified the bookkeeping process.

Paying Bills Electronically

Another way to pay Bills is by electronically as an alternative to writing cheques. This has become increasingly popular and convenient.

There are different types of electronics payments:

  • Paying Online,
  • BACS payment,
  • Electronic Fund Transfer,
  • Standing Order,
  • Direct Debits,
  • Bank transfers,
  • Telegraphic transfer

These facilities have made global trading possible.

For instance, you may pay your staff directly by deposit salary to their bank accounts. You may electronically send PAYE and NIC to the HMRC.

Besides, Handling cash electronically also enable monies available sooner between banks and there is less chance of fraud.

Security is extremely important when paying bills online. Passwords and identification numbers are a key to your company’s bank account. For this reason, they should never be left where unauthorized staff or the public can see them.

However, it is still a best practice to perform accuracy check by reviewing the payments made electronically on regular basis.

Bank Accounts Reconciliation

Doing bank reconciliation frequently is compulsory to ensure there are sufficient funds in your bank accounts to fund the payments made electronically. This includes direct debits, cheques issued, standing order and BACS payments.

Likewise, you must also update the suppliers’ accounts frequently to ensure no overdue payments. Keep an eye on any discounts offered by the suppliers for early payments. Because this provides further savings for your business if there is sufficient cash in the bank and payment can be made.

Petty Cash

Normally, petty cash is for paying small items, ad-hoc expenses, stationery, taxi fares, and for reimbursement of staff expenses.

You can usually set a maximum amount for withdrawals from the petty cash fund. For example, for expenses claimed up to £200 will be reimbursed from the petty cash.

Correspondingly, the person claiming petty cash must sign the petty cash voucher. Attached the expenses receipts to the petty cash voucher.

On the other hand, an effective cash handling procedure gives confidence to your Auditor that your accounting system is reliable and your company accounts give a true and fair view.

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