276 18: Company directors Part F Management, administration and regulation of companies
5 Disqualification of directors
Directors may be required to vacate office because they have been disqualified on grounds dictated by the
articles. Directors may be disqualified from a wider range of company involvements under the Company
Directors Disqualification Act 1986 (CDDA).A person cannot be appointed a director or continue in office if they are or become disqualified under the
articles or statutory rules.
The articles often embody the statutory grounds of disqualification and add some optional extra grounds.
Public company model articles provide that a director must vacate office if:
(a) They are disqualified by the Act or any rule of law.
(b) They become bankrupt or enter into an arrangement with creditors.
(c) They become of unsound mind.
(d) They resign by notice in writing.
(e) They are absent for a period of three consecutive months from board meetings held during that
period, without obtaining leave of absence and the other directors resolve that they shall on that
account vacate office.
Unless the court approves it, an undischarged bankrupt cannot act as a director nor be concerned directly
or indirectly in the management of a company. If they do continue to act, they become personally liable for
the company's relevant debts.5.1 Disqualification under statute
The Company Directors Disqualification Act 1986 (CDDA 1986) provides that a court may formally
disqualify a person from being a director or in any way directly or indirectly being concerned or taking
part in the promotion, formation or management of a company.
Therefore the terms of the disqualification order are very wide, and include acting as a consultant to a
company. The Act, despite its title, is not limited to the disqualification of people who have been directors.
Any person may be disqualified if they fall within the appropriate grounds.
In addition to the main grounds of disqualification, the articles may provide that a director shall
automatically vacate office if they are absent from board meetings (without obtaining the leave of the
board) for a specified period (three months is usual). The effect of this disqualification depends on the
words used.
If the articles refer merely to 'absence' this includes involuntary absence due to illness.
The words 'if they shall absent himself' restrict the disqualification to periods of voluntary absence.
The period of three months is reckoned to begin from the last meeting which the absent director did
attend. The normal procedure is that a director who foresees a period of absence, applies for leave of
absence at the last board meeting which they attend; the leave granted is duly minuted. They are not then
absent 'without leave' during the period.
If they fail to obtain leave but later offer a reasonable explanation the other directors may let the matter
drop by simply not resolving that they shall vacate office. The general intention of the rule is to impose a
sanction against slackness; a director has a duty to attend board meetings when they are able to do so.5.2 Grounds for disqualification of directors
Directors may be disqualified from acting as directors or being involved in the management of companies
in a number of circumstances. They must be disqualified if the company is insolvent, and the director is
found to be unfit to be concerned with management of a company.FAST FORWARDFAST FORWARD