Data released by the Insolvency Service shows that 3,280 directors have been disqualified since 2023, with more than half of all cases linked to the abuse of COVID-19 financial support. A total of 1,683 disqualifications, 55% of the figures, were related to cases involving the misuse of financial assistance during the pandemic in the UK, highlighting the impact on businesses due to directors improperly accessing or using government-backed support.

While director disqualifications peaked in 2023/2024, with 1,222 cases recorded, the majority of disqualifications (3,054) were issued under Section 6 of the Company Directors Disqualification Act. This relates to unfit conduct by directors of insolvent or dissolved companies. The high proportion of COVID-linked cases suggests that investigations into financial support abuse have become more significant in recent years.

There were also 344 bankruptcy and debt relief restriction cases recorded during the same period. Although these account for a smaller number of cases, they further outline the continued focus on tackling financial misconduct within businesses.

£1.8 Million Recovered Through Director Disqualifications, with Over Half Secured in the Last Year

Although the data revealed that director disqualifications have been decreasing since 2023’s figures, it doesn’t reveal the full picture of the compensation owed by disqualified business owners.

An FOI submitted to the Insolvency Service has revealed that in the last three years, over £1.8 million in compensation has been recovered from disqualified directors. Of the total amount of the last three years (£1,885,067), over half (52%) of compensation was recovered in the last year, with 123 people ordered to pay nearly £974k.

Despite fewer disqualifications, over the last three years, the number of compensation orders granted and the total amount to be repaid via compensation orders have continued to rise sharply. The total amount of compensation orders and undertakings has seen a 32% rise in the last year alone.

The Insolvency Service can ask the court to grant a compensation order under Section 15A of the CDDA. A compensation order is a court order that requires a disqualified director to pay compensation in relation to losses to creditors of the insolvent company as a result of the director’s misconduct.

More Directors Disqualified in Construction Than Any Other Sector

When it comes to director disqualifications by sector, it was the construction industry that saw the biggest amount of disqualifications over the last three years, with a total of 536. The construction industry is one of the largest sectors contributing to the UK economy, contributing £138 billion in value added and employing 3.1 million people. While the government has set ambitious targets for housebuilding and development in the UK, the sector continues to face significant challenges, including rising material costs, supply chain disruptions, and cash flow pressures. These factors could cause considerable strain on businesses, which in turn could cause regulatory breaches, leading to insolvency across companies.

Accommodation and Food Service Activities was the next highest sector, with 437, while the hospitality industry disqualifications could be driven by the sector’s high business turnover, narrow margins, and vulnerability to cash flow pressures. The Wholesale and Retail industry ranked third at 464; these rates could be due to intense competition, fluctuating consumer demand, and ongoing financial pressures affecting businesses across the sector.

Administrative Support Services and Professional, Scientific and Technical activities round off the top five; these two categories are the only two in the top five to have seen an increase from 24/25 to 25/26, with both categories seeing an increase of 23% in disqualifications.

London Records the Highest Number of Director Disqualifications, While Wales Sees the Sharpest Rise at 175%

London was ranked the highest in total disqualifications in the last three years, with 820, nearly double that of the region in second place, the North West, with 440.

Ranking third was the area of the West Midlands with 440. In the last year, 8 out of 11 regions saw an increase in director disqualifications, with only the top three seeing decreases.

Wales recorded the lowest number of director disqualifications amongst the regions, with just 48 cases in the last three years. However, despite having the smallest overall total, it experienced the most significant year-on-year increase, with disqualifications rising by 175% over 12 months.

Experts Explain What Director Disqualification Is

Director disqualification is one of the legal measures that the Insolvency Service can take under the Company Directors Disqualification Act 1986 (CDDA). A director disqualification order prevents an individual, including de facto, shadow, and non-executive directors, from acting as a director or being involved in the formation, promotion, or management of a UK company, including certain overseas companies with UK connections.

Disqualification can also prevent someone from acting as a charity trustee, receiver, insolvency practitioner, or in some school governance roles, with wider professional and reputational consequences. A disqualified person may still work in a non-director role, trade as a sole trader, act as a company secretary or hold shares, provided they take no part in company management.

Shevy Narendra of Weightmans comments: “The findings show an increasing amount of compensation when it comes to directors’ dismissals, with over £1.8 million recovered, even with the steady drop in the number of cases, according to The Insolvency Service.

It is possible for directors or those involved in the management of a business to apply under Section 17 of the CDDA for court permission to act as a director of a specific company or to seek a declaration under CPR 40.20, subject to conditions and the current role of the individual. They must show a reasonable need to remain involved in management and that safeguards are in place to protect the business from any risk of repeat misconduct. Timing is important when considering a voluntary disqualification undertaking or a Section 17 application, and specialist legal advice is recommended to ensure the best outcome and minimal disruption to current directorships.

In rare circumstances, a disqualification order can be appealed in Scotland, England, and Wales. Seeking specialist advice on the grounds for an appeal is imperative.”