Proposed Changes to the Company Directors Disqualification Act: A Guide for SME Directors

Running a business involves making difficult decisions every day. Most directors will never face disqualification proceedings, but when a business experiences financial pressure, understanding your legal responsibilities becomes increasingly important.

The Government has announced proposals to strengthen the Company Directors Disqualification Act 1986 as part of wider reforms intended to improve confidence in the insolvency regime and tackle the deliberate misuse of company insolvency and dissolution procedures. For directors of small and medium-sized businesses, these proposals are also a timely reminder of the importance of good governance and seeking professional advice early when challenges arise.

Below, Leanne Schneider-Rose answers some of the questions business owners are asking.

What is the Company Directors Disqualification Act 1986?

The Company Directors Disqualification Act 1986 requires the court to disqualify an individual from acting as a company director where their conduct is considered to make them unfit to manage a company. Disqualification can last anywhere between two and 15 years. During this time, an individual cannot act as a director or be involved in the promotion, formation or management of a company without the court’s permission.

What changes are being proposed?

 On 25 March 2026, the Insolvency Service published a consultation seeking views on proposed reforms to the corporate civil enforcement regime including in relation to director disqualification Company directors’ disqualification regime.  The consultation forms part of the Insolvency Service’s strategy to tackle corporate abuse.  The consultation, which has now closed, proposes significant changes to the Company Directors Disqualification Act 1986 such as:

• Providing Investigators with information gathering powers in relation to solvent and live trading companies for the purpose of disqualification under the Act
• Extending the time limit for bringing civil disqualification proceedings against directors of insolvent or dissolved companies
• Requiring the court to disqualify all directors who were acting during the period a company caused harm that resulted in its winding up when making a winding up order on public interest grounds and for such order to last for 5 years.
• Transferring the decision-making authority for director disqualification from the court to the secretary of state

Does this mean directors should be worried?

For most directors, no.

The vast majority of business owners work hard to meet their legal obligations, even during periods of financial uncertainty. Genuine commercial failure is not, in itself, grounds for disqualification. However, when a company begins to experience financial difficulties, directors’ responsibilities can change. Decisions that may seem commercially sensible at the time can later be scrutinised if a company becomes insolvent or bordering on insolvency. That is why obtaining professional advice at an early stage is often one of the most important decisions a director can make.

What are my duties if my company is in financial difficulty?

When insolvency becomes a realistic possibility, directors must carefully consider the interests of the company’s creditors alongside those of shareholders.

This means ensuring decisions are properly documented, avoiding transactions that could disadvantage creditors and taking appropriate professional advice before making significant business decisions. Every situation is different, which is why tailored accounting legal advice is essential.

What if my business needs to close?

Closing a business does not automatically mean a director has done anything wrong. Many companies become insolvent because of market conditions, rising costs, changing customer demand or unexpected economic events. UK insolvency law provides legitimate procedures to deal with these situations. The important consideration is whether directors have acted responsibly throughout the process and complied with their legal obligations.

Could I become personally liable?

In some circumstances, yes. Directors may already face personal liability where there is evidence of matters such as wrongful trading, fraudulent trading, breaches of directors’ duties or transactions that unfairly prejudice creditors. The proposed legislative changes do not fundamentally alter these existing responsibilities but reinforce the importance of directors being able to demonstrate that they have acted appropriately.

What practical steps should SME directors take now?

Good governance has always been the best protection. Directors should consider:

• Maintaining accurate accounting and company records.
• Holding and documenting regular board meetings.
• Monitoring cash flow and financial performance closely.
• Seeking legal and financial advice as soon as concerns arise.
• Understanding how directors’ duties may change if insolvency becomes likely.
• Taking advice before disposing of significant company assets or restructuring the business.

Early advice often creates more options and can significantly reduce both commercial and personal risk.

When are these changes likely to happen?

The proposals will need to progress through Parliament before becoming law, and although the detail may evolve, the direction of travel is clear. The Government intends to strengthen enforcement where directors deliberately misuse insolvency procedures, while continuing to support legitimate business rescue and restructuring. For directors, this is an ideal opportunity to review governance processes and ensure they understand their legal responsibilities.

How can Sydney Mitchell help?

Financial difficulties do not always signal the end of a business. In many cases, early legal and accountancy advice can help directors explore restructuring options, negotiate with creditors or identify the most appropriate route forward.

Leanne Schneider-Rose regularly advises directors facing claims arising out of a company insolvency. If your business is insolvent or facing immediate financial pressures or you simply want to understand your responsibilities, obtaining advice early can help protect both your business and your personal position.

If you would like to speak to Leanne Schneider-Rose about your circumstances, contact the Restructuring and Insolvency team at Sydney Mitchell Solicitors.