Company directors are looked upon as fiduciaries with obligations towards their company. Failure to exercise due diligence, timely filing of statements or reports, wrongful trading, fraud or misconduct; may result in disqualification from the management. A person may also be disqualified from holding the office of a director by a court order for criminal misconduct, or where the company has been declared a “shell company”.
A critical part of risk assessment is, identifying and understanding the people behind a business. Discovering people-to-people and people-to-company connections often uncover hidden relationships that have the potential of financial risk. Before investing or onboarding a new client or relationship, it t becomes mandatory to run a ‘disqualified directors’ check to ensure the companies and people being dealt with are legit and have not been banned. The ‘disqualified directors’ check is not only part of the KYC process, but also part of a PEP and Sanctions check on a company.
A ‘disqualified director’ check means looking up a banned and disqualified register of directors to see if the individual is listed, and disqualified from engaging in financial activities or advice, or representing and managing the company. Such registers are maintained by every jurisdiction. In Australia, ASIC maintains the banned and disqualified register
Why to run checks against Banned and Disqualified Directors?
Restrictions are placed upon disqualified directors. If disqualified, a director cannot represent the company management or act as a director or manager. If they does so, it becomes a criminal offence liable for conviction and possible personal liability for company debts, as laid down by the concerned country’s financial regulators.
Running checks can help to assess risks if any transaction or entity is found to have connections with a person listed on a Register of Disqualified Directors, or if a person entered into a relationship with belongs to the ‘disqualified directors’ list. As part of the compliance process, a ‘disqualified director’ check helps to establish whether the person is permitted to undertake a given transaction or represent the management of a company or trust.
Every jurisdiction places controls on disqualified directors, and what responsibilities they are permitted.
In the U.K., a director can be disqualified up to 15 years, during which he cannot be
– a director of any company registered in the UK,
– be involved in forming, marketing or running a company,
– sit on the board of a charity, school or police authority,
– be a pension trustee,
– be a registered social landlord,
– sit on a health board or social care body,
– be a solicitor, barrister or accountant.
In Australia, a disqualified director is one who has been banned, or subject to other disciplinary actions like:
– disqualified from involvement in the management of a corporation
– disqualified from auditing self-managed superannuation funds, and
– banned from practising in the financial services or credit industry.
What is included in the Disqualified Directors Registry
The following details are available from a Register of Disqualified Directors:
– Name and Address of person
– Type of banning or disqualification
– Date of commencement
– Date of cessation (or whether it is permanent)
Other Registers for Disqualified Directors Check
Some countries like Australia, maintain other registers besides the Banned and Disqualified Directors Register, that include lists of people who are banned from the management of a company. The register of disqualified officers contains information on individuals who have been disqualified from managing corporations either by a court or by the Registrar, and are automatically disqualified from managing companies. The enforceable undertakings register contains lists of persons who have agreed with ASIC not to manage a corporation or financial business. The disqualified trustees register lists individuals disqualified from being a self-managed super fund trustee.