The normal answer is that an IVA will not effect your ability to act as a company director, however;
If a company has adopted the specimen set of Articles set out in the Companies Act of 1985 without any modification, then Article 81 of Table A provides for the ‘disqualification and removal of directors’ if he becomes bankrupt or makes any arrangement or composition with his creditors generally’.
The same provision appears in Table A of the 1948 act at article 85 and so appears in many companies’ articles.
An IVA is an arrangement and a composition with creditors and so any director whose company adopts Article 81 must vacate office on the date the IVA is made. Of course he may seek reappointment immediately and can then continue as a director during the period of the IVA – but not so if he a bankrupt.
A situation can therefore arise where a director unaware or unadvised of the provision of the Article 81 continues in the belief that he is a director involved in the management of the company, whereas he is automatically vacated from office by virtue of entering the IVA.
This is where potentially difficult consequences can arise and where the director needs to consider his position –
If he fails to vacate office and continues to purport to act on behalf of the company he might be acting outside the scope of his authority and may be personally liable to third parties with whom he enters into contracts with the company
If he continues in office after he should have vacated he will certainly be regarded as a shadow director as defined in s.741 of the Companies Act 1985.
Ref: The Tarzan Trust v Wilson
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