Introduction
As part of expanding its sanctions framework, on 26 October 2023 the UK introduced director disqualification sanctions (“DDS”) under section 3A of the Sanctions and Anti-Money Laundering Act 2018 (“SAMLA”), as inserted by section 35 of the Economic Crime and Corporate Transparency Act (“ECCTA”).
Within the Russia sanctions regime, regulation 19B of the Russia (Sanctions) (EU Exit) Regulations 2019 (“Russia Regulations”) empowers the UK government to impose DDS on individuals designated under regulation 5. This restriction operates for the purposes of section 11A of the Company Directors Disqualification Act 1986 (the “Act”) and prohibits affected persons to act as director of a company or, directly or indirectly, to take part in or be concerned in the promotion, formation or management of a company. This applies not only to UK companies, but also to a foreign company that has sufficient connection to the UK, regardless of where they were incorporated.
Designated persons (“DP’s”) subject to DDS can apply to the Insolvency Service for a licence permitting them to carry out otherwise prohibited activities. The Insolvency Service, which has issued new guidance on the implementation of this restriction[1], is tasked with their enforcement.
While this restriction appears straightforward, questions remain regarding its scope - particularly whether it extends to subsidiaries of DP’s, and whether indirect management through such entities could lead to criminal liability for either the subsidiary or the DP. This article explores the legislative framework, guidance and legal interpretation on this issue.
1. Scope of DDS designation under regulation 19B
Regulation 19B applies specifically to individuals designated by name under Regulation 5. This interpretation is supported by the Insolvency Service’s guidance, which confirms that individuals subject to DDS will appear on the UK Sanctions List. In line with this, on 9 April 2025, the UK Government amended the designations of 2,996 individuals and 818 entities across 28 sanctions regimes, including the Russia regime, to reflect their additional designation under DDS, alongside existing measures such as asset freezes or travel bans.
Nonetheless, further guidance and clarification on the scope and application of this new designation power would be welcome, particularly to clarify whether Regulation 19B may also extend to entities owned or controlled by a designated person.
2. Interpretation of “being concerned of taking part in the management of a company”
Although DDS under Regulation 19B applies only to individuals specifically designated by name, the scope of the prohibition is broad. It covers both direct and indirect involvement in company management, even where the individual has not been formally appointed as a director.
Under section 11A of the Act, a person subject to DDS is prohibited from “being involved or taking part in the promotion, formation or management” of a company. This encompasses:
- Executive and non-executive directors who are formally appointed;
- De facto directors, who act as directors in practice without official appointment; and
- Shadow directors, whose instructions the board routinely follows (as defined under section 251 of the Companies Act 2006).
In both the general company law context and under sanctions regulations, the intent is to prohibit those who exert real influence over a company’s operations, regardless of formal title.
When a UK subsidiary is wholly owned by a designated non-UK parent subject to DDS, there is a real risk that any ongoing involvement by the parent could be viewed as indirect management. Albeit not in the context of sanctions regulations, Courts have historically interpreted “being concerned or take part in the management of a company” broadly, covering not only active roles but also participation in decision-making processes that involve a degree of responsibility, even without full control.[2]
Although no specific guidance has been issued on how DDS applies to subsidiaries, this wide, functional interpretation significantly increases the compliance risks for both the designated parent company and its UK subsidiary.
3. Potential for criminal liability
For the UK subsidiary and its officers:
If the UK subsidiary knowingly acts on instructions from a parent company subject to DDS, it risks breaching section 11A of the Act. This could give rise to criminal liability under section 14 of the Act for both the non-UK DP and its UK subsidiary. The key issue is whether the DP is deemed to be managing the UK company, even indirectly.
Furthermore, a director, manager, company secretary or any person acting in a similar role (including those merely purporting to do so) may be held personally liable for an offence committed by a corporate body if it is established that the offence occurred with their consent, involvement or as a result of their neglect. In such cases, both the individual and the corporate body can be prosecuted and held accountable.
For the non-UK parent company:
The jurisdictional reach of the DDS regime includes non-UK incorporated entities. If a UK nexus exists—such as a UK-incorporated subsidiary—the non-UK DP could be subject to UK enforcement, particularly if they engage in conduct captured under Regulation 19B.
The OFSI Enforcement and Penalties Guidance confirms that a case-by-case analysis applies to determine whether sufficient UK jurisdiction exists.
4. Practical compliance considerations
In light of the above, UK subsidiaries of sanctioned DPs subject to a DDS restriction must exercise caution in all dealings with parent companies. Best practices could include:
- Robust governance to ensure operational independence from sanctioned parents.
- Documented internal policies restricting communication that could constitute direction or instruction.
- Legal audits to assess whether any individuals may be acting as de facto or shadow directors.
- Training for directors and officers on DDS-related obligations and liabilities.
Conclusion
The legal framework surrounding DDS under the Russia Regulations is narrow in terms of designation, yet broad in terms of conduct prohibited. While only named individuals can be subjected to DDS, their practical ability to manage or influence UK entities is tightly constrained. Indirect involvement—especially through wholly owned UK subsidiaries—carries material legal risk for both the designated individual and the UK entity involved.
As the UK’s sanctions regime continues to evolve, regulated entities must remain vigilant and seek timely legal advice to ensure compliance with both the letter and spirit of DDS enforcement.
Source
- Director disqualification sanctions. General guidance about director disqualification sanctions, what they mean and applying for a licence. Accessible here: https://www.gov.uk/guidance/director-disqualification-sanctions
- Some helpful authorities concerning this issue are: Re Market Wizard Systems (UK) Ltd [1998] 2 BCLC 282; R v Campbell [1984] BCLC 83; Comr for Corporate Affairs v Bracht (1989) 7 ACLC 40. R v Cambell draw a distinction between permissible involvement in specific aspects of a company’s operations (e.g., sales or production) and impermissible participation in the overall management of the company, which is reserved for directors or officers. Bracht, and later Market Wizard, clarified that “management” includes activities with a significant impact on the company’s business or financial standing. Referred to in the article “Director disqualification – Prohibition on Involvement in Management”, by Simon Hill, 3 January 2022: https://www.33bedfordrow.co.uk/insights/articles/directors-disqualification-prohibition-on-involvement-in-management
