Director Disqualification – Private & Commercial Litigation Solicitors | Insolvency Legal Advice |

Is it safe to dismiss an employee with less than two years’ continuous service?

admin — Mon, 27 Mar 2023 05:53:26 +0000

Many employers believe that it is safe to dismiss an employee with less than two years’ continuous service on the basis that they do not have ordinary unfair dismissal rights. It is certainly true that the general rule is that an employee requires two years’ continuous service to bring a claim of ordinary unfair dismissal in the employment tribunal.

The current requirement for employees to have two years’ continuous employment has been in force since 2012 and before this it was 12 months. The period tends to extend or shorten depending on the Government of the day.

However, it is important for employers to realise that are circumstances where employees can bring a claim for automatic unfair dismissal. These are day one rights whereby employees do not require two years’ continuous service to bring claims for automatic unfair dismissal.

An automatic unfair dismissal is also a dismissal that is so inherently unfair that an employee is not in most cases required to prove that they have two years’ continuous service. It is a special protection afforded to such employees in circumstances where their basic employment rights are violated.

There are now a number of potential automatic unfair dismissal reasons and these are set out in the Employment Rights Act 1996. Some of these include the following situations:-

Dismissing an employee for whistleblowing or making a protected disclosure, for example in an employee alleging that there has been a breach of a legal obligation or that a criminal offense has been committed in the work place.
Dismissing an employee due to pregnancy, childbirth, maternity or because they wish to exercise their parental leave rights. This could also trigger a sex/pregnancy discrimination claim.
Whereby employees assert their statutory rights under the National Minimum Wage Regulations or the Working Time Regulations.
Dismissing an employee because they have raised a health and safety issue. An example is where an employee has reservations about working in the office due to Covid and has care responsibilities for a vulnerable relative. This can include where an employee refuses to return to work because they reasonably believe that they or a member of their household is at risk of serious and imminent danger of contracting Covid.
Taking leave for family emergencies or to care for dependents.
A shop worker or betting shop worker refusing Sunday working.
Dismissing employees for an economic, technical or organisational reason as a result of the sale of the business to another entity under the Transfer of Undertakings ( Protection of Employment ) Regulations 2006.
Making a request for flexible working.
Carrying out Jury Service
Trade union membership or non-membership, or any dismissal linked to participation in Union activities or protected industrial action.
Dismissing an employee because they perform functions as a pension trustee or an employee representative during a TUPE transfer or a collective redundancy.
Dismissing an employee due to their part-time or fixed term status.
In asserting statutory rights to be accompanied at disciplinary or grievance hearings.
Breaching any exclusivity clause in a zero-hour contract.
In asserting statutory rights in relation to working tax credits
A reason relating to pension auto-enrolment.

Unlike ordinary unfair dismissal, procedural unfairness will not be relevant where an employee has been automatically unfairly dismissed as is the position with say a performance or conduct dismissal. An employment tribunal will not be required to determine whether the employer acted reasonably in its decision to dismiss or assess the procedural fairness.

Another important thing to bear in mind is that in the event of an automatic unfair dismissal that is related to whistleblowing or health and safety, then there is no financial cap on the amount of compensation that an employment tribunal can award.

In terms of time limits any employment tribunal claim for automatic unfair dismissal must be filed within three months less one day of the date of the dismissal, and that ACAS Early Conciliation must be undertaken and concluded in the first instance.

Do remember as well that employees do not require two years’ continuous service to bring claims for discrimination under the Equality Act 2010, for example sex, race, disability, age, sexual orientation, religion and belief to name a few protected characteristics.

If you have any questions about automatic unfair dismissal or have concerns then do contact Michael Stewart – Partner and Head of Employment on 020 7467 3988 or by e-mail se@jamesedwardassociates.com

HMRC Bounce Back Loan Investigation

admin — Fri, 28 Oct 2022 05:25:20 +0000

Introduced by the government in April 2020, the Bounce Back Loan Scheme (BBLS) provided rapid access to finance for small businesses affected by the coronavirus pandemic. Through the scheme, SMEs could borrow between £2,000 and 25% of their turnover, up to a maximum of £50,000.

While businesses took advantage of the BBLS, it wasn’t without controversy. In June 2021, it was revealed that basic fraud checks were disregarded in the rush to ensure vulnerable businesses were protected at the start of the pandemic. As a result, the scheme was open to fraud, defaults, and error. Nearly half of the loans taken out won’t be repaid, and because they are government-backed, the taxpayer is left picking up the tab.

HMRC is now investigating which businesses deliberately abused the BBLS. Cracking down on those guilty, the repercussions for directors who acted fraudulently are severe. Bankruptcy restrictions and director disqualification undertakings have already been issued against some UK businesses.

Do you require Bounce Back Loan legal advice?

Bounce back loan investigations are on the rise. If you have received a letter informing you that an investigation is underway, contact our director disqualification lawyers today for a free initial consultation to discuss how we can help to protect your position.

We’ve helped hundreds of directors, just like you, avoid disqualification proceedings brought against them by the Secretary of State. If you’re in a position of uncertainty and require specialist legal advice, contact us today on +44 7441912822.

Proven experience – we’ve successfully persuaded the Insolvency Service to withdraw proceedings against our clients.
Fast service – we seek the earliest possible resolution to reduce the stress and disruption.
Best results – our expertise helps to ensure our clients get the best results possible, every single time.
Flexible funding – we offer a range of flexible payment options, including retainers, fixed fees, and hourly rates, to meet the needs of our clients.

Bounce Back Loan Fraud - Key Stats

For many businesses, the BBLS offered an essential lifeline. According to the British Business Bank, initial analysis shows that up to 500,000 businesses could have permanently ceased trading in 2020 alone if the scheme had not been in place.

Today, the government is working with the National Investigation Service (NATIS) and the Insolvency Service (IS) to investigate instances of fraud and, where appropriate, recover fraudulent loans and penalise guilty parties.

Here are some key stats:

During its tenure, almost 1.56 million businesses were approved for finance.
A cumulative value of around £47.4 billion was provided via the BBLS.
Some £17 billion won’t be repaid due to fraud and defaults.
NATIS has opened 273 investigations into BBLS fraud with a total value of £160 million (Sept 2022).
78 suspects have been dealt with, and 49 arrests have been made (Sept 2022).
The Insolvency Service had issued 242 director disqualifications, 101 bankruptcy restrictions and one criminal prosecution for BBLS fraud (Sept 2022).

Why was the Bounce Back Loan Scheme introduced?

In Spring 2020, the potential scale of the Covid-19 pandemic became clear. Strict public health measures such as lockdowns and restrictions significantly impacted businesses across the UK. With no end in sight, many were at risk of closure.

To help businesses during unprecedented circumstances, the government introduced several loans (the Covid-19 Loan Guarantee Schemes):

Coronavirus Large Business Interruption Loan Scheme (CLBILS). For mid-sized and larger UK businesses with a group turnover of more than £45m.
Coronavirus Business Interruption Loan Scheme (CBILS). For smaller businesses with a turnover of less than £45m looking for up to £5m in finance.
Bounce Back Loan Scheme (BBLS). For SMEs, micro-businesses and other businesses requiring smaller loans of between £2,000 and £50,000.

The BBL scheme came to a close at the end of March 2021.

What was the eligibility criteria for Bounce Back Loans?

Available through a range of accredited lenders and partners, including high-street banks, to be eligible for the Bounce Back Loan Scheme, a business had to confirm:

It was engaged in trading or commercial activity in the UK at the date of application.
It was a company or limited liability partnership incorporated or established in the UK, or tax resident in the UK.
It derived more than 50% of its income from its trading activity.
It had been adversely affected by the coronavirus (COVID-19) pandemic.
That the loan would be used for the economic benefit of the business and not for personal use
Whether or not on 31 December 2019 it was a ‘business in difficulty’ and does not breach state aid restrictions. If it was a ‘business in difficulty’ then, in addition, the facility will not be used for export-related activities.
It was not in bankruptcy, liquidation, or similar at the time of submitting the application.
It was not a bank, building society, insurance company, public sector organisation, state-funded primary or secondary school, or an individual other than a sole trader or a partner acting on behalf of a partnership.

A business applying to the BBLS would also be subject to the standard regulatory checks (e.g. Anti-Money Laundering (AML) and Know Your Customer (KYC)). However, in response to concerns that the funding was taking too long to reach struggling businesses, the government allowed companies to self-certify their eligibility, viability, and creditworthiness – thus increasing the fraud risk associated with the scheme.

What constitutes Bounce Back Loan Fraud?

There are different types of BBLS misuse. In many cases, fraud occurred where the money supplied was used for personal use rather than to support the business. For example, where:

Funds were used to purchase personal assets.
A lump sum was transferred to a personal bank account.
Some or all of the money was given to a friend, family member, or another third party.
The money funded a substantial increase in directors’ salaries or dividends.

BBLS fraud also occurred when a director:

Exaggerated turnover to obtain funds.
Did not disclose the company was in financial difficulty when applying for the loan.
Dissolved the business in an attempt to avoid repaying the loan.

Other examples of BBL fraud are where criminals:

Made multiple or fake applications for loans.
Created a new company or acquired a shelf company to make a fraudulent application.

Consequences to directors who abused the BBL Scheme

Using the money fraudulently or knowingly providing false information to secure a BBLS loan could result in several fraud offences. These include false accounting, conspiracy to defraud, abuse of position, failing to disclose information, false representation, and money laundering.

If found guilty, the possible consequences include fines, imprisonment, compensation and confiscation orders, director’s disqualification, and Serious Crime Prevention Orders (SCPO).

The first Bounce Back Loan fraud prosecution

In the first criminal prosecution case of BBLS fraud, a company director was disqualified for seven years. In this case, the director applied for a £20,000 loan but failed to disclose that the company was undergoing dissolution. When the loan was due to be repaid, the company had been dissolved. The director gave their family around £14,000 in cash and used the remaining to purchase a car and insurance.

Pleading guilty to charges of fraudulently claiming Covid-19 financial support, the director admitted that they had no intention of using the loan for business purposes.

The Insolvency Service Response
In June 2022, two directors received 11-year bans after applying for £100,000 worth of Bounce Back Loans to which the company was not entitled. In this case, the directors did not declare the company was in a company voluntary arrangement. In August 2022, five individuals were separately made subject to bankruptcy restrictions totalling 48 years.

In each of these cases, bounce back loans were either:

Wrongfully obtained through overstating turnover.
Acquired by a company that had already ceased trading before the pandemic.
Misused for personal use.

The Insolvency Service continues to identify and tackle abuse of the BBL scheme.

Furthermore, due to recent changes to the law, directors of companies with outstanding debts (including BBLs), which were dissolved without first being placed into liquidation, can also expect to be investigated. And due to The Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Act, retrospective investigation and action can be taken against directors suspected of misusing bounce back loan funds.

HMRC Bounce Back Loan Investigation - FAQs

What is Bounce Back Loan fraud?

BBLS fraud happened when someone deliberately applied for a loan they were not entitled to or where they used the money in a way that did not meet the purpose of the loan (e.g. to buy personal assets). However, some directors are facing BBL fraud investigations due to honest mistakes made when applying for the loan (either by themselves or someone else in the business).

Can I use Bounce Back Loans for personal use?

No. Bounce Back Loans were made on the condition the recipients did not use them for personal purposes. However, you could use a BBL to purchase assets that would benefit the business (e.g. a vehicle).

Can a director be disqualified for BBL misuse?

Yes, if found guilty of misusing BBL funds, directors may be held personally liable. As well as being made to repay the outstanding balance, they could face other penalties, fines, and director disqualification of between 2 and 15 years.

What if I’m unable to meet Bounce Back Loan repayments?

If you miss loan repayments or your business enters liquidation or administration, you will likely face an investigation over the use of the loan. In such cases, directors must demonstrate that the bounce back loan was acquired legitimately and used for the economic benefit of the business. Directors struggling to meet BBL repayments must take legal advice as soon as possible.

Have you been affected by the HMRC Bounce Back Loan investigation?

Whether you are the director of a going concern, are in financial difficulty, or have dissolved your company since taking out a Bounce Back Loan, being the subject of an investigation can be stressful and disturbing.

At James Edward & Associates, we are experts in defending director disqualification claims – including in cases of suspected BBL fraud. In many cases, we have successfully persuaded the Insolvency Service to withdraw proceedings. Bounce Back Loan fraud charges could result in serious personal consequences. So, even if you have only received an initial letter or phone call from your bank or the Insolvency Service, you must contact us immediately.

For your free initial bounce back loan fraud investigation consultation, please call our experienced lawyers today on +44 7441912822.

Director Disqualification Guide 2024

admin — Sun, 16 Jan 2022 10:44:33 +0000

Director Disqualification - Everything You Need To Know

There are millions of directors throughout the UK, and most uphold their responsibilities effectively. However, if you fail to comply with your legal obligations, you may find yourself disqualified from acting as a director. This can have a serious and long-lasting impact on an individual, so it is essential that you understand the facts.

In this guide, our expert director disqualification lawyers, who have substantial experience in defending director disqualification claims, have set out precisely what director disqualification means, and the possible impact it may have on you, your reputation and ability to continue acting as a director in the future.

Your responsibilities as a director

Directors are legally responsible for running a company, and, under the Companies Act 2006, there are set statutory duties and responsibilities that all company directors must adhere to. These include (but are not limited to):

Acting as per the company’s constitution;
Only exercising powers for the purposes for which they are granted;
Acting in a way they believe would be most likely to promote the success of the company;
Exercising independent judgement when acting in the best interests of the whole company (rather than representing the interests of just one shareholder/group);
Exercising reasonable care, skill and diligence when carrying out their duties;
Avoiding direct/indirect conflicts of interest between themselves and the company;
Not accepting benefits from third parties given because of their role as a director;
Not accepting benefits from third parties given by doing/not doing anything as a director;
Declaring an interest (where one exists) in any proposed transaction or arrangement.

Are you facing director disqualification proceedings?

Have you already been struck off as a director and want to reduce your disqualification period? Or maybe you’re being pursued by Liquidators of your company. Whatever your situation, it will be familiar to our director disqualification lawyers.

With many years experience supporting a wide variety of complex cases, we know what it takes to deliver successful outcomes for our director clients.

Always on your side, our director defence lawyers have a proven track record in:

Successfully persuading the Secretary of State to withdraw court proceedings against clients across a broad range of industries;
Successfully negotiating reduced disqualification periods in respect of disqualification undertakings;
Successfully persuading the Insolvency Service not to recommend to the Secretary of State to issue proceedings;
Successfully defending our director clients from Liquidator or Administrator claims;
Successfully defending director disqualification proceedings at trial.

We also proactively protect our clients against disqualification order/undertaking breaches by seeking the Court’s permission for them to undertake prohibited activities where needed.

If you or your company is caught engaging in anti-competitive, negligent, illegal, or fraudulent activity, you could face serious personal consequences. So, even if you have only received an initial letter or phone call from the Insolvency Service, you must contact us straight away.

We offer an initial letter of advice for a competitive fixed fee. Should you require legal support beyond this, we provide tailored fixed fee estimates. For more information, please contact our specialist director disqualification lawyers today by calling +44 7441912822.

Common reasons for director disqualification

Anyone can report a company director’s conduct as being ‘unfit’, and reports are made for many reasons, including where someone suspects a director of committing fraud, selling faulty products or services, not paying a company’s debts/tax, or causing harm to suppliers or customers.

Once a report is made, The Insolvency Service, acting on behalf of the Secretary of State, will assess any information reported, and consider whether to carry out further investigations.

But what are the most common reasons for director disqualification?

Company Insolvency

Today, disqualification is most commonly sought against directors of insolvent companies. When a company is placed into insolvency proceedings (including compulsory liquidation, voluntary liquidation, or administration), a director’s conduct will be automatically investigated. In such situations, a director may be disqualified to prevent repeat behaviour.

It is possible to avoid director disqualification if the director’s conduct is found to be appropriate. Indeed, most directors of an insolvent company are not disqualified. The burden of proof rests upon the Secretary of State to establish if a director’s conduct is unfit and should result in disqualification.

Bankruptcy

Where a director is declared bankrupt, director disqualification is automatic. This means that the director is automatically disqualified from acting as a director of a limited company, or as a partner of a Limited Liability Partnership (as well as some other types of organisations). This automatic director disqualification falls under the remit of the Company Director’s Disqualification Act 1986. Failure to adhere to these restrictions could result in criminal charges.

Misconduct

The most common reason for a director to be disqualified is because the matters relied upon amount to misconduct capable of constituting unfitness. However, misconduct does not have to be deliberate. In many cases, it occurs because the director is not competent or organised enough to meet their legal obligations.

Fraud and Misconduct

Director disqualification is sought following deliberate wrongdoing such as intentionally not paying taxes, fraud, and criminal acts.

What constitutes unfit behaviour?

Below are the most common reasons as to why a director may be deemed to be unfit in their position.

Allowing a company to continue trading when it cannot pay its debts
Allowing a company to continue trading to the detriment of HMRC (or a general body of creditors)
Not keeping proper company accounting records
Not sending accounts and returns to Companies House
Not paying tax owed by the company
Using company money or assets for personal benefit
Matters of public interest (usually severe cases)
Fraudulent dealings.

However, this is not an exhaustive list. If a director disqualification claim is brought against you for unfit behaviour, there are various options including:

Go To Court and Defend Your Case

If you decide to defend yourself, the Court will weigh up all the facts and circumstances to determine whether your conduct has ‘fallen below the standards of probity and competence appropriate for persons fit to be directors‘.

When weighing up a case, the Court will also look at any mitigating factors (e.g. whether a downturn affected the company’s cash position rather than director negligence). If the Court does issue a disqualification order, you will usually have to pay the costs and expenses incurred by the Secretary of State (and any other parties involved).

Offering a Disqualification Undertaking

A disqualification undertaking is where you voluntarily disqualify yourself. Many directors prefer to offer an undertaking as it allows them to put the matter behind them and move on. It also means that you are unlikely to have to meet any costs incurred by the Secretary of State.

However, once accepted by the Secretary of State, a disqualification undertaking has the same legal standing as a court order. As such, professional legal advice is strongly recommended before offering an undertaking.

Company directors disqualification act 1986 (CDDA)

The Company Directors Disqualification Act 1986 (CDDA) deals specifically with director disqualification. Its primary purpose is to maintain the integrity of the business environment. To support this objective, the Act sets out the procedures for company directors to be disqualified in some instances of misconduct.

The Act also sets out the standards for assessing unfitness. These standards are used to determine whether a person is fit to serve as a director.

More recently, the government introduced emergency legislation to ensure directors are not held personally liable for situations out of their control during the Coronavirus pandemic. These measures temporarily relaxed the rules on wrongful trading in a very unclear business environment.

What are the effects of director disqualification?

Disqualification is a public matter, so being named as a disqualified director can be embarrassing and damaging to your reputation. If you are disqualified, your details will be published on the Companies House database of disqualified directors (and automatically removed when your disqualification ends).

Perhaps more importantly, if you are disqualified as a director, you are not permitted to act as the director of a company (without specific authorisation*), for the entire disqualification period (between 2 – 15 years). This means, while you can continue to work as an employee, even for the same company, you cannot:

Be the director of a UK company
Be the director of a company based abroad that operates in the UK
Be involved in the formation, management, or promotion of a company
Act as a company director/undertake the duties of a director (e.g. hire staff, make executive decisions, etc.)
Appoint a third party to manage a company under your guidance (doing this also places your appointee at risk of prosecution and financial liability).

You can operate as a sole trader or join a partnership (if it is not a limited liability partnership). However, if you hold a particular profession (e.g. accountant, solicitor, barrister, etc.), your professional body may prevent you from operating during the disqualification period. Also, you might not be able to hold a position of trust (e.g. as a trustee of a pension scheme, or a board member of a school or charity).

And there are other potential penalties to consider. For example:

You could be held personally liable for losses and/or fines arising from illegal or negligent acts (possibly leading to bankruptcy)
You could be held personally liable because of decisions made by the other directors (directors can be made jointly and severally liable for any breach of responsibilities, so if there is a disagreement between yourself and other directors, make sure your position is recorded in the minutes)

Breaking the director disqualification rules is also a criminal offence which could lead to you becoming personally liable for debts incurred during the infringement period, and/or a prison sentence of up to two years.

* It is possible to apply to the Court for permission to act as a director or take part in the management of a company while disqualified. But this decision is very much at the Court’s discretion.

How long can a director be disqualified for?

A director can be disqualified for up to 15 years. There are three tiers of director disqualification:

2-5 years (usually for reckless or negligent conduct as a director).
6-10 years (usually for serious misconduct which is more detrimental to the public interest)
11-15 years (for the most severe breaches, usually fraudulent or otherwise serious/criminal behaviour).

How many directors are disqualified each year?

According to the Insolvency Service, the total number of director disqualifications increased in 2019/20 compared to the previous year. Year-on-year, the average period of disqualification also fell slightly. According to the stats:

Fifty-two companies were wound up in the public interest, down 10 cases from the previous financial year.
The number of bankruptcy and debt relief restrictions increased to their highest annual level since 2014/15
The Insolvency Service obtained or had significant involvement in getting 1,280 disqualifications for the reporting year 2019/20, that was 3.0% higher than in 2018/19
For the third consecutive year, the average length of a disqualification decreased, falling to five years and four months
Over 6,800 former directors are currently disqualified, and more than 2,400 persons are presently subject to bankruptcy and debt relief restrictions
In 2019/20, 74 directors faced criminal charges which resulted in 66 convictions
In 2019/20, the most common allegation made in director disqualifications cases concerned unfair treatment of the Crown (this usually means HMRC).

What's the purpose behind director disqualification?

The primary purpose of disqualifying an individual from acting as a director is to protect the public interest. For example, to stop a director with a history of abusing their position of trust from repeating behaviour that harms others.

In a nutshell, through the disqualification process (and the potential criminal consequences of a breach) the legislation helps to protect the company, its shareholders, and other stakeholders (e.g. the public, creditors, customers, employees, etc.), from directors who may otherwise engage in repeat offences.

Director Disqualification Update – January 2022: New Year, New Laws

admin — Tue, 16 Nov 2021 10:57:30 +0000

On 15 December 2021, the Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act 2021 received Royal Assent and serves as an interesting development within the director disqualification legal regime.

You may have read our previous update on this in May 2021 Director Disqualification Update after the Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill had its first reading in the House of Commons on 12 May 2021.

This new piece of legislation will be a useful tool for the Insolvency Service as it extends their powers to investigate and disqualify company directors of dissolved companies. This is mainly to target directors who seek to avoid repaying liabilities by simply dissolving their companies.

In particular, such conduct has become increasingly common as many directors seek to evade repayment of COVID-19 government bounce back loans. Read our update about this here Director Disqualification and Coronavirus Bounce Back Loans.

Where a director is found to have engaged in misconduct which makes him unfit to be a director, he could face disqualification for up to 15 years.

In addition, under this new legislation, compensation orders can now be applied for against a disqualified director of a dissolved company. This means that a disqualified director could be ordered to pay compensation to those creditors who have suffered prejudice as a result of his misconduct.

If you require any director disqualification advice, please do not hesitate to get in touch with our experts today at ac@jamesedwardassociates.com or jb@jamesedwardassociates.com.

Director Disqualification and Coronavirus Bounce Back Loans

admin — Tue, 16 Nov 2021 10:56:59 +0000

The Bounce Back Loan Scheme was introduced to provide financial aid to small and medium-sized businesses affected by the coronavirus pandemic. The scheme enabled small and medium-sized businesses to borrow up to £50,000 with no fees or interest payable for the first 12 months. After 12 months, an interest rate of 2.5% per year becomes payable and the government guarantees 100% of the loan.

The scheme is now closed to new applications, but we are seeing an increasing number of investigations by the Insolvency Service into directors’ conduct in relation to possible abuses of the scheme. More recently, the Insolvency Service has banned multiple directors following investigations into their conduct. The investigations showed that the directors in question had misused the loan funds for improper purposes or inappropriately applied to use the scheme.

For example, a director of a cleaning company applied for a bounce back loan in the sum of £30,000. At the time, the company was clearly insolvent which the director knew (or ought to have known) meaning that there was no prospect whatsoever of repayment of the loan. The director was subsequently banned for a period of nine years. This is a “middle bracket” disqualification, which is reserved for serious cases which do not merit the “top bracket” of 11 to 15 years.

In addition, joint directors of a chicken takeaway business applied for a loan in the maximum amount of £50,000. The joint directors were ineligible for the loan as they had sold the business some years earlier. They were banned accordingly.

A director of a pub also applied for a bounce back loan. It transpired upon investigation that he had transferred a significant proportion of the loan to his personal bank account. The amount transferred was almost 3 times his normal salary. He was disqualified accordingly.

Alan Draycott, the Deputy Official Receiver has said:

“The Government loan schemes have provided a lifeline to millions of businesses across the UK – helping them to continue trading during the pandemic and protecting millions of jobs. As these three cases show, the Insolvency Service will not hesitate to investigate and use our powers against those who abused the COVID-19 support schemes.”

It is clear that the Insolvency Service is continuing to investigate possible abuses of the Coronavirus Bounce Back Loan Scheme. If you have received any correspondence from the Insolvency Service regarding your conduct in relation to the scheme or otherwise, please get in touch with our specialist director disqualification solicitors today.

Our team can be reached via email at ac@jamesedwardassociates.com, jb@jamesedwardassociates.com or via telephone on +44 7441912822.

An update: the importance of maintaining adequate company accounting records in the context of director disqualification

admin — Tue, 16 Nov 2021 10:46:07 +0000

A company is obliged to keep adequate accounting records in accordance with section 386 of the Companies Act 2006. This provision sets out a number of requirements for a company’s accounting records, including that they must show and explain the company’s transactions and disclose with reasonable accuracy, at any time, the financial position of the company.

The recent decision of Secretary of State for Business, Energy and Industrial Strategy v Rajgor [2021] EWHC 1239 (Ch), [2021] All ER (D) 51 serves to reinforce the importance of maintaining adequate company accounting records in a director disqualification context.

In this case, the Secretary of State argued that the defendant director failed to maintain or preserve adequate accounting records. The defendant director argued that bags of company records were taken to his interview with the Insolvency Service but an examiner refused to review them. The court was not persuaded by this argument and imposed a period of disqualification for seven years. Given that the maximum period of disqualification is 15 years (and in this case, there were no allegations of fraud for example) this demonstrates the court’s no-nonsense approach to allegations of misconduct of this kind.

This case highlights the importance of preserving and maintaining adequate company accounting records. In practice, the court is unlikely to be persuaded by an argument that the records were kept but not delivered up or alternatively an argument seeking to blame others for a director’s failings.

If you require any director disqualification advice, please contact our team of experts today on +44 7441912822 for a free initial telephone consultation

Director Disqualification Update – May 2021

admin — Tue, 16 Nov 2021 10:45:49 +0000

On 12 May 2021 the Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill (“the Bill”) had its first reading in the House of Commons and has now been published.

This will be an interesting addition to the disqualification regime. The main changes to the Company Directors Disqualification Act 1986 (“the Act”) will be as follows:

Section 6

Section 6 of the Act provides, insofar as is material, that:

”The court shall make a disqualification order against a person in any case where, on an application under this section, it is satisfied—

(a) that he is or has been a director of a company which has at any time become insolvent (whether while he was a director or subsequently), and

(b) that his conduct as a director of that company (either taken alone or taken together with his conduct as a director of one or more other companies) makes him unfit to be concerned in the management of a company.”

Principally, the Bill will amend this provision to apply the above test to a director of an insolvent company or a former director of a company which was dissolved without becoming insolvent. The court will therefore be under a duty to make a disqualification order against an unfit director of an insolvent company or a former director of a company which was dissolved without becoming insolvent. In practice, this will widen the scope of directors caught under the disqualification regime.

Section 7 (2)

Section 7 (2) of the Act provides, insofar as is material that:

”Except with the leave of the court, an application for the making under section 6 of the Act for a disqualification order against any person shall not be made after the end of the period of 3 years from the day on which the company became insolvent.”

The Bill will extend this section to an application for a disqualification order in respect of a former director of a dissolved company. This means that an application for a disqualification order in respect of a former director of a dissolved company must be made within three years of the date the company was dissolved.

Section 7 (4)

Section 7(4) of the Act provides, insofar as is material that:

”The Secretary of State or the official receiver may require any person:

(a) to furnish him with such information with respect to that person’s or another person’s conduct as a director of a company which has at any time become insolvent (whether while the person was a director or subsequently), and

(b) to produce and permit inspection of such books, papers and other records as are considered by the Secretary of State or (as the case may be) the official receiver to be relevant to that person’s or another person’s conduct as a director

as the Secretary of State or the official receiver may reasonably require for the purpose of determining whether to exercise, or of exercising, any function of his under this section.”

The Bill will amend this section to extend the Secretary of State or Official Receiver’s powers as above to information and/or documentation relating to the conduct of a former director of a dissolved company. The reasonableness requirement shall remain.

Section 15A

Section 15A of the Act provides, insofar as is relevant:

”The court may make a compensation order against a person on the application of the Secretary of State if the following conditions are met:

(a) the person is subject to a disqualification order or disqualification undertaking, and

(b) conduct for which the person is subject to the order or undertaking has caused loss to one or more creditors of an insolvent company of which the person has at any time been a director.”

This section will be amended so that a compensation order may also be made against a former director of a dissolved company where he is subject to a disqualification order or a disqualification undertaking and his conduct has caused a loss to creditors.

If you require advice in relation to a director disqualification matter, please contact our specialist team today at ac@jamesedwardassociates.com, jb@jamesedwardassociates.com or +44 7441912822.

Trading to the Detriment of HMRC – Director Disqualification

admin — Tue, 16 Nov 2021 10:36:22 +0000

A recap of the principles applicable to allegations by the Secretary of State of trading to the detriment of HMRC – The Secretary of State for Business Energy and Industrial Strategy v Raymond St John Murphy [2019] EWHC 459 (Ch)

In The Secretary of State for Business Energy and Industrial Strategy v Raymond St John Murphy [2019] EWHC 459 (Ch) the principles applicable to allegations of trading to the detriment of HMRC (the most common ground for disqualification proceedings) were reaffirmed. This is an important decision for company directors as it was established that a director cannot avoid disqualification on the basis that he hopes the company would be in a position to pay tax at a later date.

The background

An application for a disqualification order pursuant to section 6 of the Company Directors Disqualification Act 1986 was brought against Mr Murphy. Mr Murphy was formerly the sole director of St John Law Limited (“the Company”), which entered into liquidation.

One of the principal allegations brought by the Secretary of State was that Mr Murphy had caused the Company to fail to comply with its obligations to file and pay taxes when due. As a result, he had caused or permitted the Company to trade to the detriment of HMRC.

The defence

Mr Murphy sought to defend this aspect of the claim on two principal grounds:

Mr Murphy claimed that he was owed a substantial amount from HM Treasury in respect of a costs order made in his favour in 2011 in criminal proceedings brought against him. This would have been sufficient to satisfy all liabilities due to HMRC at a later date, and;
The Company was due to receive sufficient income shortly in order to repay HMRC liabilities in full. The Company was therefore not insolvent.

The principles

It has long been established that non payment of crown debts, cannot, in itself, justify a finding of unfitness (see Re Sevenoaks Stationers (Retail) Ltd 1991 Ch 164, 183 per Dillon LJ). Instead, a policy of discrimination must be established.

1) The starting point is to establish a discriminatory practice of paying other creditors with the result that the company is trading at the expense of the creditor who is discriminated against. This may constitute unfit conduct.

2) The evidence required to establish a policy of discrimination can be direct but can also be inferred from conduct – for example, the fact of withholding payment for a significant period in contrast to the payment of others. Such practice is normally found in cases where the company is insolvent, cannot pay all its creditors when the debts falls due and the director decides to pay those creditors who press and not those who forbear (whether intentionally or because of administrative problems in pressing for prompt payment of companies in financial difficulty).

3) If a deliberate policy of non-payment of Crown debts is established, the court asks whether the defendant has fallen below the standards of probity and competence appropriate for persons fit to be directors of companies taking into account any extenuating (not the higher test of exceptional) circumstances. However, the guidance of the court is that a deliberate policy of non-payment over a lengthy period is likely to be misconduct justifying such a finding.

4) If the Defendant has fallen below the required standards of probity and competence, it is the duty of the court to make a disqualification order. Other matters, such as subsequent conduct and the current position are for mitigation and/or an application for permission to act.

5) A finding of a deliberate policy of discrimination does not require a conscious decision to that effect by the directors of a company. Accordingly, the decision can be subconscious and the reasons for it may be unconscious.

The decision

The allegation that Mr Murphy had caused the Company to trade to the detriment of HMRC was made out. Substantial payments were being made to other creditors (including Mr Murphy) at a time when HMRC were not being paid. This policy continued for a significant period of time. Accordingly, a policy of discrimination was made out and Mr Murphy was disqualified for a period of 8 years.

For more information on director disqualification proceedings (at any stage) please get in touch with our specialist team today on +44 7441912822 or email ac@jamesedwardassociates.com.

Compensation Orders in Director Disqualification Proceedings

admin — Tue, 16 Nov 2021 10:30:09 +0000

Compensation Orders in Director Disqualification Proceedings – the First Judgment Handed Down in 4 Years since its Implementation under the Regime

In line with the aim of the disqualification regime, to make directors accountable for the consequences arising as a result of their unfit conduct, the Secretary of State may apply to court for a compensation order where a director’s conduct has caused a quantifiable loss to one or more creditors of an insolvent company. An application by the Secretary of State seeking a compensation order must be made within two years of the disqualification and compensation may only be sought for conduct that occurs on or after 1 October 2015.

The principles which should be considered when calculating loss include:

whether the conduct caused an identifiable loss to one or more creditors;
the nature of the creditors and whether they have any other forms of redress;
the ability to readily identify the creditors affected and quantify the loss to each creditor (or class of creditors);
whether through the insolvency process, for example liquidation, there has been or is predicted to be a (material) repayment to those creditors.

When deciding the amount of compensation, the court will consider whether a director has made any other financial contribution in recompense for the conduct. This means a case for compensation will unlikely be made where, for example, an insolvency practitioner has taken or is going to take civil recovery action against the director or the director has made a contribution to the assets of the company.

On 1 November 2019, ICC Judge Prentis handed down the first compensation order in 4 years since its implementation under the regime.

Background and Decision

On 22 June 2017, Noble Vintners Limited (“the Company”) entered into creditors’ voluntary liquidation. Mr Ealing was the sole shareholder and director.

In December 2018, the Secretary of State issued disqualification proceedings alleging that Mr Ealing caused Company funds in the sum of £559,484 to be misappropriated. A compensation order seeking recovery of the full amount was also sought. ICC Judge Prentis held that Mr Ealing had misappropriated Company funds and unreasonably continued incurring substantial debts in circumstances where these were unlikely to be repaid by the Company. The compensation order sought by the Secretary of State was granted and Mr Ealing was disqualified for a period of 15 years (the maximum period under the Company Directors Disqualification Act 1986).

It was held that the compensation order was to be divided up as follows:

The sum of £460,067 was payable to the Secretary of State for the benefit of certain Company creditors who, although they did not have priority over any other creditors, had suffered the most direct loss.
The remainder was payable to the Liquidator of the Company by way of contribution to the Company’s assets.

This judgment may serve to contradict the established “pari passu” principle which underpins UK Insolvency law, namely that all unsecured creditors in insolvency processes must share equally any available assets of the Company or any proceedings from the sale of those assets in proportion to the debts due to each creditor.

Commentary

The judge provided helpful commentary on various issues, including the following:

In dividing up the compensation funds, the court has discretion as to whether these should be paid to the insolvent company, to the Secretary of State or to both.
The regime should not promote double recovery. The following considerations will be relevant to ensuring compliance with the same:
- whether a director has made any other financial contribution in recompense for their conduct, and;
- whether through the insolvency process, there has been or predicted to be a (material) repayment to those creditors.

Should you require any advice or assistance in relation to disqualification proceedings, please do not hesitate to contact our specialist team today on +44 7441912822.

Can I act as a company director whilst disqualified?

admin — Tue, 16 Nov 2021 10:15:34 +0000

What will happen if somebody finds out that I have been running a company whilst disqualified?

From time to time, my colleagues in our specialist director disqualification department will receive a new enquiry and the prospective client will ask:

“What would happen to me if the Secretary of State found out that I was running a company whilst disqualified?”

Sometimes the question is phrased as though the caller is asking on behalf of a friend.

On 20 June 2019 it was reported that Andrew Brian had received a 12-month suspended prison sentence, 150 hours of unpaid work and £2,500 contribution to costs after pleading guilty to running a company in breach of a directorship disqualification. Thomas Brian (his son) and Stephen O’Connor have also received community orders for aiding and abetting Andrew Brian. All three men appeared for sentence at Bradford Crown Court on 23 May 2019.

The Insolvency Service, a Government department, led an investigation into the affairs of a Company called MET Euro Ltd and it found:

The Company owed more than £255,000 and faced legal action from creditors left waiting for payment in 2014.
Stephen O’Connor and Thomas Brian were the registered directors but Andrew Brian acted as the de facto director, controlling the Company on a day to day basis.
Registering other directors helped Andrew Brian get round a 6-year disqualification undertaking he had voluntarily signed in February 2009 – this was issued due to his previous Company owing a large amount of tax.
Andrew Brian and his family substantially benefited from MET Euros – accounts – payments were made to a joint mortgage account under Andrew Brian and his wife.
Andrew Brian signed a disqualification undertaking for 12 years, whilst Thomas Brian and Stephen O’Connor each provided 5-year disqualification undertakings for their respective misconduct.

It should be noted that this is not an isolated case and the Law Reports are full of similar such cases. Our advice at James Edward & Associates is to instruct a firm that specialises in director disqualification work, like ourselves, and then see if it is possible to make an application for permission to continue acting as a director, even whilst disqualified. Such applications have to be thought out carefully but orders can be made which means that directors do not have to run the risk of being caught!

For more information or specialist director disqualification legal services, call our expert team on +44 7441912822 now, complete our enquiry form via our contact page.