This case study details how our experienced director disqualification solicitors, Neil Davies and Mandeep Nagra, were able to convince the Insolvency Service (IS) not to continue with its intention to bring director disqualification proceedings against our client for allegedly causing or allowing his company’s turnover to be overstated when applying for a £50,000 Bounce Back Loan (BBL).
This case was a long and complex one, which required detailed background work by our team to establish the full facts of the case as well asfour separate letters of representation to the IS before they decided to not continue with the investigation because to do so would not be in the public’s interest. This positive outcome for our client demonstrates the importance of detailed preparation and persistence when communicating with the IS and also the importance of the public’s interest in such cases.
Background to this Director Disqualification case
NDP were contacted by the Director who had received a Section 16 letter from the Insolvency Service, in which they alleged that the Director’s had obtained, caused or allowed the Company to apply for a BBL of £50,000 using an overstated turnover figure, when he knew or ought to have known that the Company was not eligible for that amount. Such behaviour, if proven, would have made him unfit to be a director of the company and would have resulted in a director disqualification.
The first letter of representation – Challenging personal responsibility: delegation and a director’s duty to supervise
Mandeep and Neil met the Director, in order to take his detailed instructions so that a detailed letter of representation could be prepared on his behalf. The Director claimed that he was not personally responsible for the alleged unfit conduct, given that he had neither completed the BBL application form nor submitted it.
The Insolvency Service in reply stated that, despite delegating the task of the BBL application to someone else in the Company, as a director he still had a personal, inescapable fiduciary responsibility and obligation to the Company, including the duty to inform themselves about their company’s affairs and to supervise and control their company activities.
The Insolvency Service further added that if the Director had delegated particular functions, it did not absolve him from the duty to supervise the discharge of those delegated functions.
The second letter of representation – No evidence of failure to supervise: countering the Insolvency Service’s fiduciary duty argument
In response to the IS’s position, a further letter of representation was sent to the Insolvency Service, providing more detailed information from the individuals who had completed and submitted the BBL application on behalf of the Company. We argued that whilst directors retain a residual duty of supervision and control over delegated functions, the extent of this duty depends on the specific facts of the case.
We argued that there was no evidence that the Director had failed to supervise or control the delegated functions in a manner that would amount to misconduct or unfitness. The Director had acted in good faith relying on others with the necessary experience and knowledge of the Company to complete and submit the BBL application and was unaware of the inaccuracies in the turnover figures.
The Insolvency Service in reply, continued to maintain their initial position. They stated the fact remained that the Director was the sole appointed director of the company at the time of the BBL application and also at the date the BBL funds were received. They stated again whatever their roles within a company, all directors have personal, inescapable fiduciary responsibilities and obligations to their companies, including the duty to inform themselves about their company’s affairs and to supervise and control their company’s activities.
The IS argued that the delegation of particular functions to others in the Company did not absolve the Director from the duty to supervise the discharge of those delegated functions. Furthermore, the role played by others within the Company did not detract from the Director’s position, nor did it afford him a defence in respect of this failure to discharge his duties/responsibilities as a director.
The third letter of representation – New evidence from the company: the turnover figures were believed accurate
A further letter of representation was then sent to the Insolvency Service which included an email from the individual in the Company who had provided the turnover figures for the BBL application. This person believed that the figures were correct given the available Company information to him at the time. Following consideration of this new evidence, the Insolvency Service continued to state that the Secretary of State was still satisfied that the Director had allowed the misconduct.
The fourth letter of representation – Good faith, Covid-19 disruption and the public interest case against disqualification
As a director of a number of other companies, our client informed us that he could not afford to be disqualified. Instructions were then obtained to a write a further detailed letter of representation to the Insolvency Service, highlighting in particular that he:
- had not allowed the misconduct,
- had at all times acted in good faith and
- had no knowledge that any information in the BBL application was inaccurate.
This was also to be considered against the background of the Covid 19 pandemic, which meant the normal patterns of working in the Company would have been severely disrupted. It was also highlighted to the Insolvency Service, that the Director was a director of a number of other companies, which were serving local communities, and therefore if he was to be disqualified it would not be in the public interest and would cause significant and unnecessary disruption to the wider community.
In the same letter we also requested that there be a meeting in person before any proceedings were issued against the Director, in order be able to put his position forward in person, given the seriousness of the matter to him.
The IS decide to not continue with director disqualification proceedings
After considering our final representation, the Insolvency Service, informed us that based on all available information the Secretary of State did not propose to take director disqualification proceedings against our client.
The Director was delighted with the outcome and said how pleased he was with everything Mandeep and Neil did to support him during the case.
Talk to us if facing director disqualification
This case shows the importance of not giving up against the Insolvency Service and the importance of the public interest argument being deployed in the right circumstances. Please take a look at some of our other testimonials.
If you are a Director facing an investigation by the Insolvency Service, then please get in contact with our experienced team of Director Disqualification and regulatory solicitors on 0121 200 7040 or by email to law@ndandp.co.uk.
Frequently Asked Questions ABOUT Director Disqualification
What is a Section 16 letter from the Insolvency Service?
A Section 16 letter is formal notification that the Insolvency Service is considering bringing director disqualification proceedings against a director. It sets out the allegations and gives the director an opportunity to respond before any final decision is made.
Can a director be held responsible for a BBL application they did not personally complete?
Yes. Even where a director delegates tasks such as completing a Bounce Back Loan application to someone else in the company, they retain a personal duty to supervise and control that delegated function. Delegation does not remove a director’s underlying responsibility for their company’s affairs.
What is the “public interest” test in director disqualification cases?
The Insolvency Service will only pursue disqualification proceedings where doing so is considered to be in the public interest. Factors such as a director’s good faith conduct, wider community impact, and the circumstances surrounding the alleged misconduct can all influence this assessment.
What should a director do if they receive a Section 16 letter?
A director should seek specialist legal advice as early as possible. Detailed, well-evidenced letters of representation, and where appropriate a request for a face-to-face meeting, can significantly affect the outcome of the Insolvency Service’s investigation.
