Threat of Director Disqualification Proceedings from The Insolvency Service Withdrawn.

In a recent case, we were instructed by a director of a failed company who had received a letter from the Insolvency Service (‘IS’) confirming that investigations were under way to determine whether he ought to be made the target of director disqualification proceedings.

The letter from the IS indicated that if proceedings were issued, a director disqualification order of 7 years would be sought against the director. This case study details how we successfully challenged the Insolvency Service’s intentions and the director disqualification threat was withdrawn.

What Were the Allegations Against the Director?

The allegations of misconduct made against the director were very serious.  It was alleged by the IS that the director had caused or allowed the company to breach the terms of its invoice factoring agreement, by notifying the Factoring Company of unrecognised or uncollectable invoices.

In addition, it was alleged that the director caused or allowed the company to trade to the detriment of HMRC by failing to make ‘Crown Debt’ payments in respect of PAYE, NIC, VAT and Corporation Tax.

Our Response to this Threat of Director Disqualification

As soon as we were instructed, we obtained the draft evidence that was being relied upon by the IS so that we could interrogate and investigate the precise circumstances of the allegations and advise our client of his best way forward.

This draft evidence prepared revealed serious issues for the director and on the face of it, a director disqualification of 7 years was warranted if the allegations were accurate. We reviewed this evidence with the director and then prepared detailed responses to it, as follows:

  • The director accepted that incorrect invoices had, indeed, had been notified to the Factoring Company, but argued that those notifications were the result of system errors and oversights, rather than a deliberate attempt to mislead the Factoring Company.  The IS accepted the explanations that we put forward on behalf of the director.
  • In respect of the Crown Debt allegation, the director accepted that HMRC had not been paid as and when the liabilities arose. However, we successfully argued that when all of the circumstances of the case were taken into consideration (see below), director disqualification was neither required nor in the public interest. NDP put significant resource and commitment into making those representations.

Other Relevant Matters Were Taken Into Consideration

Our investigations revealed that at the time of the alleged misconduct, the director was suffering from mental illness which adversely affected his judgement and his ability to deal with the business affairs of the company. We argued (supported by medical evidence obtained on his behalf) that his actions could not, in all circumstances, have amounted to a breach of his fiduciary duties, as a director, to the company.

We argued successfully that disqualification should not be the outcome for the director and that it was not in the public interest to commence director disqualification proceedings against the director, despite the prime facie breaches of his fiduciary duties to the company regarding the non-payment of Crown Debt.

The IS agreed with our view, once they had been presented with all of the new and relevant information which we had gathered, and confirmed that director disqualification proceedings would not be issued against the director.

It is Possible to Challenge Successfully the Insolvency Service’s Intention to Issue Director Disqualification Proceedings

This case demonstrates that with the skilled and determined professional assistance of NDP, even the most serious allegations of director misconduct (where on the face of it, director disqualification appears inevitable) can be successfully challenged.

The IS could easily have justified commencing  director disqualification proceedings based on the facts of this case that they were in possession of before our involvement.

The key to ‘winning’ this case was the critically important need to present all of the material facts to the IS, bearing in mind that the IS were strangers to the detail of what happened in this company and why. Therefore, getting the director’s side of the story across, coherently and relevantly, was vital and that is what we did.

If director disqualification proceedings have been issued against you, or the Insolvency Service have commenced investigations with a view to commencing proceedings, all is not lost. Please contact us immediately, call us on 0121 200 7040 or send us an email to law@ndandp.co.uk  for a Free, no obligation initial chat with our team of expert Director Disqualification Solicitors..