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£560,000 Director Disqualification Compensation Order

£560,000 Director Disqualification Compensation Order

Stop press November 2019: Directors be Very Afraid. The First Director Disqualification Compensation Order is made – £560,000

The Secretary of State for Business, Energy and Industrial Strategy (SOS) has had the power to not only seek to disqualify a director but also within the same proceedings to seek compensation orders against that director, since 1 October 2015, under Section 15A and 15B of the Company Directors  Disqualification Act 1986 (the CDDA). 4 years later and the first director disqualification compensation order has been made for £560,000 in addition to a 15 year disqualification period. In this article we detail the case in which this happened and explain why directors should be very afraid as a result.

The Details of the Director Disqualification Compensation Order Case

In a judgement dated 1 November 2019 , in the case of Noble Vintners Limited (‘Noble’), ICCJ Judge Prentis having disqualified Kevin Eagling as a director for 15 years (the maximum disqualification period), has also ordered Mr Eagling to pay the eye watering sum of £559,484 in compensation to:

  • The SOS, for 28 named creditors of Noble in the sum of £460,067; and
  • The liquidator of Noble, as a contribution to its assets in the sum of £ 99,416.

This was on any analysis an extreme case of Director misconduct. It is worth noting on the specific facts of this case, that the total compensatory award matched in amount, the amount of income that Noble had received from its customers and that Mr Eagling had then caused Noble to pay to a company controlled by him, without any commercial justification for so doing.

What Evidential Threshold Must be met To Make a Director Disqualification Compensation Order?

The court has to be satisfied that the conduct of the Director:

‘… has caused loss to one or more creditors of an insolvent company of which the individual has been a director’.

How much compensation should be ordered by the court?

The court must have regard to:

  • The amount of the loss caused.
  • The nature of the misconduct
  • What other financial contribution the offending Director has made in recompense for his /her conduct (presumably to somebody such as a liquidator of the insolvent company).

Our Director Disqualification Solicitors Comment

 Our immediate comments on this development, from the perspective of the Director, are that:

  1. Competing financial claims from the SOS and the company liquidator.

We often see claims against directors proceeding at the same time, from the SOS (seeking disqualification) and from the liquidator seeking financial recovery, arising out of the same set of facts. We can easily imagine a situation (now that the SOS can seek financial compensation orders) where those 2 competing financial claims against the Director are in conflict. That situation will need to be carefully managed and negotiated by the Director’s solicitors.

  1. Reluctance to give Director Disqualification undertakings.

Directors may now be far more reluctant to settle disqualification investigations and disqualification proceedings, by giving Director Disqualification undertakings. The precise terms of any disqualification undertaking will need to be even more carefully managed, moving forwards.

This is an area where very targeted enquiries will need to be made to the SOS, by the Director, as part of his strategy in dealing with the proposed disqualification claim and now, of course, the compensation claim.

  1. Will the SOS Negotiate a Sum to be Paid in Compensation Ahead of a Court Hearing?

Liquidators of an insolvent company will, in most instances, negotiate financial settlements with Directors targeted by them, taking into account when doing so. commercial and real life factors such as the ability of the director to pay, the merits of the case and the wish on both sides  to avoid contested and costly litigation.

Compare that to the position of the SOS, who is tasked to seek disqualification orders ‘in the public interest’. The following issues spring to mind:

  • Will the SOS be prepared to negotiate the amount of compensation outcomes, or will the SOS insist on going to a final hearing for the court to make that compensation decision?
  • The SOS may, at least in the short term until matters settle down, take the view that it has no ability to negotiate a lower compensatory sum than the SOS believes is due, thus meaning a potentially long , drawn out and expensive court case.
  • Has the SOS even got the power and ability to enter into such compensation settlement agreements? Bearing in mind the decision to make a compensatory award is a decision to be made by the court-will we see the court rubber stamping such agreements?
  • Will the SOS need to seek approval of a proposed settlement with a Director, from a liquidator of the insolvent company, who may have a competing , financial claim against a director? It would appear so.
  • Will a liquidator of the insolvent company, of which the targeted individual was a director, be able to intervene in proposed compensation settlement proceedings? For example, to ensure that the liquidator’s claims are recognised and compensated.
  • The interests of different classes of creditors was recognised and appreciated  in the Noble case, where the Judge awarded compensation to 28 named creditors, apparently leaving out from that award a number of other creditor claims in the insolvent company.
  • We note for example, on the facts of the Noble case, that there were very many  more creditors listed as being owed money by Mr Eagling when he signed off the Statement of Affairs relating to the Company, which showed a deficiency  to creditors of £1.678million, owed to 122 consumer creditors within that figure.

Moving Forwards

The trigger for a director to know whether he will face a compensation claim from the SOS is currently to be found in the pre-action letter sent to the Director (‘the Section 16 CDDA letter’).

A failure by the SOS to set out that proposed compensation claim in the Section 16 CDDA letter, is not, however, a bar to the SOS bringing a compensation claim at a later point in time. Great care is thus needed by and on behalf of the director from the outset.

Whilst outside the scope of this piece, the Director also needs to take the necessary steps to ensure that there are no parallel criminal law investigations or proceedings, in place.

Our director disqualification solicitors are well placed here at NDP to advise on these issues. Click here to see some of our testimonials. Please contact us or call us on 0121 200 7040 for a free of charge initial chat.

Over 1200 Director Disqualifications in 2018 19

Over 1200 Director Disqualifications in 2018 19

How Does the Insolvency Service Instigate Director Disqualification Proceedings? What Can the Director do About it?

In 2018/19, 1,242 directors were disqualified for misconduct, following investigations by the Insolvency Service, resulting in bans of up to 15 years. In this article we look at how the Insolvency Service instigates director disqualification proceedings and look at some of the directors who have received substantial bans. The article concludes with how we, as specialist director disqualification solicitors, can help directors who are investigated by the Insolvency Service.

How Does the Insolvency Service Instigate Director Disqualification Proceedings?

There are many legal responsibilities that directors have, and these responsibilities continue until such time as a director resigns his/her post. These responsibilities are enshrined in the various Companies Acts and, essentially, are all about being a responsible director. Some of the key responsibilities are:

  • Follow the Company’s rules as shown in the articles of association
  • Keep accurate and timely company records
  • Report any changes
  • File Company Accounts and the Company Tax Return
  • Pay Corporation Tax and all other taxes
  • Inform shareholders if you, as a director, are likely to benefit personally from a specific transaction

If you fail to meet your responsibilities as a director, you may be fined, disqualified or even prosecuted. Failing to meet these responsibilities is most often revealed when a company is involved in insolvency proceedings or if there has been a complaint. It is at this stage that an investigation by the Insolvency Service is most likely. The process is as follows:

  • If the Insolvency Service determines that the director under investigation has not followed his/her legal responsibilities that you haven’t followed your legal responsibilities, they will write to the director concerned explaining the misconduct and that they intend to instigate director disqualification proceedings.
  • At this stage, the director can either contest the allegations in court, which could lead to a disqualification order, he/she can provide a voluntary disqualification undertaking, which puts an end to court action. It is at this stage that we are often retained by the director under investigation to defend him/her against the Insolvency Service’s allegations.

If you are banned as a director, or accept a director disqualification undertaking, the disqualification can be for anywhere between 2 and 15 years. This covers being banned from being a director of a limited company and even being involved in the running of a company. Director Disqualification is a serious punishment for not fulfilling your responsibilities as a director, not just financially but also reputationally.

In addition if, once disqualified, you are found to have breached your disqualification restrictions, you could receive further punishment, including a heavy fine or a custodial sentence of up to 2 years.

How Many Directors Received Substantial Disqualifications in 2018/19?

According to Insolvency Service figures, the average length of a director disqualification since April 2014, is 5.7 years. However, there are occasions, where directors receive longer bans of 11 years or more, and these are known as substantial bans. During 2018/19, the following substantial bans were handed out:

  • 70 people received Section 6 disqualifications – bans for unfit conduct in relation to an insolvent company – of between 11 and 15 years.
  • 77% of these substantial disqualifications were director disqualification undertakings of which the vast majority were for 11 and 12 year bans. 6 directors did receive the maximum 15-year disqualification.
  • 43% of the substantial disqualifications in 2018/19 involved some form of tax misconduct, such as VAT fraud. Other examples of misconduct included dubious investment schemes and directors breaching a previous ban.

Of those individuals with substantial bans in 2018/19, a significant proportion were in their 40s (36%) or 50s (30%) but there were 2 people under the age of 30 and another 2 people over the age of 70.

London was the biggest hotspot seeing 19% of substantial bans, with the West Midlands in second place having a 10% share. 3 disqualified directors were even registered to countries outside of the United Kingdom.

Below is just a sample of some of the substantial director disqualifications that were handed down by the Insolvency Service in 2018-2019.

Is Director Disqualification a Certainty Once the Insolvency Service Investigates?

The answer is no! Clearly receiving a letter from the Insolvency Service notifying their intention to investigate is a serious occurrence. However, at this stage it is important to note that this letter is based on what they have found out so far and at this stage the detailed investigation has not been carried out. This is where our director disqualification specialists come in.

We have defended hundreds of directors threatened with disqualification over the years. It is a detailed and complex area of law, and the outcome depends on the facts of each case. However, once instructed and given access to the accused director and the full details of the case, we aim to provide full and detailed answers to each question raised by the Insolvency Service, with a view to getting them to drop the case or securing a reduction in the length of the disqualification. Click here to see some of our testimonials from directors we successfully defended.

Our director disqualification solicitors have experience of working for the Insolvency Service, so know how they work and what they are looking for. It also means we have long experience in building up strong cases for directors threatened with disqualification. It is why our mantra is: no hole is too deep for us not to be able to make a difference.

If you are threatened with director disqualification, contact us immediately or call us on 0121 200 7040 for a FREE initial discussion of your case. The sooner we start the quicker we can make a difference..

Repeat Director Disqualification for Second Offence

Repeat Director Disqualification for Second Offence

Director Receives Director Disqualification Penalty for 11 Years for Acting as a Director Whilst Already Disqualified

The penalty for continuing to act as a director whilst already serving a period of director disqualification is severe as Gary Link, from Telford, found out. Mr Link received an 11-year disqualification order after he was found guilty of acting as a company director despite already serving an existing 8-year period of disqualification.

Background to this Director Disqualification Case

Telford County Court heard how CGL Contracting Limited, a nationwide double-glazing contractor, went into liquidation in December 2015.

The subsequent investigation by the Insolvency Service uncovered Mr Link as the director of the Company, despite not being named as one, whilst already being disqualified.

Mr Link had previously been banned for a period of 8 years from April 2008 as a result of causing his previous company to maintain inaccurate, misleading and/or inadequate records.

The court also heard that both Gary Link and the registered director of CGL Contracting, Christopher Jordan, had caused CGL to trade to the detriment of HMRC when they failed to file any tax returns.

Comment from the Insolvency Service

Jane Knight, Deputy Head of Insolvent Investigations, said:

“The 11-year disqualification serves as a warning to other disqualified directors tempted to flout their bans that we will take action in order to put a stop to their unscrupulous behaviour.”

Comment from our Director Disqualification Solicitors

The length of the Director Disqualifications given out in this case shows the seriousness with which the Insolvency Service views such conduct. Misleading creditors as to your ability to be a director when already disqualified is never an attractive picture.

The team of director disqualification solicitors at NDP are experienced in dealing with such claims made by the Insolvency Service. Click here to see some of our testimonials. For help and advice on defending yourself if threatened with disqualification, talk to our Director Disqualification Specialists by calling us on 0121 200 7040, or contacting us. The earlier you get in touch, the more we can do to help.