Director Disqualification and Industry Type
Director Disqualification is not influenced by type of industry.
At the core of all cases of director disqualification is a company liquidation where the director(s) are accused of ‘unfit behaviour’ by the Insolvency Service. The number of Director Disqualifications are growing in this country and we are sometimes asked if disqualification is more or less likely depending on the industry worked in. The answer is no! This article looks at three recent cases, from three different industries, showing that the type of industry the disqualified director worked in has no bearing on the disqualification. All that matters is whether the Insolvency Service, acting in the Public Interest, can prove that the insolvency was brought about by the director’s unfit behaviour.
Restaurant director disqualified for 6 years for employing illegal workers
Rothna Kalam was the director of an Indian Restaurant in Taunton, which was found to be employing two illegal workers following a Home Office Immigration Enforcement investigation on 27th February, 2016. This resulted in a fine of £30,000. On 18th May, 2015, the restaurant went into liquidation owing c.£45,000 to its creditors, of which £30,000 was the Home Office fine.
In this case, the unfit conduct of employing illegal workers, led to Mrs Kalam accepting a director disqualification undertaking for 6 years, starting from 16th December, 2016. As Sue McCleod, the Chief Investigating Officer at the Insolvency Service said:
“The Immigration, Asylum and Nationality Act 2006, makes employers responsible for preventing illegal workers in the UK. To comply with the law, a company must check and be able to prove documents have been checked prior to recruitment that show a person is entitled to work.
The public has a right to expect that those who break the law will face the consequences and this should serve as a warning to other directors tempted to take on illegal staff.”
2. Care Home Director receives a 7 year disqualification
In this case, Douglas Haigh, the director of a care home in Dorset, received a 7 year disqualification on 26th October, 2016, for failing to ensure that his company kept adequate financial records.
The company went into administration in October 2013, owing £3.6million to creditors, of which c.£956,000 was to unsecured creditors. The ensuing Insolvency Service investigation revealed that as a result of poor financial record keeping, it was not possible to explain over £1.9 million of spending or even determine, accurately the cause of the company’s failure.
In addition, the company failed to pay HMRC c.£338,000 in PAYE payments from 2010/11 up to the date of administration. As the Insolvency Service said, Mr Haigh failed to fulfil his duty as a director of ‘maintaining and preserving proper accounting records…………….and failed to comply with his responsibility to submit returned and payments to HMRC.”
3. Financial services company director disqualified for 8 years
Finally, we look at the case of James Lau, the director of a Chelmsford based financial services group of companies, who accepted a director disqualification undertaking of 8 years, running to December 2024.
The reason for the disqualification was for not keeping adequate financial records. Upon liquidation, the records could not explain and account for over £4.5 million of income and expenditure over a period of less than 2 years. It was alleged that a large proportion of this figure was related to the investment management and pension funds of the company’s clients. However, the poor financial records made it impossible to explain who the monies belonged to and in what proportion.
Director Disqualification is serious, but not related to industry type
Director Disqualification means that the disqualified director cannot:
- act as a director of a company, or
- take part, either directly or indirectly, in the formation, management or promotion of a company or limited liability partnership.
These three cases demonstrate that the outcome of an investigation by the Insolvency Service has nothing to do with the industry the director works in. It has everything to do with whether the director has acted in an ‘unfit manner.’
We can help defend Directors faced with Disqualification
In our experience, disqualification is not inevitable. It depends on the facts of the case, of course. There are cases, for example, where the liquidation of a company is despite the director’s best efforts to keep it solvent and not because of unfit behaviour.
Under such circumstances, we have a strong record of removing the threat of director disqualification or reducing the period of disqualification, as some of our testimonials show. We like to think of ourselves as the directors’ friend.
If you are facing director disqualification, call us on 0121 200 7040 or contact us for help and advice. The sooner you get in touch, the more we can do to help.