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Director Disqualification and Industry Type

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.

  1. 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.

Director Disqualification Numbers Remain High

Director Disqualification Numbers Remain High

Director Disqualification Remains High But is Not Inevitable.  

Director disqualification remains at high levels in the country, with the Insolvency Service reporting that they disqualified more than 1,200 directors in the financial year 2015/16, about the same number as in 2014/15. This article looks in a little more detail about how the Insolvency Service works and suggests that from our perspective, director disqualification is not inevitable once an investigation begins.

How the Insolvency Service Works

The Insolvency Service, as a government body, acts to disqualify directors in the public interest. The reasons for director disqualification are many, but they almost always start with an allegation of unfit behaviour emanating out of insolvency.

In every case of insolvency, the cause of the company’s failure is examined by the Insolvency Service, and if director misconduct is proven, they have the power to impose a director disqualification period of between 2 and 15 years. They can also use the powers under the Companies Act 1985 to carry out confidential fact-finding investigations into the activities of solvent/live limited companies, and will aim to wind-up those companies who are acting against the public interest.

The Majority of Director disqualifications are for non payment of Crown Debt

In our experience, the majority of director disqualifications – perhaps as many as 70% – come as a result of an inability to pay Crown Debt. Also known as trading to the detriment of the Crown. Put another way, this means running up debts with HMRC for the non-payment of PAYE, NI, VAT and Corporation Tax. Although the Insolvency Service states that the average amount owed in a Crown Debt Disqualification case is c.£975,000, we believe the figure is much lower – perhaps £200,000 or less.

However, there are many other ways for directors to be disqualified, as the following list from the Insolvency Service Shows:

Director Disqualification for Employing Illegal Workers

During 2015/16, 47 directors were disqualified for employing illegal workers, for an average of over 6 years per director. Ignorance of the law is no defence. Click here for a recent news story.

Director Disqualification for Mis-selling

In this case from March 2016, where the public interest was particularly high on the agenda, a director of an investment company was disqualified for 14 years for mis-selling £500,000 worth of rare earth metals, which proved to be worthless as investments to the public.

Director Disqualification for Pensions Fraud

In this case from November 2015, a director was disqualified for 12 years for ‘facilitating a pension fraud by failing to ensure that the company he controlled met its obligations to its defined benefit pension scheme. This was a particularly serious case because the pension fund, in which there were over 500 members, suffered a loss of over £26 million.

At NDP We Specialise in Defending Directors Threatened with Disqualification

Our Director Disqualification Solicitors are experienced in defending directors who are threatened with disqualification. We know how the Insolvency Works, what they are looking for and how to mount an effective defence. We know from experience that disqualification is not inevitable. Have a look at some of our testimonials.

We know that acting quickly and positively as soon as the Insolvency Service opens a director disqualification investigation is vital. Our aim is always to eliminate the prospect of disqualification or reduce the length of the disqualification, and the chances of us achieving these aims are increased the quicker you talk to us.

If you are being threatened with director disqualification, contact us or call us on 0121 200 7040 for a free initial discussion of the options that are likely to be available to you.

Director Disqualification

Director Disqualification and Illegal Workers

Director Disqualification and Illegal Workers

6 Year Director Disqualification for Employing an Illegal Worker. 

There are many responsibilities and duties of being a director, which if broken or transgressed can lead to director disqualification. This case study based upon an Insolvency Service announcement looks at them accepting a Director Disqualification Undertaking for a period of 6 years from Mr Akbar Bari, a director of Indian Palace Express Ltd (IPE) that went into liquidation, for employing an illegal worker.

The Details of This Director Disqualification Case

IPE was an Indian take away, based in Rochdale, Lancashire, which was placed in liquidation on 18 May 2015 owing its creditors over £25,000.

As specialists in Director Disqualification, our experience would usually tell us that a relatively low deficiency such as this would not normally merit much attention from the Insolvency Service. However, in this case it appears that the facts that they took into account in threatening to bring Director Disqualification Proceedings included the employment of an illegal worker.

The employment of the illegal worker, a breach of immigration law,  was discovered when Home Office Immigration and Enforcement Officers (‘HOIE’) visited the Company. The Company was fined with a civil penalty of £15,000.00 by the HOIE for this offence. That fine was unsuccessfully appealed and the fine was not paid. The financial claim in the liquidation of the Company lodged by the Department for the Home Office was the largest creditor claim out of the stated deficiency. Click here to see the Company’s details on the Companies House register.

Mark Bruce the Chief Investigator for Insolvent Investigations South at the Insolvency Service said:

“This director sought an unfair advantage over their competitors by employing an individual who did not have the right to work in the UK.

The Insolvency Service rigorously investigates directors who breach employment and immigration legislation and this ban should act as a warning to other employers who are flouting the law. Directors who also seek to obtain commercial advantage over their competitors show a total disregard for the business community generally.”

Our Comments on this Director Disqualification Case

Upon examination of the Company’s Statement of Affairs as lodged at Companies House it is apparent that the Company could not afford to pay the fine for employing the illegal worker and the director chose to place the Company into liquidation instead.

This case demonstrates the consequences for a company that employs illegal workers, one of which could be the instigation of Director Disqualification Proceedings. It is also part of a trend whereby we are seeing that Director Disqualification Proceedings are being threatened and commenced for an ever wider type of what the Secretary of State for Business considers to be ‘unfit conduct’ by directors.

Contact Us if You Are Threatened with Director Disqualification

NDP are well placed to advise the director through our experienced team of director disqualification solicitors. No hole is too deep for us to be able to make a difference, but the earlier you contact us, the more we can do to help. Click here to see some of our recent director disqualification testimonials.

Why not contact us, or call us today on 0121 200 7040, for a no pressure and no commitment chat about your case and the options that you have available to you.  In our experience, there are always options, that could result in a reduction of the likely director disqualification period, or even the dropping of the case by the Insolvency Service.