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Perseverance in opposing and dealing with an Insolvency Service Director Disqualification Investigation does pay dividends

6 Allegations of Unfit Conduct Defeated by our Director Disqualification Solicitors.

This case study is by Neil Davies – Solicitor and Director of Neil Davies & Partners (‘NDP’). Neil is an advisory editor to Mithani: Directors’ Disqualification, the leading text on Disqualification law and practice. It details how we opposed the Insolvency Service’s director disqualification investigation into our client’s affairs and defeated their 6 allegations of unfit conduct. It was a difficult case, with several complicating factors, but our perseverance paid off.

Overview of this Director Disqualification Case

The 6 allegations of Unfit Conduct made against our Director clients in this case alleged that the Directors caused and/or allowed:

  • The company failed to Maintain/Preserve/Deliver Up adequate books and records of the company to its Joint Liquidators (‘JL’s’), with the stated consequence that the JLs could not identify what was legitimate company expenditure;

NB: Those offences if proved are in part also offences at Criminal law.

  • Unexplained payments out of the company bank account of about £1.25 million to the Directors and parties associated with them, in the period leading up to the liquidation of the company;
  • Misuse by the Directors of funds borrowed by the company of about £900,000;
  • Improper transfer by sale of valuable company assets in the period before liquidation, at a time when it was alleged that the company was insolvent;
  • Failure to account to HMRC for VAT on that asset sale and generally in the trading of the company (£450,000); 
  • Misuse of customer deposits taken by the company in the period leading up to liquidation (£120,000).

On the face of it, a daunting list of allegations to deal with, with reputational and financial consequences for the Directors, if proved.

Each of the 6 separate allegations had to be separately considered and dealt with, each requiring a quite different approach and response.

Complicating Factors

  1. The JLs of the company were pursuing similar claims (and additional financial claims) against the Directors, seeking financial recovery from the Directors on a joint and several basis.  That should be compared and contrasted to the relief sought in the Director Disqualification investigation, being the disqualification of the Director clients (with no financial claims made in that Director Disqualification investigation).
  • The company had in the year before its liquidation entered into a Company Voluntary Arrangement (‘CVA’) that failed. The JLs of the company had been the Supervisors of that CVA and thus had an intimate knowledge of the workings of the company and of the personalities and nature of the Directors.  The IS investigation commenced, as ever, based on a report to it by the JLs.

The Outcome of the Director Disqualification Investigation

After two years of exchanging correspondence with the Insolvency Service, the Insolvency Service finally agreed to abandon all of the 6 allegations of unfit conduct made against our Director clients.

How and Why was this Director Disqualification Outcome Achieved?

Over and above the perseverance and absolute belief of our Director clients in their own position, the following factors contributed to the successful outcome:

  1. The willingness and enthusiasm of NDP‘s Solicitors, who worked on these cases, to ‘look under the rocks’ and get a full and complete understanding of what had gone before, in the 2 years before liquidation, being the period to which the 6 Unfit Conduct allegations related.
  2. The factual and legal position was complicated and needed to be properly explained to the Insolvency Service. Only the Directors, as ever, knew (having lived matters) the full and true picture of events in the company; the job of our Solicitors was (as ever) to understand and interpret that information and present it to the Insolvency Service in a coherent way that responded to and rebutted each and all of the individual allegations of Unfit Conduct.

Our Knowledge of Insolvency Law and Practice

  • This is what we do, day in day out.  The 2 NDP Directors and the 2 NDP Solicitors who worked on these cases have a combined experience of 90 years of dealing with Insolvency work, acting for and against Licensed Insolvency Practitioners and for and against the Insolvency Service.

Few if any firms that undertake this specialist work have that level of experience available to them.  Such experience can be the difference between winning and losing the case.  Nor do other firms offer our Director-led service.

  • This case, as with every disqualification case, turned on its own specific facts.  The successful outcome of the case turned on our experience and expertise, that allowed us to properly interpret and put into context the myriad of relevant company events in this case.

Talk to our Director Disqualification specialists if you are threatened with an Insolvency Service investigation. Contact us or call us on 0121 200 7040. The initial discussion is FREE, confidential and without obligation.

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