Directors of insolvent companies who are accused of trading to the detriment of the Crown often fear the worst. The allegation is serious and can lead to a lengthy director disqualification. In this case, our client faced exactly that allegation. After detailed work and careful engagement with the Insolvency Service, the investigation was dropped.
This case study explains what happened, how we approached the matter to deliver the result our client wanted.
What does Trading to the Detriment of the Crown involve?
Trading to the detriment of the Crown usually refers to situations where HMRC is left unpaid while other creditors continue to receive payment. The Insolvency Service may view this as unfair treatment of the Crown. It is a common feature in director disqualification investigations and can lead to serious consequences if not addressed properly.
What was at stake for our director client?
A trading to the detriment of the Crown allegation can have a major impact on a director’s livelihood, reputation and ability to continue in business. The stress of an investigation is often considerable, as it was in this case. Our director client needed clear advice, a structured plan and a team that understood how to challenge the allegation.
How did NDP respond to the trading to the detriment of the Crown allegation?
We carried out a detailed review of the company’s financial position, the timeline of events and the evidence relied upon by the Insolvency Service. We identified weaknesses in the allegation and prepared a full response that set out the director’s position clearly and persuasively. We then engaged with the Insolvency Service to address each point raised.
Tom Clinton, Solicitor at NDP, takes up the story.
“Our director client faced director disqualification. He was alleged to have caused his company to trade to the detriment of HMRC. He has now had the investigation into his conduct dropped by the Insolvency Service.
This allegation, as is typical in such instances, centred on an analysis of company records and accounts; it was said that the company had prioritised paying other creditors and left HMRC out in the cold, making comparatively minimal payments to the Crown. The period of trading in which the offending was said to have taken place all happened at and around the time of the Pandemic – trade was understandably strained.
NDP were instructed to assist and advise the director throughout the course of the Insolvency Service investigation. The director client was understandably concerned about the effect a disqualification would have on his life. Through careful guidance and structured advice, the client was reassured and confident that the Insolvency Service investigation would conclude because there was no actionable misconduct.
After the Insolvency Service had completed its investigation, it abandoned its investigation just before last Christmas. The client was pleased with the outcome and grateful to Neil Davies and the rest of the team at NDP for their guidance and insight throughout the process. The director client can now get on with his life without this investigation hanging over him.”
What this result shows
This case study demonstrates that a trading to the detriment of the Crown allegation can be successfully challenged when the facts are properly analysed and presented as part of a clear strategy.
This experience is reflected in the feedback we receive from other directors. One recently told us after a successful conclusion to another trading to the detriment case:
“NDP were extremely kind and empathetic. I also truly felt they had my back. They took over when I needed it and handled it professionally, expertly and with constant feedback.”
You can read the full testimonial here.
How our specialist solicitors can help
If you are facing a trading to the detriment of the Crown allegation or any other director disqualification issue, early advice is essential. We offer immediate, confidential guidance from experienced solicitors. Contact us today for clear, practical support and an initial free discussion of your case.
Frequently asked questions
What does trading to the detriment of the Crown mean?
It refers to situations where HMRC is left unpaid while other creditors continue to receive payment. The Insolvency Service may treat this as unfair preference and investigate the director’s conduct.
Can the Insolvency Service drop a director disqualification investigation?
Yes. If the evidence does not support the allegation or if the director’s explanations are accepted, the Insolvency Service can decide not to proceed, as in the case above.
What evidence matters most in trading to the detriment of the Crown cases?
The timeline of payments, the company’s financial position, the director’s decision making and the reasons why HMRC was not paid are all important.
How long does a director disqualification investigation usually last?
It varies. Some investigations conclude within months while others take longer. Early engagement and clear responses can shorten the process.
What should I do if I receive a Section 16 letter?
A Section 16 letter is a formal notice from the Insolvency Service to a company director, indicating the intention to start director disqualification proceedings under the Company Directors Disqualification Act 1986. Seek advice immediately. The response you provide at this stage can determine the outcome of the investigation.
When should a director seek legal advice?
As soon as they become aware of any investigation or potential claim. Early advice gives you the best chance of achieving a positive outcome.
