Overview of these Director Disqualification cases
NDP’s proven track record in successfully representing Directors faced with Director Disqualification Investigations (‘DDI’) and Director Disqualification Court proceedings has been further enhanced by 6 more successful Director Disqualification outcomes before the start of March, in this new calendar year.
In this article we give brief details of the allegations of Unfit Conduct made by the Insolvency Service (‘IS’) in each of these cases. The Unfit Conduct allegations cover a broad range of cases, including Bounce Back Loan misuse, VAT evasion and trading to the detriment of the crown, as well as some novel circumstances.
In all of these cases, the key to our success was patience and determination.
(Article by: Neil Davies, Solicitor and Managing Director of N D & P Solicitors Ltd (‘NDP’) and Contributory Editor to ‘Mithani: Directors’ Disqualification’ – the leading work on Director Disqualification law and practice; and Richard Shepherd, Senior Solicitor at NDP, responsible for 3 of these successful outcomes.)
The Director caused or allowed his company to participate in transactions that were connected with the fraudulent evasion of VAT, such connection being something which the Director knew, or should have known about.
A disqualification period of 12 years was sought against the London based Director.
This was a very serious allegation of Unfit Conduct involving allegations of involvement by the Director in missing trader intra Community fraud (MTIC fraud). Historically, this particular allegation has been pursued by prosecuting authorities in the Criminal Courts. This allegation is regularly now pursued in Director Disqualification proceedings.
Our Director client accepted on the evidence, that a fraud may well have taken place against HMRC within his company’s extended supply chain. HMRC still however had to prove or even evidence that matter. Our Director client however, strongly denied any involvement in that fraud.
NDP’s Solicitors have considerable experience in defending and dealing with MTIC fraud allegations, in both civil and criminal law context.
Our Insolvency and Director Disqualification Solicitors (‘the Team’) requested and obtained the written IS evidence to be relied upon, interrogated the HMRC case put forward by the IS and then dissected and opposed it, with the assistance of experienced Chancery Counsel. A detailed letter of representations was sent to the IS by NDP, explaining why it was not expedient in the public interest (the legal test) to pursue this DDI.
The skills of David Hanman, our Regulatory law expert, were also called upon in this case. David has been dealing with such MTIC fraud allegations, in a Criminal law context, for 20 years. His assistance was invaluable.
WHAT HAPPENED NEXT?
We served new and further evidence for the Director in the case as it emerged, from our enquiries made of HMRC, company employees, the Accountant to the company and others. The IS nevertheless issued and served Court proceedings on our client, seeking his disqualification. Opposition from the Director continued. The legal proceedings followed their course.
Prior to the final Court hearing, the IS wrote to NDP and agreed to discontinue the Court case. It had reviewed all of the evidence and had (belatedly) reached the conclusion that ’it was no longer expedient in the public interest’ to pursue the case.
The client is likely to recover some or all of his legal spend from the IS, Court proceedings having been issued and served on him.
KEY TAKEAWAY POINTS FROM HIS CASE
The IS reviews each Director Disqualification Investigation as new evidence emerges and it will (and does) abandon a DDI/an issued Court case, where persuaded to do so and where it is appropriate to do so. The IS has a well established duty to act fairly in its dealings with Directors. That is precisely what happened here.
CASE 2 – ALLEGATIONS OF UNFIT CONDUCT
- That the Director caused his company to abuse Covid funding by allegedly overstating his company turnover to obtain a greater Bounce Back Loan (‘BBL’) then it was entitled to receive; and
- Alleged misuse of BBL funds once received, by allegedly using the funds for purposes other than for the economic benefit of the company.
Both limbs of the Unfit Conduct allegation were said by the IS to have contravened the terms of the BBL scheme on the particular facts of this case.
Our Team of Solicitors investigated the background to the case, applied for and obtained the IS evidence to be relied upon against the Director, dissected it and wrote a detailed letter of representations to the IS (i.e. detailing why on these facts, ‘it was not expedient in the public interest’ (the legal test) to continue the DDI.
After a number of exchanges of correspondence between NDP and the IS, and a Zoom meeting with the IS (where our Director client put his case, face to face), it abandoned its investigation.
KEY TAKEAWAY POINTS IN THIS CASE
Not all companies that fail after taking out a BBL merit or result in disqualification for its Director(s). A detailed examination of all of the circumstances of every case needs to take place. Remember that the IS (like the Liquidator) come to the case as complete strangers. Only the Director knows all of what has gone before. Extracting and communicating in the most effective fashion, the Director’s knowledge of all the circumstances, is critically important in persuading the IS to abandon its DDI.
MEETING THE INSOLVENCY SERVICE
Offering the Director client up for, and having, a meeting with the IS, proved decisive in this case. Personalising the case and the Director was key to the outcome.
CASE 3 – ALLEGATION OF UNFIT CONDUCT: Another allegation of BBL misuse by a Director.
The allegation was much the same as in the case at 2. above.
The outcome was the same. Having received a detailed letter of representations from NDP, setting out all the circumstances of the case, explaining why, in these circumstances, DDI was not necessary or justified, the IS agreed to abandon its investigation.
KEY TAKEAWAY POINTS IN THIS CASE
A detailed examination of the particular circumstances of the case is always vitally important. Persuading and demonstrating to the IS that the Director was credible and that his explanations were supported by documentary evidence (and here, Witness Statement evidence from third parties) were vitally important.
CASE 4 – ALLEGATION OF UNFIT CONDUCT: Misuse of significant company funds by the Director to her personal benefit, to the detriment of creditors of the company.
An unusual feature of this case was that this high profile London based Director had faced quite different and wide-ranging Unfit Conduct allegations, in this same case, at an earlier point in time, involving allegations of causing or allowing the company to misuse public funds made available to it, over an extended period of time.
BACKGROUND – the earlier (now abandoned) Unfit Conduct allegations.
The company operated in the Education training sector and had received (and had properly used, as we eventually demonstrated) many millions of pounds of public funds in training individuals, mainly young people. That was the trade of the company. The allegation was that such public funds had been misused.
In bringing the Unfit Conduct allegations, the IS relied heavily on material from the State Funder, who stood behind and backed the IS Unfit Conduct allegation. This was a document heavy case, involving a trading relationship between the funder and the company that went back over 10 years. The Team Solicitors interrogated the voluminous documents and the complicated and extensive documentary evidence in the case and rebutted the allegations made after a number of exchanges of correspondence.
Eventually, the IS abandoned the first DDI by letter to NDP stating:
’On the basis of information, presently available, the Secretary of State does not propose to take disqualification proceedings against you. This decision was made on the basis of information currently available.
If further information about possible unfit conduct is reported to the Insolvency Service, this decision may be reviewed (our emphasis added).’
WHAT HAPPENED NEXT?
Very unusually in our experience, 8 months after receipt of that letter abandoning the first lengthy DDI against our Director client, the Director received a further, new letter from the IS. That new, IS letter was prompted by an investigation from the Liquidator of the company in relation to what the Joint Liquidators alleged were sums allegedly owed by the Director to the company at liquidation. NDP were instructed by the Director to represent her in that parallel investigation by the Liquidator of her failed company.
Again, NDP’s Team Solicitors investigated the background to the case and wrote a letter of representations to the IS detailing why the allegation was quite wrong and misconceived, in all the circumstances of this case.
The IS abandoned the DDI.
KEY TAKEAWAY POINTS IN THIS CASE
- Perseverance from the Director and his Solicitors, in opposing Director Disqualification cases is a pre-requisite.
- Allegations based on ‘Antecedent Transactions’ (here, misuse of company funds), are inherently difficult for the IS to successfully pursue in the context of DDI.
CASE 5 – ALLEGATIONS OF UNFIT CONDUCT:
- Alleged misuse of BBL funds and alleged misuse of other company funds; and
- Sums said to be owed by the Director on his Directors Loan Account (‘DLA’) with the company.
Our London based Director client was (and remains) a successful Solicitor, in a high-profile City of London law firm.
He vehemently rejected the above IS allegations of Unfit Conduct. The potential, professional and personal impact of a successful DDI on the Director, would have been enormous.
Exchanges of letters between the IS and NDP took place over many months; further and new evidence was obtained by NDP on behalf of the Director and was put forward on behalf of the Director to the IS, in continuing correspondence.
The IS, in accordance with the well-established duty of fairness imposed on its dealings with Directors, took that new evidence into account and eventually abandoned the DDI, before the issue of Court proceedings.
KEY TAKEAWAY POINTS IN THIS CASE
Perseverance and tenacity and continued evidence gathering in dealing with the IS were key factors here. Evidence gathering by/on behalf of the Director is an ongoing process.
CASE 6 – ALLEGATIONS OF UNFAIR CONDUCT: That the Director had caused the company to trade the company to the detriment of the Crown and alleged deficiencies in company books and records.
In the last 10 years, allegations arising from Crown debt have been the most often pursued allegation in DDI by the IS against Directors.
The HMRC inspired allegation here came about because at liquidation, the major creditor of the company was HMRC in respect of unpaid VAT, National Insurance and PAYE. In comparison, trade creditors at liquidation were minimal in comparison to the debt owed by the company to HMRC. That prompted the DDI allegation here.
THE WAY FORWARD
The NDP Team investigated and were able by reference to all of the circumstances of the particular case, to demonstrate that the allegation was not made out with the result that the DDI was abandoned.
SECOND UNFIT CONDUCT: Company books and records allegations.
There was a second allegation of Unfit Conduct in this case, being that:
‘the Director had failed to maintain, preserve or deliver up adequate books and records of the company to the Liquidator’.
This particular allegation is another well-trodden road for the IS and a common Unfit Conduct allegation. It must always be treated with the utmost care as such failure, if proved, is also a criminal law offence.
Again, on the particular facts of this case, the Team were able to demonstrate to the IS, that the allegation was misconceived, was not made out and this resulted in the IS abandoning the DDI.
LESSONS TO BE LEARNED
- The IS is prepared to and does abandon DDI and Court proceedings, where the Director can demonstrate that it is no longer in the Public Interest to pursue a DDI or Court issued case. Some of the above cases took many months to come to a conclusion. Patience and determination are required.
THE WIDER PICTURE: OTHER OUTSTANDING DDI OUTCOMES ACHIEVED BY NDP – WHAT IS A ‘WIN’?
Sometimes, a Director is willing to accept a disqualification ban, by his giving a Voluntary Director Disqualification Undertaking, for one or more of many different reasons (to include risk and cost of defending Court proceedings and the distraction from ongoing business activity).
Quite often, a ‘win’ might be our negotiating a much reduced period of disqualification for the Director, than that sought by the IS.
We regularly negotiate such Director Disqualification Undertakings for Directors and in doing so, regularly negotiate lower periods of disqualification than that period sought by the IS.
As a very general rule the lower the period of Director Disqualification, the more likely the prospect of the Director, on application by the Director to the Court, succeeding in obtaining Permission to Act, notwithstanding disqualification, albeit subject to conditions.
For more on Permission to Act as a Director whilst disqualified, take a look at this article by Neil Davies and Abbas Mithani, reproduced with the kind permission of Lexis Nexis, which explores the Permission to Act as a director whilst disqualified route in detail.
Talk to us for help and advice if facing a Director Disqualification Investigation
As these cases show, we have a strong record in persuading the IS to abandon DDIs. Take a look at some of our Disqualification testimonials.
If you or a client are facing a DDI, the sooner you talk to us for help and advice, the more likely it is that we can deliver a positive result.