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Company Director Disqualification and Accounting Records

13 Year Director Disqualification for Failing to Keep Proper Accounting Records

The Company Directors Disqualification Act 1986 details the list of reasons for director disqualification – and there are many. One of the categories is disqualification for ‘unfitness of conduct’, and one of the main determinants of unfitness is not keeping proper accounting records. In this article, our director disqualification solicitors comment on a recent case where a director was disqualified for 13 years (close to the maximum of 15 years) for being unable to explain over £2.4 million of trading activities, VAT assessments and loans.

The Background to this Director Disqualification Case

 Mr Zaid Fares Al-Safee was a registered Director of Exotic Global Limited (‘the Company’) which sold luxury new cars. The Company was incorporated in 2013. in June 2015, following nearly 2 years of trading, Exotic Global was placed into Creditors’ Voluntary Liquidation (‘CVL’) and an Insolvency Practitioner was appointed to the Company.

Mr Safee failed to deliver-up the Company’s accounting records to the appointed Insolvency Practitioner and this led to a report being submitted to the Secretary of State for Business, Energy and Industrial Strategy by the Liquidator, which highlighted his lack of co-operation.

This prompted the Insolvency Service to carry out an in-depth investigation into the financial affairs of Exotic Global. However, the absence of any proper accounting records meant that they were not able to verify who had control of the company’s affairs.

The Missing Information and Unexplained Trading Activities

The information that was missing from the company’s records of its income and expenditure, included Mr Safee’s remuneration, the acquisition (or subsequent disposal) of Company assets and the full nature of the Company’s trading activities. The trading activities that were unexplained included:

  • The purchase and sale of 14 luxury vehicles valued in excess of £1.2 million,
  • VAT assessments totalling £498,106.80,
  • The background of a £318,000 loan,
  • The purchase and sale of 45 vehicles totalling £354,553,
  • Two personalised number plates totalling £40,023.

After a 2-day trial in the High Court, Mr Safee was disqualified as a director for 13 years on 14th March 2018, banning him from directly or indirectly becoming involved in the promotion, formation or management of a company without the permission of the Court.

The Relevant Provision in the Companies Act

Mr Safee had failed to comply with his duty as a director under Section 386 of the Companies Act 2006. This requires:

Every company [to] keep adequate accounting records. Adequate accounting records means records that are sufficient: (a) to show and explain the company’s transactions; (b) to disclose with reasonable accuracy, at any time, the financial position of the company at that time; and (c) to enable the directors to ensure that any accounts required to be prepared comply with the requirements of this Act.”

What the Insolvency Service Said

Ken Beasley, Official Receiver at the Insolvency Service, said:

“Maintaining and keeping adequate accounting records is a legal requirement for all companies. Failure to do so is serious misconduct and the length of Mr Zaid Fares Al-Safee’s disqualification reflects this.”

Comment by our Director Disqualification Solicitors

Had Mr Safee caused or ensured that the Company complied with its duty under Section 386, the Insolvency Service would have been able to complete their investigations and Mr Safee might have been able to adequately deal with the concerns raised by the Insolvency Service. This case is a stark reminder to company Directors of their duties under the Companies Act and the action the Insolvency Service will take for a failure to comply with them.

The length of the Director Disqualification given out in this case, shows the seriousness with which the Insolvency Service views this books and records breach of duty by the Director. 13 years is a very long ban.

A Criminal Investigation Could Follow

The Insolvency Service when accepting a Director Disqualification Undertaking make it quite clear that a Criminal investigation could ensue, based upon the admitted conduct complained of. The Insolvency Service has a specialist team of dedicated Criminal Investigators. The prospect of a Criminal investigation is thus a very real one.

Director Disqualification Compensation Proceedings

The Secretary of State has powers, quite separate from the recovery powers available to the Liquidator, to seek compensatory payments from the Director personally. So the disqualification handed out to Mr Safee might not be the end of the matter.

For help and advice on defending yourself if threatened with Director Disqualification, talk to our Director Disqualification Solicitors: contact us or call us on 0121 200 7040. The earlier you make contact, the more we can do to help. Click here to see some of our director disqualification testimonials.

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