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Director Disqualification and Accounting Records

11 Year Director Disqualification for Failing to Keep Proper Accounting Records

Failure to keep and/or present proper and accurate accounting records, as required under the Insolvency Act 1986  is one of the main causes of director disqualification in this country. In this case, following an investigation by the Insolvency Service into Mr Amandeep Singh Lalli, director of Pioneer Traders (UK) Limited (The Company), he received a director disqualification period of 11 years for such a breach, which is towards the top end permissible for this particular penalty. This article gives the details.

The Background to this Director Disqualification Case

The Insolvency Service found that Mr Lalli had failed to maintain or preserve adequate trading records. He was also alleged to have failed to deliver up such records as had been kept during the period of his directorship from 1 October 2009 to liquidation on 20 April 2015.

As a result, Mr Lalli was held responsible, the investigation concluded, for causing Pioneer to make were wrongful declarations of VAT, which included repayment claims for over £285,000 for the August and November 2011 VAT periods. He was also held responsible for failing to declare goods and trading on which VAT and excise duty was due.

The Importance of Accurate Accounting Records

Once the investigation had began, and it was discovered that accurate accounting records were not kept, it became impossible for the Official Receiver to:

  1. Establish the full nature of the Company’s trading activities during the period of the Mr Lalli’s directorship. Neither was it possible to establish whether his directorship was linked to a genuine trading purpose.
  2. Establish whether the goods that Pioneer held in stock and traded in were legitimate.
  3. Establish the extent Pioneer’s cash transactions and whether it should have registered as a High Value Dealer with HMRC’s Anti-Money Laundering Unit.
  4. Determine the Company’s excise and VAT liabilities because there were no records to accurately determine its purchases, sales, income and expenditure.
  5. Verify Pioneer’s VAT repayment claims for August and November 2011, which led to its subsequent understated returns.
  6. Verify the true amount of VAT and Excise Duty owed to HMRC.
  7. Account for the purchase and disposal of assets.
  8. Establish the true level of pay and other benefits taken by Mr Lalli as the sole director of the Company.

A Director’s Responsibility to Keep Accurate Accounting Records

Mr Lalli had failed to comply with his duty 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

Tony Hannon, the Official Receiver in the Public Interest Unit South, part of the Insolvency Service, said

Directors have a duty to ensure that their companies maintain proper accounting records, and, following insolvency, deliver them to the office-holder in the interests of fairness and transparency.

Without such records, it is impossible to determine whether a director has discharged his duties properly, or is using a lack of documentation as a cloak for impropriety.

Comment by our Director Disqualification Solicitors

Had Mr Lalli ensured that the Company complied with its duty under section 386, the Insolvency Service would have been able to complete their investigations and Mr Lalli may have been able to adequately deal with the concerns raised by the Insolvency Service. Under these circumstances the possibility of reducing the period of disqualification or even avoiding it would have existed, however slight.

This case is a stark reminder to company directors of their statutory duties under the Companies Act and the severe 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 particular regulatory breach.

For help and advice on defending yourself if threatened with disqualification, talk to our director disqualification solicitors by calling us on 0121 200 7040, or contact us. The earlier you make contact, the more we can do to help.

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