10 year Director Disqualification for Diverting Funds into Personal Bank Account
This recent news story looks at a director disqualification case where a director received a severe 10 year ban, following an Insolvency Service investigation into his conduct when his company went into administration. The investigation uncovered his actions in paying a £60,000 insurance settlement into his personal bank account, after the company went into administration, rather than declaring it to the administrators. The company owed £800,000 to creditors. Our Director Disqualification Solicitors comment on the case and point out that a criminal investigation could follow.
Mr Dean Jacobs (‘Mr Jacobs’) was the sole director of L & H Construction Limited (‘the Company’), a specialist recruitment company in the mechanical and electrical industry.
After over two years of trading, the Company ran into financial difficulties and entered administration on 4th January 2017, following the presentation of a Winding-Up Petition by HMRC. Upon administration, the Company owed its creditors c.£800,000.
During the administration, the Administrators were made aware that the Company was awarded a £60,000 insurance settlement and when asked where the money had gone, Mr Jacobs failed to provide an explanation as to where the funds had been diverted.
Further investigations by the Insolvency Service found that despite being fully aware that the Company had stopped trading and owed money to creditors, Mr Jacobs diverted the £60,000 from the insurance settlement straight into his personal bank account.
As a result, on 16 April 2018 the Secretary of State accepted a Director Disqualification Undertaking from Mr Jacobs. The 10 year ban became effective from 7th May 2018.
What the Insolvency Service Said
Susan MacLeod, Chief Investigator of Insolvent Investigations, Midlands & West at the Insolvency Service, said:
“Dean Jacobs put his own interests ahead of the company’s creditors and the timing of the funds he took from the insurance settlement showed a cynical disregard to those creditors.
Directors who put their own personal financial interest above those of creditors damage business confidence. We will take action against directors who do not take their duties seriously and abuse their position and they will therefore lose the privilege of limited liability trading.”
Comments by our Director Disqualification Solicitors
- Had Mr Jacobs disclosed the insurance settlement and paid funds to the Company (rather than himself) he may have avoided Insolvency Service action.
- Whilst the ‘Unfit Conduct’ in this case that led to disqualification was rather blunt and obvious, Mr Jacobs on receiving correspondence from the Insolvency Service, still had options open to him. We at NDP regularly advise on such matters. The well-advised Director, even on these facts, may have avoided such a long ban.
Criminal Investigations by the Insolvency Service
- 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.
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 viewed this breach.
For help and advice on defending yourself if threatened with Director 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. Click here to see some of our testimonials.