Not Acting in the Best Interests of a Company Lands a Director with a 7 Year Director Disqualification Ban
The Duties of Directors are many and not fulfilling these duties can lead to a lengthy period of director disqualification, especially when insolvency strikes. Here our director disqualification solicitors detail and comment on a case in which a director was banned for 7 years for transferring over £50,000 out of the company’s bank account, in full knowledge that the company was insolvent and preparing to cease trading. The director in question may well now face Misfeasance proceedings.or even a criminal investigation.
Ayaan Khan (‘Mr Khan’) was the sole Director of Salford Auto Spares Ltd (‘the Company’), which was incorporated in 2011 and traded in motor vehicle scrap parts. The Company went into liquidation on 4th May 2016, owing more than £122,000 to creditors.
Following the insolvency of the Company, the Liquidator received claims from over 98 individual customers, who stated that they had made full payments in advance to the Company prior to the liquidation but goods had never been delivered to them. This left them as unsecured creditors at liquidation.
Mr Khan signed a Director Disqualification Undertaking in which he did not dispute that between 12th April and 18th April 2016, when the Company was insolvent and was preparing to cease trading, he caused the Company to make transfers out of its bank account totalling £50,180.00.
Mr Khan, also, did not dispute that the transfers were not in the best interests of the Company and were to the detriment of its creditors generally. Due to the lack of information provided by Mr Khan, these transfers remain unexplained.
The Secretary of State accepted Mr Khan’s Director Disqualification Undertaking on 16th April 2018 and it came into force on 7th May 2018.
What the Insolvency Service Said
Robert Clarke, Head of Insolvent Investigations North at the Insolvency Service, said:
“In full knowledge that the company was failing, this director has chosen to seek to defeat the claims of creditors, and his improper actions caused losses to others which were wholly avoidable.
Directors who show such blatant disregard for their fiduciary duties can expect to be investigated by the Insolvency Service and removed from the corporate arena for a lengthy period.”
Comment by our Director Disqualification Solicitors
Had Mr Khan made clear what the transactions related to, he may have been able to adequately deal with the concerns raised by the Insolvency Service as to the destination of the funds, and the purpose of the same. Such an explanation, if available and credible, may have resulted in the end of the Insolvency Service investigation.
Misfeasance Proceedings Might now Begin
There is now the prospect of the Liquidator of the Company pursuing civil recovery of funds from Mr Khan personally, as part of Misfeasance proceedings, in light of Company funds having, it seems, been misapplied by Mr Khan. The Liquidator would likely seek to rely upon the admissions made by Mr Khan in his Director Disqualification Undertaking.
Such Misfeasance proceedings may/could, if successful, result in a Judgement for the unexplained sums (here £50,000+) plus a legal bill for the Liquidator’s costs in pursuing recovery from Mr Khan. That could greatly increase the amount payable, putting any personal assets that Mr Khan owns in jeopardy. Such assets might include his house.
A Criminal Investigation is also a Possibility
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 in cases such as this.
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 strong action the Insolvency Service will take for a failure to comply with them.
For help and advice on defending yourself if threatened with Director Disqualification or Misfeasance proceedings, 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.