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Director Disqualification Undertakings for Three Directors

Ethical Directors Disqualified After Withdrawing Millions In Contested Tax Scheme

The Secretary of State for Business, Energy and Industrial Strategy has accepted Director Disqualification Undertakings, for a period of six years each, from all three directors of Ethical Forestry Limited (‘the Company’), for withdrawing £millions from their company via loan accounts. This article looks at the detail of the case and the reasons why they were disqualified on the grounds of unfit conduct.

Background to This Director Disqualification Case

The Company was incorporated in December 2007 and owned 80% of a Costa Rican company, which owned plantation land, a sawmill and the means to plant trees in forestry plantations. Around 3,500 UK investors were registered with the Company, who between them invested c.£70 million in a scheme, which was unregulated, to own trees on the plantations.

The Company used unregulated investment brokers, such as Avacade Investment Options, who offered free pension reviews to potential investors, before going on to introduce the plantation investment opportunities. Many of those who invested in the scheme, did so by transferring their occupational pensions into Self-Invested Personal Pensions (SIPPs).

In 2012 the directors caused the Company to enter into a tax planning scheme which saw £28.8 million being made available to the Directors through loan accounts. The Company’s financial statements for 2012 to 2014 show that in excess of £19 million was withdrawn by the Directors.

HMRC Investigates

In March 2013 HMRC informed the Company that they were going to investigate the tax planning scheme that had been set up, and despite the warning from the tax authorities, £7.2 million of the £19 million drawn down by the Directors from their loan accounts was withdrawn after this date.

In July 2015, HMRC issued further notices to the Company claiming more than £14 million of liabilities for tax years 2011/12 and 2012/13.

The Company Becomes Insolvent

The Company then entered into a Creditors Voluntary Liquidation. This triggered an investigation by the Insolvency Service into the conduct of the Directors, discovering that they had caused the Company to transfer £7.2 million for their benefit but this was at the risk of HMRC as there was an outstanding investigation.

The Insolvency Service Comments

Anthea Simpson, Chief Investigator for the Insolvency Service said:

“This is a relatively unusual case as the conduct of the directors criticised occurred before HMRC had issued their determinations of Ethical Forestry’s liabilities.

 However, the directors were aware that HMRC were investigating the tax planning scheme through which they had already drawn very substantial sums from the company, and yet in this knowledge they continued in the same vein for a further 12 months, taking an additional £7m. We considered that this was unacceptable rather than ethical and amounted to unfit conduct which justified disqualification.”

HMRC’s Comments

Simon Chaplin, Assistant Director – HMRC Counter-Avoidance, said:

“HMRC welcomes the actions of The Insolvency Service in obtaining disqualifications in this case. Where directors cause companies to use tax avoidance schemes for personal benefit and put uncollected tax at risk they should be held accountable for their conduct.”

Further Action has Been Instigated

The Director of the Serious Fraud Office opened an investigation into the tree-based investment schemes run by the Ethical Group that included Ethical Forestry Limited in December 2016. We await the outcome of their findings

Our Director Disqualification Solicitors Comment

The length of the Director Disqualifications given out in this case shows the seriousness with which the Insolvency Service views such conduct. Misleading investors is never an attractive picture. Collateral or parallel criminal law proceedings have now followed against the Directors, which further amplifies the view of the Insolvency Service to such conduct.

Director Disqualification Solicitors

The team of director disqualification solicitors at NDP are experienced in dealing with such claims made by the Insolvency Service. Click here to see some of our testimonials. For help and advice on defending yourself if threatened with disqualification, talk to our Director Disqualification Specialists by calling us on 0121 200 7040, or contacting us. The earlier you earlier you get in touch, the more we can do to help.

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