Director Disqualification for Accounting Records Failings
In a recent press release (that NDP have digested before) the Insolvency Service confirmed that they obtained director disqualification orders against two directors of Pound Empire Ltd a retail store operating in the north west of England. Both directors were disqualified from acting as directors again for a period of ten years each.
The reason for their disqualifications was that they were found by the Court to have failed to ensure that the company preserved or delivered up adequate accounting records.
The fact that the company’s accounting records were not being maintained or delivered up is often not enough to obtain such a lengthy period of director disqualification. In other words, typically there needs to be some sort of financial or other consequence to the failure of the directors to preserve or deliver up adequate accounting records.
Why was the Director Disqualification so severe?
According to the press release the directors’ failure to preserve or deliver up adequate accounting records meant that the Insolvency Service were unable to establish the company’s income – to include primarily cash – and also the expenditure of the company to include notably the recipient and purpose of over £900,000 worth of cheques. Nor was it possible to establish the level of the directors’ drawings. It also seems that the directors were fortunate to not also be facing an allegation of a failure to co-operate with the insolvency office-holder.
As aggravating factors in this director disqualification case, the stock of the company was transferred on the date the company ceased trading to a connected company where one of the directors’ wives was the director. Some of that stock was subject to retention of title. It was alleged (by the directors), but never proved that the connected company was owed a debt. That stock was not made thus available to creditors or the retention of title claimants.
It was for these reasons that the directors were subjected to lengthy periods of director disqualification.
It is conceivable that the insolvency office holder may in due course bring Misfeasance proceedings to recover the unexplained value of the cheques and cash from the directors personally and possibly the value of the stock transferred.
NDP can help with Director Disqualification
NDP always tries to assist its clients to stay away from the Court where possible in order to avoid the cost, stress and inherent litigation risk of going to Court (such as in this particular example). That can include negotiating a director disqualification undertaking in order to do so.
At NDP we can also talk to you about your clients’ (or your) duties as directors or managers of a company. We can advise you on ways to answer the Insolvency Service’s or insolvency office holder’s allegations in order to mitigate and answer the same. We can also talk to you about ways to help your clients avoid the criminal and personal financial consequences of breaching a director disqualification order or disqualification undertaking.