15-year Director Disqualification for a £Multi-Million VAT Fraud. This Case also Shows the Shift from Criminal Proceedings to Civil Proceedings Against the Director
This director disqualification case features the maximum ban that can be given to a director – 15 years. It was a £multi -million VAT fraud case, which was part of a Missing Trader Intracommunity (MTIC) fraudulent scheme, that resulted in a tax loss to HMRC of over £7.1 million. We also comment on a change in regulatory direction which means such serious crimes have shifted from Criminal Proceedings to Civil Proceedings.
Background to this Director Disqualification Case
Mr Ulhaque Ahtamad (‘the Director’) was the sole Director of Masstech Ltd (‘the Company’). The company was a carbon emissions and metals trader located in Gerrards Cross, and was wound-up, following a winding-up petition presented by HMRC. This prompted an investigation by the Insolvency Service. Their findings included:
- Between June and September 2009 the Company achieved sales of over £38 million in the wholesale trade of carbon emission allowances and metals.
- The Company went on to file quarterly returns with HMRC in an attempt to fraudulently reclaim UK VAT that ‘missing traders’ earlier in supply chains had failed to pay to HMRC. The Insolvency Service’s conclusion was that this was was part of a Missing Trader Intracommunity (MTIC) fraudulent scheme.
In the Court, the following facts were established:
- The Director had obstructed HMRC and repeatedly stalled their investigations into the Company’s trading. The Court heard that the Company entered into trading arrangements which were ’too good to be true‘, and against which trades the Company had been expressly and repeatedly warned by HMRC.
- The Director was also found to have made payments to unconnected third parties totalling at least £7.38 million, despite having been warned on more than one occasion by HMRC officers of the risks of third party payments in the context of MTIC fraud.
- The VAT fraud, including wrongful VAT reclaims against HMRC, resulted in tax losses of over £7.1 million.
The Court also heard that as the sole Director with responsibility for all aspects of the company’s trading, Mr. Ahtamad was involved in pricing decisions which ran against any commercial logic and could only be explained in terms of this fraudulent scheme.
In addition, it was found that VAT registration and other due diligence checks on trading partners carried out by the Company were superficial and inadequate and the Director failed to act on standard commercial risk negative indicators and continued to trade regardless.
As a result, the Court arrived at the conclusion that the Director must have been a knowing participant in this fraudulent VAT scheme and that a 15 year ban, the maximum period of director disqualification, was the right penalty.
Insolvency Service Comment
Justin Dionne, Official Receiver for the Insolvency Service, said:
“Masstech Ltd was involved in trading and making wrongful reclaims in a fraudulent VAT scheme which had been costing the UK Exchequer significant amounts of money at the time the fraud was perpetrated.
This is not a victimless crime, the main impact being on honest tax payers and their families who as a result suffered the effects of funding shortages in healthcare, education and other front-line services.
Regulatory changes, investigative action and legal proceedings have reduced the scale of this fraud from 2007 onwards. The Insolvency Service will not hesitate to use its enforcement powers to investigate and disqualify directors whose companies defraud the public purse.”
Comment by our Director Disqualification Solicitors
The length of the Director Disqualification ban given out in this case, shows the seriousness with which the Insolvency Service view VAT and MTIC Fraud.
There has, however, been a regulatory change of direction:
- Historically, such serious cases were pursued (going back to 2005 – 2009 in particular) against the delinquent Director in Criminal proceedings, where on conviction, the Director could expect a significant custodial prison sentence.
- Here at NDP, we have seen a marked and noticeable change in direction, with such cases now being pursued in the arena of Director Disqualification proceedings rather than in the Criminal Court.
Why This Change in Regulatory Direction?
We can only speculate, but the following factors may be relevant:
- Pursuing Civil proceedings is far cheaper for the State than pursuing the Director in Criminal proceedings. It is also far quicker in most cases and more likely to result in a positive result for the State.
- The Director cannot, except in the most exceptional circumstances, get Legal Aid to defend or oppose Director Disqualification proceedings.
In contrast, Legal Aid might well be available to the Director to defend his position in Criminal proceedings. The cost to the State of pursuing (and funding the defence of) a Criminal prosecution is formidable and it seems, now prohibitive, in these times of governmental financial austerity.
The Downside to this Regulatory Direction
Without commenting on the specific facts of this case, where such Criminal conduct is committed we, as a society, must surely ask whether it is right that the wrongdoer in such an enormous case retains his liberty and (it seems) escapes any Criminal punishment. We have a view…
The team at NDP are experienced in dealing with such claims. 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. Click here to see some testimonials.