A double blow for the Insolvency Service. 2 Liquidations – crown debt, inadequate books and records and Phoenixism – but no Director Disqualification
Suky Mann, one of our senior insolvency solicitors, has successfully defended the same director from 2 separate director disqualification investigations, following liquidation, in the space of 18 months. In both cases the director was investigated for unpaid Crown Debt, not keeping adequate books and records and phoenixism – 3 transgressions that frequently result in director disqualification on their own. So, to defend the director against the Insolvency Service’s allegations for all three, twice, was a significant success.
Director Disqualification Investigation for Company 1
The allegations of Unfit Conduct were that:
- The Company’s books and records were inadequate, in breach of the requirements of the Companies Act 2006.
- The liquidation involved ‘phoenixism’ i.e., on the facts, a wrongful continuation of a previously insolvent company business.
- Our client had allowed the Company to trade to the detriment of its creditors.
The first company went into liquidation owing c.£200,000 to its creditors, with HM Revenue & Customs (‘HMRC’) bearing the brunt of the deficiency. It was not unexpected (to us at least) that given the director’s previous failures, he was firmly on the radar of the Insolvency Service (‘IS’). The IS commenced a director disqualification investigation into the conduct of our client.
The Route to NDP
A simple Google search led the director to NDP and Suky. He was concerned mostly about potential criminal implications for him, arising out of his alleged failure to keep adequate books and records. He was understandably anxious to ensure that he had the best possible representation. His decision to instruct Suky was perhaps the sign that our client had finally started to make the right decisions.
So, what next?
Suky carefully crafted the client’s detailed written representations, having meticulously interrogated the IS’s evidence and having sat with the director for a number of hours. She systematically set about unravelling and undermining the IS’s case.
What did we tell the Insolvency Service?
Suky’s rebuttal of the IS’s investigation results objectively set out why it was inappropriate on the particular facts of this case to pursue a director disqualification order against our client. We were able to demonstrate that the IS was unable to meet its own legal test for disqualification proceedings to be issued against the director. The IS abandoned its investigation.
Director Disqualification Investigation for Company 2
That however was not the end of the story for our client. A little over a year later, our client was back again after another company failure. Unsurprisingly, the IS were hot on his trail.
The focus of its investigation this time around, related to several payments totalling £40,000 that were made to our client and his connected companies, after he formally resigned from the company.
The scope of the IS investigation contained allegations of shadow directorship conduct by our client. We were again able to pick apart the IS’s evidence and demonstrate that our client received the payments legitimately and was not involved in the demise of the second company. The IS swiftly dropped the investigations following receipt of our letter of representations which detailed why our client had not engaged in ‘Unfit Conduct’.
Our client was overwhelmed and relieved at the result. He said:
“I will never be able to thank Suky enough for what she has done for me. She gave me a lifeline the first time round. When the second investigation was launched against me, I really thought it was the end of the road for me. Suky pulled it out of the bag again to my surprise and relief. She has given me so much useful information and advice along the way and I’m confident that this will be the last time the Insolvency Service even look in my direction.”
Suky’s expertise and skill not only allowed her client to avoid a significant period of disqualification and potential criminal investigation (arising out of deficient books and records) but also helped to preserve his ability to trade his current limited company (which thrives).
Defending director disqualification allegations – it’s all in the detail
Director disqualification is not always inevitable, as this case shows. Getting the right advice from experienced solicitors, as early as possible makes the world of difference. They know what to look for and how to present detailed rebuttals to the Insolvency Service.