Overview: “The prospect of being disqualified as directors was terrifying, we would have lost our livelihoods. Thanks to NDP we can now move on with our lives.”
NDP were instructed to advise the Directors of the company in precisely the above circumstances. The Directors had been advised by their previous Solicitors that they would lose at Trial if they contested the Director Disqualification proceedings that were about to follow.
The Accountant for the Directors contacted NDP Director Sukhbir Mall, for a second opinion, at a time when the Directors were being pressed to sign a Director Disqualification Undertaking (i.e. a voluntary agreement to be disqualified) or face Director Disqualification Court proceedings. A Director Disqualification period of 8 years was sought against both Directors by the Insolvency Service.
We acted quickly – and were able to buy additional time and then persuade the Insolvency Service to abandon their investigation
NDP agreed to urgently review the papers. We did precisely that. Sukhbir and Senior Solicitor, Richard Shepherd, identified significant wriggle room for the Director (i.e. to contest the ‘Unfit Conduct’ alleged) and agreed to take the case over.
NDP immediately engaged with the Insolvency Service in correspondence and persuaded the Insolvency Service to give the Directors an additional 3 months to make further written representations (i.e. as to why Director Disqualification was not necessary on the facts of this case). The Insolvency Service agreed not to issue Court proceedings in the meantime. The Insolvency Service approach was helpful and constructive.
Sukhbir and Richard set to work. They met with our Director clients and made detailed and targeted written representations to the Insolvency Service, that persuaded them to abandon its Director Disqualification Investigation (‘DDI’), thus relieving the Directors of the stress and consequences of Director Disqualification. The DDI had started in 2017, so the directors had lived with the stress for over 4 years by the time we were instructed. In the rest of this article, we detail what the case was about and how we responded.
Background to this case. The allegation of unfit conduct: suppression of sales income and submission of inaccurate VAT returns to HMRC by the Directors
- In 2017, HMRC began an investigation into a busy London restaurant operated by our Director clients and sent its Officers to carry out 3 separate visits to conduct test purchases. This then resulted in 2 subsequent formal visits from HMRC Officers in 2018. As a result of their investigations, HMRC concluded that there had been an under-declaration of cash sales amounting to £567,783 over a period of 6 years.
- This resulted in HMRC raising VAT Assessments, Interest and Penalties against the company totalling £95,768.07, a Regulation 80 tax liability totalling £237,561.94 and additional revised penalties totalling £62,358.73.
- The sums demanded by HMRC were huge, far beyond the company’s ability to pay. The company could not afford the costs associated with Appealing the HMRC decision. The Directors thus took the decision to place the restaurant into creditors voluntary liquidation. That was when problems for the Directors began.
- The Directors were soon targeted by the Insolvency Service, who in 2021 notified them that they were investigating the failure of the restaurant and their conduct as Directors. The outstanding liability to HMRC at the date of liquidation was said to be £459,465.01. Director Disqualification was a very real possibility, together with the possibility of a criminal law investigation.
- The Directors approached a large firm of City of London Solicitors, who in turn sought the advice of a specialist Barrister. A number of letters were exchanged with the Insolvency Service on the Directors’ behalf. The Insolvency Service were not backing away. They put the Directors on notice that they would be shortly issuing the claim at Court so as to seek Disqualification Orders against both Directors. The Insolvency Service clearly regarding this as a very serious case of Director misconduct.
NDP became involved
At this point, the Directors’ Accountant advised them to immediately get in touch with NDP. The Directors were extremely concerned at the prospect of being unable to act as Directors, not least because they owned and ran a number of other restaurants in the City of London. The Directors were also alarmed by the fact that HMRC’s conclusions could attract potential criminal consequences.
This testimonial details how we were able to convince the Insolvency Service to drop their investigation despite the involvement and attempts by the Directors’ previous advisors.
The details of this Director Disqualification case
Sukhbir and Richard met with the Directors and their Accountant virtually and obtained from them a complete history of the restaurant and, most importantly, their side of the story. After an in-depth review of the voluminous documentation relied upon by the Insolvency Service and that provided to them by HMRC, Richard prepared a carefully crafted letter of representation on behalf of both Directors, which:
- dissected HMRC’s investigation,
- challenged and undermined the evidence put forward by them, and
- set out the evidence in the Directors’ favour, that undermined the Secretary of State’s case.
This letter concluded that there was no provable misconduct by the Directors or any credible evidential basis to suggest that there was an actual suppression of cash sales. The Insolvency Service was reminded that companies can and do fail even in the absence of delinquent behaviour, and it should not always be presumed that there has been unfit conduct by the Directors.
This was an unfortunate case of HMRC making assertions (based on small sample cases) resulting in unwarranted assessments and penalties. The Insolvency Service abandoned its investigation.
The Directors and their Accountant were overwhelmed and delighted with the outcome
“We would like to say a big ‘Thank you’ to Richard, Sukhbir, Neil and the team for their professionalism, diligence, perseverance and hard work in this matter. It comes as a great relief to us, our having had to deal with keeping our businesses afloat in the pandemic but also having to deal with HMRC and the Insolvency Service. The prospect of being disqualified as directors was terrifying, we would have lost our livelihoods. Thanks to NDP we can now move on with our lives.”
Lessons to learn from this case
- Always obtain the written evidence that the Insolvency Service relies upon. Request it, interrogate it and respond to it.
- In this case, that involved an interrogation of the HMRC VAT Assessments and the underlying material on which they were based.
- As ever, only the Director knows what truly went on in the company. The Insolvency Service (like the Liquidator) are strangers to such events. The Director must tell his story in the most compelling way. Often he will need expert advice from Solicitors experienced in Director Disqualification and insolvency work, as here, to do that.
Talk to our Director Disqualification Solicitors
If you are a Director facing an investigation by the Insolvency Service or HMRC, then please get in contact with our experienced team of Director Disqualification and regulatory solicitors on 0121 200 7040 or by email to firstname.lastname@example.org. The initial discussion is free of charge and without obligation.