More than Director Disqualification – Director Goes Straight to Jail
Director Handed 33 Week Prison Sentence for Accounting Records Failures
In recent months we have commented on several Insolvency Service investigations that have resulted in lengthy director disqualification periods for directors of insolvent companies who have failed to preserve company books and accounting records. In this article, we look at how the outcome of The Insolvency Service’s investigations into the conduct of Mr William To (‘Mr To’) and his three restaurant management companies went beyond director disqualification. In this case the outcome was a 33 week prison sentence for Mr To for accounting records failures.
The Background to this Case
Mr To, director of BMBQ Ltd, Shef Ltd and Broads Cat Ltd (‘the Companies’) was subject to an investigation by the Insolvency Service following the compulsory liquidation of all three Companies in July 2012.
Preliminary investigations found a combined, unpaid, debt of £302,105.89 owing to HM Revenue & Customs. Following this, it was discovered that Mr To had failed to comply with his duty under section 386 of the Companies Act 2006 (‘the Companies Act’) to ensure that adequate accounting records of the Companies were kept. As a result of this, the records were unavailable to be delivered up to the liquidator as was required.
The absence of these records also prevented the Insolvency Service from accurately investigating the reasons for the failures of the Companies.
As a result of his conduct, Mr To has been sentenced to 33 Weeks imprisonment after pleading guilty to three counts of failing to preserve company books and accounting records for a period of three years, for each of the Companies.
What the Insolvency Service Said
Simon Button, Deputy Chief Investigation Officer at The Insolvency Service stated that:
“The Insolvency Service and The Department for Business will take firm action when we find that Office holders of limited companies have clearly failed to comply with their legal responsibilities and this has led to an undermining of the Insolvency Regime.”
He went on to say that Section 386 requires:
“Every company [to] keep adequate accounting records. Adequate accounting records means records that are sufficient: (a) to show and explain the company’s transactions; (b) to disclose with reasonable accuracy, at any time, the financial position of the company at that time; and (c) to enable the directors to ensure that any accounts required to be prepared comply with the requirements of this Act.”
Had Mr To complied with his duty under section 386, the Insolvency Service would have been able to complete their investigations and Mr To would have avoided the loss of his liberty and the reputational damage caused by it. This case is a stark reminder to company directors of their duties under the Companies Act and the potential severity of the action the Insolvency Service will take for a failure to comply with them.
If you have any questions regarding your duties as a company director, and the effect of non-compliance in any case, please contact us or call us today on 0121 200 7040 for a FREE, no obligation initial chat. Our Director Disqualification and Insolvency Claims and Litigation solicitors will be pleased to hear from you.