Examples of instances where directors have been disqualified

 

For what reasons do UK directors get disqualified?

This article follows on from my earlier article on director disqualifications to give some idea as to what sort of conduct the authorities consider are worthy of disqualification.

Here are some reported examples of where directors have been disqualified (click on the links in this article to be taken to more information if you should need it)…

 

Alleged fraud!

An orchestrated attempt to defraud HMRC through the creation of a number of companies to obtain illegal VAT refunds – a blatant fraud on HMRC .

Carousel VAT fraud

Misleading investors

Misleading of investors and misuse of their money

Fresh air invoicing to obtain finance from a bank

Under recording of cash sales resulting in incorrect vat returns being submitted and the non payment of vat

And another similar case!

Vat evasion

Tax evasion

 

Not doing the right thing in their company at a time of insolvency

Removing assets from the company for their own personal benefit

Unexplained transfers of money out of the company  and accepting money from customers for goods/services not provided

Payment of illegal dividend  and transfer of funds to an associated company

Diversion of money that the company was entitled to into the director’s own bank account

Transfer of large sums of money to themselves 

Another case of transferring large sums of money out of the company to companies they controlled

Using money from the sale of customer assets for their own purposes

Selling company assets for personal benefit

Once a company is either known by the directors to be insolvent (or where the directors should know it’s insolvent), it is vital that the directors don’t do anything that is clearly not in the creditors’ interests.

Perhaps these disqualifications could have been avoided had the directors taken advice from a licensed insolvency practitioner at the right time (and followed that advice)?

 

Failing to do the basics/comply with laws applying to the ongoing business!

Failing to keep proper books and records to explain the company’s transactions

Misusing company funds for their own benefit 

Another case of misusing company funds for own benefit

Breaking the law on an ongoing basis

Failing to report conflicts of interest

Another failure to comply with the law applying to their business

Acting as the frontman for a person who is banned.

Not doing everything they needed to do to protect vulnerable members of the public

Failing to put in correct tax returns

Breaches of the Privacy and Electronic Communications Regulations

Unfair trading practices and failure to repay the public on a timely basis 

Breach of a previous ban, including the banning of the disqualified’s frontman

Failure to comply with environmental laws

Failure to maintain proper books and records

Breaking the law by employing illegal foreign workers

 

Other reasons

A series of formal insolvencies each with the same pattern

Come back here often, I will keep adding examples.

 

Should I be worried about getting banned as a director?

This is a question I’m often asked.  In the vast majority of cases, it really isn’t a worry, but for you while it isn’t the biggest concern you might have over your company’s failure, it’s pretty high on your list.  There are several reasons for this…

First off, let’s explore why you are worrying…

You have probably not recognised that we live in a country that encourages entrepreneurialism, that encourages people like you to have a set up in business.  Without that encouragement our economy would be in tatters, we’d all be working for someone else, not taking any risks.  And being in any business is quite risky, in fact more businesses have always failed than succeed, nowadays with technology moving as fast as it is even more so .  A level of failure is expected by the authorities.  It’s just how you fail…

You probably feel at least some level of personal responsibility for creditor losses.  You have looked back at every decision you did and didn’t make, and assume that if, with hindsight, if you now consider some of those decisions to have been the wrong ones, you are liable to be banned.

For you, the company’s failure is personal, it’s a massive event in your life, one which probably hasn’t happened to you before and thus of which you have no prior experience.  as you are going into uncharted territory, you feel vulnerable.

The figures involved, at least for you, might appear be big, but in the grand scheme of things are often relatively small.  If you don’t have £40,000 to pay your debts, it’s a huge figure for you.  In your mind it might as well be £400,000.  To the outside world there is a huge difference between £40,000 and £400,000.   The level of the problem in your mind could be out of proportion to the actual figures, to the problem in others’ eyes.

Now, let’s look at who the authorities are looking to ban …

Those who are prone to be banned include directors who:

  1. Abuse the principle of limited liability.  Let me explain.  If your company goes into say insolvent liquidation, a good many of its debts are written off, unless you have given a personal guarantee, you’re not liable to pay them.  This is a privilege, and with privileges, there has to be some accountability.  Abuse that privilege, abuse the fact creditors have put their confidence in you by effectively lending money to your company in one way or another and you pay the penalty.
  2. Break the law.  Break any law, for example if you breach health and safety laws, fail to supply merchandisable goods, or commit a fraud on creditors generally or a specific creditor, and you could be banned.  Ignorance of the law is no excuse, you’re expected to know and abide by all the laws that apply to your business.  The reasons for being banned do not have to be financial, operational ones matter too.
  3. ‘Take’ money off HMRC or the general public.  The nature of your creditors matters.  For example HMRC have no choice but to extend credit to your company, so there’s an obligation on you to treat them fairly, especially as regards VAT where you are effectively deemed to have held on to their money.  Get involved in any fraud on HMRC, eg MTIC/carousel fraud, and you will be banned.  If you accept deposits from the Public in advance of supplying them with goods / services but do not protect their money, you’re at risk.
  4. Are involved in certain sectors which are considered rife for fraud or wrongdoing. The sectors continually change as new scams are invented by miscreants.
  5. The size of the failure and regularity of failures with which you are involved.  Directors of bigger businesses and companies going into liquidation with £1m+ debts attract more attention by the authorities and a higher level of skill is expected than say if you are a director of a small corner shop that fails with £50,000 of debts.  If you have a string of insolvent liquidations behind you, whatever the size, the government might form the view that creditors need to be protected from you.
  6. Fail to take, or take but choose to ignore, professional advice, who fail to take advise from a licensed insolvency practitioner in the lead up to insolvency.  The authorities expect you, someone who probably has no prior experience of such difficulties to go and get help, not somehow muddle through, trust to luck or take advice and do what they want to anyway (especially if doing so profits them).

Here’s a link to some government guidance you might like to read – Gov.UK

And here’s a link to a page that’s continually updated where the government publish details of the directors who have been banned in the previous 3 months… Link.  Clicking on the individual bans will give you an idea of where the government’s focus lies.

Here are a few questions for you…

  1. Have you or have you caused the company to break any laws?
  2. Do you owe a lot of money to HMRC?  Have you caused the company to retain and use that money for other purposes?
  3. Should you have ceased trading earlier?  If so, in doing so, have you caused creditors to suffer a larger levels of losses?
  4. Have you somehow taken money or assets out of the company for your own personal gain or that of people you are close with?
  5. Have you treated everyone fairly?
  6. Have you been involved with multiple failures?

If your answer is no to all of these, you’re probably not at risk of being banned, especially if you’ve personally sunk and lost a lot of your own money in the company.  If your answer is possibly, it might be worth you taking some advice, or if I’m to be appointed as your insolvency practitioner, we need to talk early.  If your answer is yes, you might be at risk of being banned, take advice, there are legal firms who specialise in helping directors like you – a Google search on director disqualification solicitors will produce a long list.

We hope that you find this article of help, if all it does is enable you to sleep a bit better at night…