Director Disqualification

DIRECTOR DISQUALIFIED FOR A FAILURE OF HIS COMPANY TO PAY ITS TAX LIABILITIES (BUT THERE IS MORE)

In a recent press release the Insolvency Service (the ‘IS’) (see: https://www.gov.uk/government/news/tax-dodging-it-director-disqualified) confirm that a Mr Anthony Hodges (‘Mr Hodges’) of Basingstoke signed a director disqualification undertaking preventing him from acting as a company director for a period of 8 years.

That was in respect of misconduct found in the company Hodges & Coley Ltd (the ‘Company’) (see: https://beta.companieshouse.gov.uk/company/07334254) that was placed into creditors voluntary liquidation on 27 January 2014.

Date Action
03 August 2010 Company incorporated.
From January 2011 to January 2014 The IS found that Mr Hodges had failed to ensure that the Company paid its tax liabilities.
27 January 2014
  • Date of liquidation;
  • HMRC owed £191,136;  and
  • Total deficiency to creditors £223,424.

As the above happened the IS found that the sum of at least £423,024 had been paid to Mr Hodges and his family.

It did not end there though because it was further found that Mr Hodges told his accountant on or after 23 October 2013 that he intended to liquidate the Company. However, in spite of that stated intention Mr Hodges was found by the IS to have paid his family and himself £41,471 between 23 October 2013 and 10 January 2014.

It is reported by the IS that it was not disputed by Mr Hodges that in his capacity as sole director the remuneration paid to his family and Mr Hodges was excessive in that:

‘… they represented the majority of (the Company’s) trading income and deprived it of funds to cover its current liabilities, notably (the Company’s) liabilities to H M Revenue & Customs…

The Head of Insolvent Investigations North Mr Robert Clarke at the IS is reported to have commented:

‘Company directors have a duty to ensure businesses meet their legal obligations, including paying taxes and must not benefit themselves at the expense of creditors. Neglect of tax affairs is not a victimless action as it deprives the taxpayer of the funds needed to operate public services.’

 COMMENT

 This case is unusual in that it is the first director disqualification that I have seen where it was found that the director of the company took remuneration and benefits that were excessive. In my experience this is usually a difficult allegation to bring because it is difficult to prove. For example, what can the remuneration taken be compared to, to show that it was excessive.

In my experience this fact is probably what moved the case from the fairly usual failure to pay HMRC allegation in the lower disqualification bracket (2 to 5 years) to being more serious with the consequent increase in the period of director disqualification for Mr Hodges.

FURTHER RISK

The Joint Liquidators of the Company may bring an action for Misfeasance against Mr Hodge personally (and possibly members of his family) pursuant to section 212 of the Insolvency Act 1986 (see: http://www.legislation.gov.uk/ukpga/1986/45/section/212) to recover some or all of the remuneration paid and / or the loss to HMRC and other creditors of the Company.

A Misfeasance claim brought by a Liquidator typically alleges that the Company has paid monies out (to the director, their family members / friends or a connected company perhaps) that cannot be cross referenced in the books and records of the Company. It is then alleged as a consequence that the director has misapplied, retained, or become accountable for those monies in breach of that director’s fiduciary or other duties in relation to the Company. That is the director has to pay for the alleged loss personally.

WHAT TO DO NOW?

If you are faced with a claim for director disqualification by the IS or a Liquidator has sent you a letter before claim alleging Misfeasance please talk to me today. That is in order to protect your position without delay. The earlier that you speak with me the more that I can help. Why not call me today on 01992 558 411 and speak to me without obligation, pressure or cost. You can also email me at Richard.cole@breezeandwyles.co.uk

If you are happy to instruct me, my firm and I are happy to talk to you about fixed fees or staged fees that are agreed with you in advance of any work being carried out. Your work will be carried out by me or others under my close supervision. Finally, I am happy to come to you to take instructions.

Until next time,

THE DIRECTOR’S FRIEND

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