THE DIRECTOR’S FRIEND BLOG - ‘Directors assumption of personal liability’
This is the next in the series of blogs for the Director’s Friend blog.
The case:
This is a discussion about a recent case decided in the Chancery Division of the High Court – Situl Devji Raithatha (as Liquidator of Halal Monitoring Committee Limited and Mir Nazeer Ahmed Baig and others a judgment by Chief Registrar Briggs.
Summary:
The company The Halal Monitoring Committee Limited (the ‘Company’) was incorporated as a community project ensuring that the meat and poultry consumed by the Muslim community was Halal. The Company was intended to be run on a not for profit basis. The Company did not register for VAT. HMRC asked that the Company register for VAT. It did not do so. A VAT Assessment was raised and not paid. HMRC presenting a winding up petition that was not opposed by the Company. A winding up order was made on 30 April 2012.
So, were the directors of the Company liable for the failure to register for and pay VAT?
Section 212 of the Insolvency Act 1986 (the ‘Act’)
In the Director’s Friend earlier blog this section of the Act was explained. Whilst the Chief Registrar does not refer specifically to this law it is likely that the claim advanced was for Misfeasance under this section of the Act.
The pleaded issue for the Court to decide was in circumstances where HMRC had submitted a proof of debt; the Company suffered a loss as a result of the failure to register for VAT in 2005 and collect in that VAT. The Liquidators case was that as a consequence the directors acted in breach of duty of care, skill and diligence owed to the Company (and so were personally liable).
The directors admitted the failings in respect of VAT. They took issue that they had breached their duty to exercise reasonable care, skill and diligence. Amongst other technical arguments put the directors argued that they were non- specialist volunteers and were entitled to rely upon independent specialist advice. The directors also relied upon the Company accountants to advice. The latter argument was a key part of the defence.
The judgment:
At paragraph 27 the Chief Registrar proceeded on the basis that the Company should have been registered for VAT from 2005. The Registrar went on to consider whether the directors had acted in breach of section 174 of the Companies Act 2006 (which is a part of the presumed claim for Misfeasance claim).
The Chief Registrar considered the evidence and law at paragraphs 28 to 34 and observed at paragraph 34 that:
‘… part of the modern landscape of corporate responsibility is to place on directors the obligation to ensure adequate monitoring and supervision of delegates’
At paragraph 35 the Chief Registrar found:
‘In my judgment the duty of the Directors to acquire and maintain sufficient knowledge and understanding of the Company’s business to enable them to discharge their duties as director, is inescapable. It may seem harsh on the facts of this case that an incoming, inexperienced director should acquire the necessary knowledge and understanding of the Company’s operations, and ensure that it is compliant with issues as wide ranging as trading standards, health and safety and taxation.’
At paragraph 36 the Chief Registrar went on:
‘The Directors were not required to obtain the specialist knowledge of an accountant but needed, in my judgment to ask if the Company had an exemption for VAT rather than assume the situation. Reliance on the accountant’s silence demonstrates, objectively, a lack of care, skill and diligence.’
37. … The Directors worked on an assumption and did not take any or any proper steps to discharge their duty of care and skill… The Directors obtained no advice but made an incorrect assumption and took no steps to validate the assumption.’
It was found that there was a loss to the Company caused by the failure to collect in VAT as the VAT will have to be met from its own resources rather than from customers (as per paragraph 42).
The directors should have asked the Company accountants about liability for VAT on the supplies (per paragraph 45). It was found at paragraph 46 that the Company should have been collecting in VAT from April 2010.
As to the directors’ request for relief under section 1157 of the Companies Act 2006 also failed (per paragraph 56) due to the failure to explore the tax position or to take advice which were found to be unreasonable steps.
The Director’s Friend comments:
This case is a harsh lesson for directors of a company. The Directors Friend says that if you wish to be appointed a director of a company then you must understand your duties to the company. The directors in this case have been made personally liable for the loss of VAT when the company did not register.
The directors assumed without checking that the company was not liable for VAT. They did not seek advice. They should have done so.
Therefore, the Director’s Friend says that three lessons need to be drawn from this case:
- Do not sign up to being a director without first understanding your duties;
- If you want to rely upon professional advice then you must ask for it; and
- If you delegate then you must monitor and supervise that delegation.
No doubt this has been a very expensive and harsh lesson for these directors.
WHAT TO DO NOW:
If you are faced with:
- worrying insolvency issues with your company;
- a claim against you for misfeasance / breaching your duties as a director to a company or any claim for personal liability; and / or
- director disqualification
then please talk to me today on +44 (0)1992 558411. That is in order to protect your position without delay. The earlier that you speak with me the more that I can likely help.
The Director’s Friend is a Hertfordshire / London based solicitor and a full member both the Insolvency Lawyers Association and the Association of Business Recovery Professionals.
Until the next time...
THE DIRECTOR’S FRIEND
Breeze & Wyles Solicitors merges with Taylor Rose TTKW
We are pleased to announce that we have merged with top 200 law firm Taylor Rose TTKW.
Our clients will continue to receive the same high level of service managed by the same dedicated teams, however we will no longer be known as Breeze & Wyles as we take on the brand name of Taylor Rose TTKW. For more information on how the merger affects you please go to our FAQ page here.
The merger creates a five hundred-strong team operating from eleven offices offering a diverse range of private client and commercial services. Taylor Rose TTKW has offices in London, Lichfield, Liverpool, Manchester, Peterborough, Northampton and Workington. CEO Brendan O’Brien and COO Murray Fraser will join the Taylor Rose TTKW Board of Directors, headed up by Managing Director Adrian Jaggard.
The transition should be seamless although there will be some changes behind the scenes such as investment in technology and telephony.
Please note our new office contact numbers are:
Bishops Stortford
T: 01279 351575
F: 01279 351576
Enfield
T: 0208 036 5616
F: 0208 036 5617
Hertford
T: 01992 940960
F: 01992 940961
Taylor Rose TTKW’s Directors, Partners and Solicitors along with their services can be found at https://taylor-rose.co.uk
The Hidden Risk of the 100% Mortgages
House prices have jumped by 32 per cent in the past five years but wages grew just 11 per cent over the same period. In addition the constant message today is that most young people will never own their own homes. These examples could explain the recent resurgence of 100% mortgages. However not only did the previous prevalence of the 100% mortgages fuel the financial crash but it creates a real risk to potential home owners and those who assist them.
The biggest risk of 100% mortgages is negative equity. The banks must find ways to offer products people need but minimise the risks. This phenomenon has led to a sharp increase in down valuations where despite the fact that there is a rise in property prices the property is valued as less than it was previously worth. This is a real risk for borrowers as with no deposit they would be without the security of an equity stake.
If this happens you could;
- Be unable to remortgage your home to get a better or more affordable rate;
- Be unable to sell the property without paying money to the bank in additional to the sale price;
- If you are unable to make payments and you the bank takes action against you could owe them more money in the future after they have sold your house. It is important for anyone considerintg to be a guarantor for a borrower that they fully understand the risks involved.
The banks may ask for a guarantee to protect their interest in the property when offering 100% mortgages. A guarantor would be promising the banks that if the borrower defaults on their mortgage then the bank can demand the money from the guarantor. . This could include the banks putting a charge on the guarantor’s property.
In some cases the banks may demand mortgage payments from the guarantor. Remember part of being a guarantor is that you are agreeing to be in a position to pay if required.
In more extreme cases when property prices decrease and the guarantor can’t afford to pay, then the guarantor’s home may be repossessed.
If you would like independent legal advice for the issues detailed above please contact Bradley Ali on 01992 558 411 for professional advice.
The Directors Friend - Director's Personal Liability for Costs
THE DIRECTORS FRIEND BLOG
‘Directors personal liability for costs’
This is the next in the series of blogs for the Directors Friend blog.
The case
In the recent case of Mullaley and Company Limited and (1) Regent Building Services Limited (2) Christopher White [2017] EWHC 2962 (Ch) heard by David Stone sitting as a Deputy High Court Judge considered (amongst other issues) an application for injunctions to prevent the presentation of a winding up petition.
Summary
The company Mullaley & Co. Limited (the ‘Company’) by way of opposing a Statutory Demand issued by Regent / Mr White brought the proceedings due to the threat to wind it up made by the same.
That was in circumstances where Regent Building Services Limited (‘Regent’) / Mr White chose not to use the option to pursue a contested debt in the usual way under Part 7, rather than using the Statutory Demand procedure for uncontested debts.
Responding to a Statutory Demand by a company
In the Directors Friend earlier blog this area of law was explained briefly. Essentially an application should be made to Court within 18 days of service of the Statutory Demand (if, in the meantime it is not withdrawn). The application should set out the detail of why the debt is disputed or there is a cross claim. This should be put across in good faith and has sufficient substance to justify it being determined in a normal civil action.
The debt in this case was disputed by the Company on the basis that (at paragraph 14) that:
- The debt was not assignable without the Company’s consent, which it has never given;
- Some of the amounts that made up the debt had been paid, or were not at that stage due; and
- The Company contested the ability of Regent / Mr White to claim the debt on behalf of the (alleged) assignor.
Correspondence between the parties had elicited 3 different copies of an Asset Purchase Agreement (‘APA’) all of which were subject to criticism for various reasons.
A winding up petition was presented against the alleged Assignor and any APA post that date would have been void under section 127 of the Insolvency Act 1986 (discussed here). In any event a third party had a fixed and floating charge over the assets of the Assignor (paragraph 16).
The judgment
The judge set out that the:
- Courts power to grant an injunction in these circumstances stems from its jurisdiction to prevent an abuse of process (per paragraph 41);
- Court does have to go into the argument sufficiently to be able to form a view about whether the dispute to the debt or the cross-claim put forward in good faith and has sufficient substance to justify it being determined in a normal civil action (per paragraph 42);
- Threshold for establishing that a debt is disputed on substantial grounds in the context of a winding up petition is not a high one for restraining the presentation of the winding up-petition (per paragraph 43); and
- Hurdle is a low one. Winding up procedure should not be pursued on the basis of a debt which is disputed in good faith, and where that dispute is of sufficient substance to warrant determination in the usual way (per paragraph 44).
The judge found at paragraph 51 that:
‘… any of these three disputes on its own would have been sufficient to grant an injunction to restrain Regent/Mr White from presenting a winding up petition against Mulalley. Together they are compelling.’
The injunctions were granted.
Unfortunately for Mr White it was found that his conduct was unreasonable and an order for indemnity costs was made against Regent and him. That is payment of costs in full!
The Directors Friend comments
It is telling that the ‘Agent’ as stated by the judge at paragraph 49(b) in all of the APA’s was Rigil Kent Corporate Rescue Limited now Rigil Kent Corporate Acquisitions and Turnaround Limited. This company was placed into Provisional Liquidation on 19 December 2017 and compulsorily wound up on 28 February 2018. The Insolvency Service press release dated 08 January 2018 is here.
The press release states:
‘All of the companies were part of a scheme and business model which purported to provide advice and business recovery services to directors of insolvent companies.’
Whilst Regent / Mr White did have the benefit of legal advice at an earlier stage of the case it is notable to see the ‘Rigil’ name here.
It was also unsurprising that in the circumstances that the injunctions were granted where the threshold is not a high one.
Therefore, the lessons for a well-advised director would be:
- Obtain the right professional advice at the right time from a regulated firm;
- Make sure that in attempting to collect a debt that you / the company use the right process to do so; and
- Make sure that your conduct as a director in litigation with driving the actions of the company is not unreasonable or that director may be at risk of personal liability for costs.
WHAT TO DO NOW
If you are faced with:
- worrying insolvency issues with your company;
- a claim against you for misfeasance / breaching your duties as a director to a company or any claim for personal liability; and / or
- director disqualification
then please talk to me today on +44 (0)1992 558411. That is in order to protect your position without delay. The earlier that you speak with me the more that I can likely help.
The Directors Friend is a Hertfordshire / London based solicitor and a full member both the Insolvency Lawyers Association and the Association of Business Recovery Professionals.
Until the next time...
THE DIRECTORS FRIEND
Debt Recovery service from £10 plus VAT
Debt Recovery service from £10 plus VAT
By Breeze & Wyles Solicitors Ltd
What can we expect?
- No minimum fee.
- No % of the value of your debt fee deducted.
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- Your letter before action will be sent within 24 hours of your instructions being received
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Breeze & Wyles Solicitors Ltd are pleased to offer you their Debt Recovery service. Please see: http://www.breezeandwyles.co.uk/index.php/debt-recovery/.
To give you maximum confidence in our Debt Recovery Service Breeze & Wyles Solicitors Ltd are authorised and regulated by the Solicitors Regulation Authority.
Interested?
- Why not try the Breeze & Wyles Solicitors Ltd Debt Recovery service today to collect your outstanding debt?
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- Don’t let your debtors get away without paying you! Use the Breeze & Wyles Solicitors Ltd Debt Recovery service.
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We also have experienced insolvency solicitors available to advise you today.
Our experienced and friendly team are waiting to hear from you today. Please contact us on +(0)1992558411 and ask to speak to Sharon Matchwick:
Sharon.Matchwick@breezeandwyles.co.uk or Rita Wright: Rita.Wright@breezeandwyles.co.uk.
Parental Responsibility – What it is and how to get it.
Parental Responsibility is the term used to define a person’s responsibility and obligations towards a child. A person with Parental Responsibility can make decisions on behalf of a child such as determining the name that they will be known by, consenting to medical treatment as well as decisions as to how a child is to be educated.
Parental Responsibility can be held by one person or more than one person. Where Parental Responsibility is held by one person, that person has the sole right to make decisions regarding a child and can for example, lawfully change a child’s name, remove the child from England and Wales or appoint a guardian in their will which will take effect upon their death.
Where Parental Responsibility is held by more than one person, they will each hold it jointly and any significant decisions such as changing a child’s name or removing the child from England and Wales (even for a holiday) will have to be agreed by all.
A mother will automatically get Parental Responsibility when the child is born. Unfortunately, it is not so straight forward for a biological father but there are a number of ways in which he might acquire it.
Firstly, he might acquire it if he is married to the child’s mother at the time of the birth or subsequently. Secondly, if he and the mother are not married, he will automatically acquire it if he is named on the child’s birth certificate (for births registered after 1st December 2003). Thirdly, he and the mother can enter into a Parental Responsibility Agreement and finally, an application can be made to the court for a Parental Responsibility Order.
There are also provisions for same sex parents to both acquire it where assisted reproduction has been used including a Parental Order when a surrogate has carried the baby.
People other than the parents can also acquire Parental Responsibility. A Step- Parent might get it by entering into a Parental Responsibility Agreement, getting a Parental Responsibility Order or being named as a person the child lives with in a Child Arrangements Order.
Other people may get Parental Responsibility if they are named as a person the child lives with in a Child Arrangements Order, appointed as Special Guardians for the child or validly appointed as a child’s guardian in a parents will on their death or appointed by the court as a guardian following the parent’s death and of course, if they formally adopt the child.
Whether a father has Parental Responsibility or not does not however, mean that he can avoid responsibility for paying Child Maintenance and a lack of it does not impact upon the child’s inheritance rights. It is also the case that where a father does not have responsibility, although the mother may have the sole right to make decisions on behalf of the child, it is still subject to the fathers right to make an application to the court for a Section 8 Order if he does not agree with the decision made.
At Breeze and Wyles Solicitors Ltd our specialist family solicitors have assisted countless people in resolving issues concerning Parental Responsibility and the arrangements for children. We offer initial fixed fee appointments at prices from as little as £50 + vat. We have offices in Enfield, Hertford and Bishops Stortford and also offer telephone or Skype appointments if preferred.
For more information please call us on 01992 558411 or contact us here: http://www.breezeandwyles.co.uk/index.php/form-family-divorce/
I think my ex is stalking me. What can I do?
Although often the subject of fictional dramas, domestic abuse and stalking are very real issues with figures showing that 11,889 stalking and harassment prosecutions were started in 2016/2017. The actual number of incidents is actually likely to be significantly higher as many incidents will not be reported. Whilst a stalker can be a stranger to you, it is far more likely to be someone you know with 71% of the prosecuted incidents being related to domestic abuse.
The breakdown of a relationship is a very difficult time. When a relationship comes to an end, people will generally go through a grieving process and the range of emotions that go with that. They may be angry or having trouble accepting that the relationship is over or want to try and control you and the decisions you make. The separation may also result in various other issues needing to be resolved such as finances or the arrangements for the children, which can further heighten the tension levels for all as the future becomes uncertain.
Stalking can be defined as persistent and unwanted attention that makes you feel pestered and harassed. It includes behaviour that happens two or more times, directed at or towards you by another person, which causes you to feel alarmed or distressed or to fear that violence might be used against you.
That attention can take many forms and can include things that might not seem obviously sinister such as;
- sending flowers, letters, cards or presents
- following you, turning up at your place of work or home uninvited
- persistent phone calls or texts
- contacting people who know you to get information about you,
It can also escalate and include more obviously concerning behaviour such as
- manipulative behaviour such as threatening to commit suicide
- telling lies about you to others to weaken your support network or undermine your employment.
There is also the risk that escalation can result in violence or threats of violence with damage to property and physical assaults which can and have historically resulted in murder.
If you think that you are being stalked then it is important to get help and we would most definitely recommend that you keep a diary as this will allow you to make a record of all incidents and is likely to be crucial evidence in helping to get it to stop.
The Protection from Harassment Act 1997 introduced the crime of Harassment. This made it an offence to pursue a course of conduct causing alarm or distress or putting a person in fear of violence. In 2012 the Government changed the law, introducing two new offences covering stalking and providing further options to assist in prosecutions. These provisions allow the criminal courts to punish a person found guilty of an offence but also allow the criminal court to make a restraining order which can impose controls upon the accused for example preventing them from contacting the victim. Such an order can be made if the court considers it appropriate whether or not the person has been found guilty of the crime. More recently in a bid to further help victims of stalking the government have expressed an intention to introduce a new Stalking Protection Order which is intended to protect victims from unwanted attention and may be obtained without a prosecution for an offence unlike a restraining order. Furthermore, it has been announced that those committing offences will also be facing tougher sentences in future.
It is also possible to take action against someone in the civil courts even if they have not been convicted of an offence as an application can be made under the Protection from Harrassment Act 1997 for an injunction ordering the person harassing you to stop. In the event that the person harassing you is an “associated person” such as an ex partner then an application can be made to the court for a non molestation order under the Family Law Act 1996 which is an order which forbids your ex partner from using or threatening violence, harassment, intimidation or pestering you.
In the event that the ex partner fails to stop then they will be committing a criminal offence and can be sent to prison.
At Breeze and Wyles Solicitors Ltd, our experienced team of family solicitors have significant experience in dealing with problems involving stalking, harassment and domestic abuse. Karen Johnson, our joint head of department is an accredited domestic abuse specialist with over 15 years experience in helping male and female clients who had or were suffering domestic abuse and harassment including victims of rape, psychological and physical abuse, controlling and manipulative behaviour. With her help, those people were able to end the abuse, protect themselves from further incidents and ensure outcomes with regards to children or finances that allowed them to move forward with their lives in safety.
Our qualified solicitors are able to offer appointments at our offices in Bishops Stortford, Enfield and Hertford as well as appointments via telephone or skype from as little as £50 + vat. For more information call us on 01992 558411. Or contact us here: http://www.breezeandwyles.co.uk/index.php/form-family-divorce/
Directors and Associates Loan Account in M&A transactions
“So you want to pay more tax than you ought when you sell shares in a company?” If the answer to this question is "NO!" then this article is essential reading.
Problems can arise in one of two situations:
If you have a group company or a number of companies in common ownership it is possible that you have inter group loan accounts on the balance sheets of some or all of these companies. It is essential in those circumstances that you have deal with them prior to sale.
You may have purchased the shares in the company with a completion payment that is split into two parts, part purchase price and part introduction of a loan amount. This often occurs where the original seller had introduced loan capital into the company to develop the business or to expand it but did not do so by the creation and acquisition of additional shares. This would mean that the purchase price element would be the starting point for the calculation of Capital Gains Tax on sale.
Why is there a problem?
Section 455 of the Corporation Tax Act 2010 https://www.legislation.gov.uk/ukpga/2010/4/section/455 provides for a 25% tax charge where a loan is created in favour of a participator or an associate of a participator that is not at arms-length. In a sale if the loan is not dealt with appropriately it is likely that the loan itself will be a breach of warranty if not fully and fairly disclosed. Furthermore, the writing down of the loan at completion would create the 25% tax charge on the company and have to be borne by the buyer. In addition, the structure of the purchase price as the full completion payment might not be tax efficient. For instance if you don’t consider the loans at sale having done so at purchase the full amount of the loan capital that you introduced would be subject to Capital Gains Tax as it would not have formed part of the original purchase price meaning that the starting point from which CGT liability will be calculated will be lower. It is essential that careful consideration is given in these circumstances to how to deal with the inter group loans as part of the completion process.
So what should you do now?
If you are thinking of selling a business and you think this is relevant we recommend that you contact our Brendan O’Brien to discuss your options. We work with a number of accountants who will be able to assist you in determining the appropriate method to use to complete the transaction in a tax efficient manner. Contact us here: http://www.breezeandwyles.co.uk/index.php/form-for-business/
Husbands Who Take on their Wife's Surname
The BBC has this week issued a report on the increasing number of husbands who have chosen to take their wife’s surname rather than the wife taking the husband’s family name. Whilst there is no reason a husband should not be able to take his wife’s surname, it is often a more difficult process. If a wife chooses to take her husband’s surname, as is the tradition, all that is usually required as evidence of the name change is a copy of the marriage certificate. However, if the husband chooses to take his wife’s surname, the husband may need to execute a change of name deed to avoid any difficulties with the passport agency, banks or other professional institutions.
Our family department at Breeze and Wyles Solicitors Ltd offers a range of services, including the drafting and execution of change of name deeds. We also offer expert advice relating to protecting your interests upon marriage, including advice on co-ownership of property and nuptial agreements. We also specialise in separation, divorce, finances and children matters and can offer a personal service to meet your specific needs.
Call us on 01992 558411 and ask to speak to the Family Department
Or contact us here: http://www.breezeandwyles.co.uk/index.php/form-family-divorce/
The Importance of Capacity When Making a Will
For a Will to be a valid document the person signing the will (‘the Testator or Testarix’) must have capacity. Capacity can be assessed by looking at the testator’s decision making abilities and understanding on the date the document was signed. There is a presumption that a properly executed Will is made by a person with capacity. However this can be challenged with evidence.
The Testator must understand what he or she is doing. Any Will entered into where it can be shown that the Testator did not understand will be void. Key elements of this are;
- The Testator must understand the information relevant to the decision.
- The Testator must be able to use or weigh up any information when making any decisions in relation to the Will. So the Testator should understand what might happen as a consequence one way or another.
- The Testator must be able to communicate their decision. Communication can be verbal, using sign language, writing information down or any other means.
- A Testator will likely lack capacity if they suffer from a disorder of the mind. A disorder of the mind would cover any mental disorder that alters the Testator’s ability to make a decision or comprehend their decisions.
Please bear in mind that a person will not to be treated as unable to make a decision merely because they make an unwise decision.
If you have reasonable grounds to believe that your loved one lacked capacity when signing their will and you would like some advice please contact Sharon Matchwick on 01992 558 411
or click here: http://www.breezeandwyles.co.uk/index.php/form-wills/
NOTE:
This article deals only with capacity and does not cover other options that may be available if you have reasonable grounds to challenge the validity of a Will.