Director's Friend

THE DIRECTOR’S FRIEND BLOG - ‘Directors assumption of personal liability’

Director's Friend

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:

  1. Do not sign up to being a director without first understanding your duties;
  2. If you want to rely upon professional advice then you must ask for it; and
  3. 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


Signing a Surname

Husbands Who Take on their Wife's Surname

Signing documents

 

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

Mental Capacity

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;

  1. The Testator must understand the information relevant to the decision.
  2. 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.
  3. The Testator must be able to communicate their decision. Communication can be verbal, using sign language, writing information down or any other means.
  4. 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.


Divorce Split who gets the dog?

Cheryl Cole Dismisses Reports of a Split

Divorce Header

Cheryl Cole this morning dismissed reports of a split from her partner and father of her son, Liam Payne, instead focussing on her new charity project.

It remains to be seen whether the rumours of a break up are true and how this will affect the arrangements for their son, Bear. It is rumoured Liam holds a £54m fortune, Cheryl has only been valued at £20m. Reportedly Liam has called in Lawyers in an attempt to protect his wealth, although the parties are not married.

Here at Breeze and Wyles Solicitors Ltd we offer expert advice on all matters relating to children, including advice on contact arrangements and financial provision for children.

Our experienced lawyers also provide advice on all aspects of separation whether the parties are married or not, including advice relating to finances and how best to protect your interests.

We also offer family mediation, collaborative law and family arbitration within our broad range of services.

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/