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an application should be made to Court within 18 days of service of the Statutory Demand (if, in the meantime it is not withdrawn).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:

  1. The debt was not assignable without the Company’s consent, which it has never given;
  2. Some of the amounts that made up the debt had been paid, or were not at that stage due; and
  3. 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:

  1. Courts power to grant an injunction in these circumstances stems from its jurisdiction to prevent an abuse of process (per paragraph 41);
  2. 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);
  3. 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
  4. 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:

  1. Obtain the right professional advice at the right time from a regulated firm;
  2. Make sure that in attempting to collect a debt that you / the company use the right process to do so; and
  3. 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

 


Company Sale

Directors and Associates Loan Account in M&A transactions

Company Sale

“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/


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


Director's Desk

THE DIRECTOR’S FRIEND BLOG - No ‘Wrongful Trading’ here

Directors Desk
The 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 – (1) Nicholas William Nicholson and (2) Stratford Edward Hamilton (As Joint Liquidators of Main Realisations Limited) and (1) Thomas Geoffrey Fielding and others a judgment by Deputy Registrar Prentis (it would appear unreported).

Summary

 In summary, prior to Mainland Car Deliveries Limited (In Liquidation) (the ‘Company’) being placed into Administration is was alleged by the subsequently appointed joint Liquidators of the Company that the three directors of the Company had caused the Company to wrongfully trade and that they were liable to personally contribute over £2.12M to the assets of the Company. The Deputy Registrar appeared to be less than impressed with the Liquidators evidence and dismissed the application.

Section 214 of the Insolvency Act 1986 (the ‘Act’)

In the Director’s Friend earlier blog this section of the Act was explained.

In summary, the issues that the Court considers includes:

  • Whether the directors of the Company should have known or ought to have concluded that from a date that there was no reasonable prospect that the Company would avoid entering into insolvent liquidation (i.e. not that the Company is insolvent);
  • The focus is on the individual director’s conduct;
  • The maximum loss that the Court can take into account is the loss to the Company (not to creditors) as a result of the liquidation being delayed (net deficiency);
  • How far there is a sufficient connection between the increase in net deficiency and the factors which made the directors decision that the Company should trade on wrongful; then
  • What would be a fair order as between the various Respondents.

The judgment

The Deputy Registrar went through the detail of the evidence in some detail to consider whether or not there was any wrongful trading (paragraphs 54 to 96 of the judgment).

At paragraph 97 the Deputy Registrar found:

The hallmark of the Company’s correspondence with HMRC is that of ongoing detailed consideration of its position, entirely consistent with the evidence of Mr Fielding and Mr Tait that the directors were constantly monitoring and discussing the situation. They were doing so backed by exemplary management accounts prepared by Mr Tait, and they were taking tough decisions: laying off staff, laying up trucks.

 98. All this was against a background of an uncertain financial world, oscillating fuel prices, and an industry entering a significant downturn of uncertain duration. The evidence is that the directors were doing their best to take account of those, and they cannot be criticised for not predicting their full effect.

At paragraph 105 the Deputy Registrar was mindful of the fact that HMRC (a large creditor) ‘… was willing even in early 2009, after multiple failures of the Company to meet its promises, to enter into a further time to pay agreement.

The Deputy Registrar’s observations

The Deputy Registrar did not appear impressed that a deficiency account had not been prepared by the joint Liquidators (per paragraph 112) nor was an explanation provided as to why not.

In addition, he observed at paragraph 112:

I am left without any real clue as to what losses would have been incurred anyway consequent on an earlier liquidation.

The Deputy Registrar was also less than impressed (at paragraph 113):

Next, it seems to me that to rely now without qualification on the statement of affairs in the administration, prepared more than 7 years ago, is utterly inappropriate. Quantum is not an assessment of a notional figure. It is in this context assessment of the loss to the Company caused by ongoing trading.

Perhaps unsurprisingly the application was dismissed.

The Director’s Friend comments

This is another application for wrongful trading that has failed due to a lack of the required evidence being put forward by the Liquidators. The Court did not appear impressed in this case with that lack.

The Director's Friend says that from the perspective of the directors it would appear fortunate that there was enough contemporaneous evidence in the Company’s correspondence with HMRC to explain the position. The directors were constantly monitoring and discussing the situation backed up by the exemplary management accounts prepared by one of the directors. The situation that the Company found itself in was not found to be the fault of the directors.

Finally, there is no reference to possible consequent director disqualification for participation in wrongful trading, however, with this type of claim there is always a risk of being subject to director disqualification as well. Please see the Director's Friend earlier blog for more details.

What to do now

If you are faced with:

  • worrying insolvency issues with your company;
  • a claim against you for wrongful trading or perhaps misfeasance; 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.

I am 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


weight

Inquorate appointment of administrators

weightThe Court of Appeal has given a recent judgment (Randhawa and Turpin [2017] EWCA Civ 1201 dated 01 August 2017) upon the inquorate appointment of administrators by a sole director. That case is here.

The question:

The question that the Court of Appeal had to decide was this:

‘… whether the sole director of a company, whose articles required two directors for its board meeting to be quorate, could validly appoint administrators under paragraph 22 of Schedule B1 to the Insolvency Act 1986.

Sir Geoffrey Vos, Chancellor of the High Court gave the lead judgment.

The answer:

At paragraph 79:

‘… I conclude that the judge was wrong to have held that the sole director of the Company had the right to appoint the Joint Administrators under paragraph 22(2) of Schedule B1 notwithstanding the provision in the Articles requiring a quorum of 2 directors at board meetings of the Company.’ 

The warning:

At paragraph 97:

… the administrators could themselves have been expected to check that their appointment was valid as long ago as September 2013, when it was made. They had the Articles and a copy of the resolution appointing them. That resolution contained a clear inaccuracy, when it said that [the director of the Company] constituted a quorum for the directors’ meeting. A brief inspection of the Articles would have uncovered that inaccuracy.

 … the  ought to have … [investigated any impediment to their appointment] immediately they were appointed if not before they accepted their appointment.

 [one of the Joint Administrators] failed to investigate the matter to ensure that the appointment of his firm would be valid.

 The conclusion:

At paragraph 101:

… I would hold that the appointment of the Joint Administrators was invalid.

 The lesson:

Check that the director(s) have a quorum to appoint pre-appointment. Check again post appointment.

I am an insolvency solicitor. If you have any questions please give me a call on +(0) 1992 558 411 or drop me an email on: Richard.Cole@breezeandwyles.co.uk


Present

The Risks of Gifts

This is the next in my series of blogs for the Directors Friend.

SUMMARY:

In respect of a risk under Section 238 of The Insolvency Act 1986 (the “Act”) a director must be very mindful where they are transferring company monies to themselves without good reason and / or supporting accounting records. In the following case, the directors had to personally repay significant sums that they were found to have gifted to themselves.

BACKGROUND:

In a recent case (Nicholson and Anor v Sukhjit Ghuman and Others [2016] EWHC 3509 (Ch)) HHJ Barker QC heard the Applicant Joint Liquidators only in a case. The Respondents did not attend.

This was a case that sought to make the first and second Respondents liable for their actions as directors of a company. The claims (amongst others) brought included for undocumented payments to one of the Respondents in the sum of £174,000 and undocumented payments to the other Respondent in the sum of £38,000.

The claims were claimed as transactions at an undervalue. The claims were also claimed as preferences, breaches of duty as directors by way of section 212 of the Act as misfeasance and the claim for £174,000 was also pleaded as an unlawful distribution.

THE LAW:

The Judge did not consider it necessary to have regard to the Applicants secondary cases. I can actually do little better than to set out what the Judge succinctly said at paragraphs 12 to 14 (inclusive):

  • Transactions at an undervalue are addressed in section 238 of the Act.
  • It is a precondition that the company should have entered into administration or gone into liquidation, and the claim is made at the suit of the office holder
  • The issue is whether, at a relevant time, the company gave away or disposed of assets (including money) for no consideration or for significantly less valuable consideration.
  • A relevant time is two years before the onset of insolvency.
  • In this case, it is not necessary to ascertain the precise date for the onset of insolvency because a winding up order was made in July 2010, and no transaction at an undervalue is alleged to have occurred before 2009.
  • Section 238(5) of the Act provides that:

The court shall not make an order under this section in respect of a transaction at an undervalue if it is satisfied—

(a) that the company which entered into the transaction did so in good faith and for the purpose of carrying on its business, and

(b) that at the time it did so there were reasonable grounds for believing that the transaction would benefit the company.

  • Section 240(2) adds a further condition, namely that at the time of entering the transaction at an undervalue the company should either be unable to pay its debts as they fall due or should become unable so to do in consequence of the transaction.
  • This insolvency condition is presumed where the recipient, or other transacting party, is connected with the company. So, the evidential burden is on that party, here Mr. and Mrs. Ghuman, to demonstrate that company's solvency.

THE JUDGE’S FINDINGS:

The Judge had no hesitation in finding that the Respondents were directors of the company at all material times.

As to evidence of insolvency the Judge was mindful of the evidenced increasing debt to H M Revenue & Customs (‘HMRC’) owed by the company. The Judge found that HMRC was used as a source of funds or working capital. The Judge found that that pointed to an inability to pay debts as they fell due. That was especially so when there was no evidence that the company had made any provision to pay PAYE or NIC.

The Judge found that on the evidence that there was no documentation at all in the company books and records to explain the payments. Absent clear independent or documentary corroborating evidence the Judge was unable to make a finding that the payments were remuneration as asserted by one of the directors.

The Judge concluded that the payments were gifts and consequently transactions at an undervalue.

COMMENTS:

The well-advised director will note the number of different ways in which a claim against them is likely to be pleaded. This maximises the opportunity of the office holder to succeed on one or other of the heads of claim and for an adverse costs order to follow against the director.

Insolvency is typically (as in this case) evidenced by reference (amongst other indicators) to the (increasing) debt to HMRC.

In addition, the case shows that absent documentation or evidence to the contrary that personal liability for transactions at an undervalue is likely to follow with the additional adverse costs consequences.

WHAT TO DO NOW:

If you are faced with worrying insolvency issues with your company, a claim for transactions at under value and/ or other worrying claims for personal liability please talk to me today.  That is in order to protect your position without delay.  The earlier that you speak with me on +44 (0) 1992 558411 the more that I can help.

I am a Hertfordshire / London based solicitor and a full member of the Insolvency Lawyers Association (‘ILA’). Membership of the ILA is a public mark from insolvency peers that a member has the requisite knowledge, skill and experience to advise you.

Until the next time...

THE DIRECTORS FRIEND


Director's Desk

The Director’s Friend and Director Disqualification – a testimonial received

Director's Desk
The Director's Friend

This blog post features a testimonial from a client who was faced with a substantial director disqualification investigation against him. The client was recommended to the Director’s Friend by their accountant to advise.

 

The investigation was wide ranging and included diverse issues such as:

  • Significant monies owed to particular trade creditors; and
  • Directors loans and benefits.

Outline of the Director Disqualification investigation:

The client was faced with a great number of questions from the investigator at the Insolvency Service that he was struggling with and getting worried about.

The Director’s Friend was able to help:

 This is the testimonial for the advice of the Director’s Friend:

‘I was faced with a wide ranging and detailed director disqualification investigation by the Insolvency Service. They were asking a great number of questions of me in respect of creditors and directors loans and benefits (amongst other issues).

 Richard was introduced to me by my accountant to advise. With Richard’s advice a detailed and lengthy letter of rebuttal, representations and answers was drafted and sent to the Insolvency Service. A further letter of enquiry was quickly answered by Richard. Shortly thereafter the Insolvency Service confirmed that they were not proposing to take director disqualification proceedings against me.

 I cannot tell you how happy I was with that email. This has been a really stressful period for me and I'm delighted with the result.

 I just want to say thank you very much Richard, I've been so impressed with you and your service.

 I would not hesitate to recommend Richard Cole (AKA the ‘Director’s Friend’) to you.

 JT, Kent, United Kingdom.’

 

If you or someone you know is the subject of a director disqualification, contact the Director’s Friend for help

 As the Director’s Friend, I was very grateful to receive this testimonial. It demonstrates the approach that the Director’s Friend takes with the experience and knowledge that the Director’s Friend can bring to bear for you in your corner.

 

My name is Richard Cole. I am a Solicitor who formerly worked at the Insolvency Service carrying out director disqualification investigations. I am now the Director’s Friend. Why not contact me to discuss on: +44(0) 1992 558 411. The earlier that you speak with me the more that I can likely help.

Until the next time...

THE DIRECTOR’S FRIEND

 

 

 

 

 


Debt Recovery

Changes to Debt Claims

Debt RecoveryThe Civil Procedure Rule Committee has introduced new rules in relation to debt claims which will be governed by Pre-Action Protocol for Debt Claims and will come into force on 1st October 2017.

The new Protocol will apply to any business, sole traders and public bodies who are claiming payment of money (debt or alleged debt) from an individual including sole trader. Therefore, the Protocol will apply to a sole trader making a claim against another sole trader.  However, this will not apply to business to business debts.

The aim is to encourage both parties to enter into early communication and exchange of information / documents regarding the debts. This will in turn enable the parties to resolve the matter without the need to start court proceedings.  The idea is also to be cost beneficial to all parties to engage in early pre-litigation communication.

A creditor is required to send a Letter of Claim detailing the agreement, issues and how the debt can be paid etc. The Creditor cannot issue court proceedings within 30 days of sending the Letter of Claim.  This is to allow the Debtor to review the Letter of Claim and prepare a detailed response setting out their issues etc.

The Court will take into account whether all parties have complied with the Protocol when giving directions for the management of proceedings. Therefore, failure to comply with the Protocol could result in the proceedings being stayed until the Protocol has been complied with, cost sanctions against the non compliant party or even the claim / defence being dismissed.

If you would like to discuss this further, please contact Sharon Matchwick or Rita Wright in our Debt Recovery Department on 01992 558 411

or email debtrecovery@breezeandwyles.co.uk


banking new

Food for thought – Director Disqualifications for Business Manager and Bass Player of UB40

This is the next article in a series by the Director’s Friend.

The Insolvency Service (‘IS’) confirmed in a recent press release that David Parker (‘Mr Parker’) (the UB40 business manager) and Earl Acton Falconer (‘Mr Falconer’) (the UB40 bass player) gave director disqualification undertakings to the IS with the periods of disqualification being 11 years and 4 years respectively.

Mr Parker is stated to have accepted that he breached his fiduciary duties as a director of the Reflex Recordings Limited (the ‘Company’) by:

“… deliberately and knowingly causing the dissipation of £252,980 of Company assets between 9 December 2013 and 18 December 2013, without making due provision for subrogated rights and/or claims of at least two creditors.

At the time, the Company was insolvent and Mr Parker knew about the subrogated rights and / or claims of the creditors against the Company.

Mr Falconer and separately a Mr Storrod (also connected with the band) also accepted that they were in breach of their fiduciary duties as directors of the Company by abrogating their duties resulting in or allowing the dissipation of the monies.

The Company’s assets consisted of the music catalogues of UB40 and the trade of the Company included receiving royalties in connection with the catalogues.

Susan MacLeod, Chief Investigator at the IS said:

‘In investigating insolvent companies, the Insolvency Service always looks very closely at individuals who demonstrate a disregard for creditors and appropriate action is taken where wrongdoing is uncovered.’

 THE DIRECTOR’S FRIEND COMMENTS:

 These director disqualifications go to show that you should be aware of your duties as company directors and that especially when a company is insolvent a director should carefully consider the interests of creditors and not dissipate the company’s assets. Appropriate legal should be sought to protect yourself from being disqualified from being a company director.

OTHER CLAIM RISKS FOR DIRECTORS:

If the conduct complained of had been dated from 01 October 2015 onwards then the well-advised director should seek and obtain legal advice upon their risk of the IS bringing Compensation proceedings against them personally for the benefit of creditors of the company in addition to director disqualification.

In addition, the Joint Administrators of the Company may also consider bringing proceedings to recover the dissipated funds from the directors personally. This claim could be brought as Misfeasance. This is where the director is alleged to have

‘… misapplied or retained, or become accountable for, any money or other property of the company, or been guilty of any misfeasance or breach of any fiduciary or other duty in relation to the company.’

THEREFORE:

Food for thought indeed! As your Director’s Friend, it can be seen that when you are first written to by the IS, an Administrator or a Liquidator that you should take immediate legal advice to protect your position to respond to such claims.

WHAT TO DO NOW:

My name is Richard Cole. I am a Solicitor who formerly worked at the IS carrying out director disqualification investigations. I am now the Director’s Friend. Why not contact me to discuss on: +44(0) 1992 558411. The earlier that you speak with me the more that I can help.

Until the next time...

THE DIRECTOR’S FRIEND


Director's Desk

The Director's Friend – Director disqualification and Compensation to Creditors(s)

In a my blog dated 21 December 2016 (see: http://www.breezeandwyles.co.uk/more-bad-news-for-directors-and-their-personal-liability/) I talked about the new risk to directors in the context of Director Disqualification investigations being that the Secretary of State can now also seek compensation from the director(s) where loss has been caused to one or more creditors of the company. That is for the benefit for that creditor or creditors.

AN UPDATE:

In a magazine aimed at Licensed Insolvency Practitioners (Dear IP) the Secretary of State (that is the Insolvency Service (the ‘IS’)) set out in broad terms what their approach is likely to be.

THE DIRECTORS EXPOSURE:

It would appear that the director at most risk of being subject to disqualification and concurrent compensation proceedings for personal liability is where:

  • Other remedies have either failed or for, whatever reason, are not available. For example, the Liquidator or Administrator failed or was for financial, legal or factual reasons unable to bring a claim;
  • The director has not made any other financial contribution in recompense for the misconduct;
  • The Liquidator, Administrator or the prosecuting authorities in a criminal referral have not indicated to the Secretary of State that they are bringing or contemplating bringing action against the director;
  • The Liquidator or Administrator have identified that the director has financial means. However, in which case the director should be mindful that any separate cause of action could be assigned by the Liquidator or Administrator to a purchaser of insolvency claims to be pursued; and / or
  • Creditors have not taken action themselves.

COMMENT:

Therefore, with the new compensation regime it is the case that a director of a company is now further exposed to further risk of personal liability.

The well-advised director should be mindful of whether or not they are exposed to a claim for compensation and should seek and obtain legal advice as soon as they are written to by the IS making enquiries about a company. This is important because the solicitor can advise you on where your financial exposure may lie and how to mitigate that.

WHAT TO DO NOW:

My name is Richard Cole. I am a Solicitor who formerly worked at the IS carrying out director disqualification investigations. I am now the Directors Friend. Why not contact me to discuss on: +44(0) 1992 558411. The earlier that you speak with me the more that I can help.

Why not sign up for my seminar - http://www.breezeandwyles.co.uk/the-directors-friend-helping-you-on-the-road-ahead/? Only a month to sign up now!

Until the next time...

THE DIRECTOR’S FRIEND