What To Do When Threatened With Director Disqualification?
by Sumona Business 24 March 2022
Receiving a letter from the Insolvency Service as a director is no joke, especially if other parallel legal investigations are on the horizon. What makes it worse is that these letters, for some reason, typically arrive on a Friday afternoon, leaving the recipient to ‘stew’ over the weekend.
If you have been a director of a failed company, the chances of getting one of these letters are not low either, there were some 12,000 insolvencies in 2020, every one of them potentially causing one of these dreaded letters to be sent.
Why Are They Sent Out?
Before we go into what you have to do if you get such a letter, let us review what causes the Insolvency Service to send out the letter in the first place.
In most instances, the Director will have been considered to have done one of the following:-
- Misuse of Covid funding (about one or more of the Bounce Back Loans (‘BBL’s’), CBILS loans, Furlough funding, and PPE funding);
- Not keeping and maintaining and delivering up adequate company books and records to the Liquidator (some of these are also criminal law offenses carrying imprisonment as a sanction);
- Not paying taxes owed by the company to the Crown and not making required Returns to the Crown (for example, VAT Returns);
- Trading the company to the detriment of the Crown;
Fraudulent behavior in the insolvent company;
- Trading whilst insolvent;
- Persistently not delivering company Accounts and Returns to Companies House;
- Mis-using company money or assets (also known as Misfeasance);
- Acting as a Director whilst already prohibited from doing so (also, a criminal law offense) or assisting somebody to do that (‘aiding and abetting);
- Maintaining an overdrawn Directors Loan Account or (for example) repaying it ahead of the liquidation, in preference to the position of other creditors of the company.
And what do the Insolvency Service (IS) do?
The ‘IS ‘is a Government agency, which amongst other things:
- Looks into the affairs of failed companies and companies in liquidation, acting on reports of any Director misconduct.
- Investigates the conduct of Directors of companies who are subject to formal insolvency proceedings or have been Dissolved (a new development since in early 2022).
- Works to disqualify Unfit company Directors (‘unfitness’ is a broad concept) for a period of between 2 to 15 years, depending on the seriousness of the alleged conduct.
- Investigates and prosecutes company and insolvency legislation breaches and other criminal law offenses on behalf of the Business, Energy, and Industrial Strategy (‘BEIS’) department.
What Company Investigations Team Will Investigate Directors/Officers?
- Following formal insolvency proceedings or where a company has been dissolved without first entering into legal insolvency proceedings, where they receive information about a Director’s conduct (in one or more companies) that would make them unfit to manage a company if it were proven (our emphasis added), and
- Taking into account all circumstances of the case, a Court would be likely to make a Disqualification Order.
These powers are primarily civil and not criminal. If, however, the IS believes:
Every company or its officers are having committed criminal offenses or other regulatory breaches. The cases may be guided through their Criminal Investigation Team. The police, and a controller, along with other investigation agencies.”
The ‘IS’ powers to gather evidence and investigate are statutory and are part of this country’s legal framework for company law.
So, Receiving Notification of an ‘IS’ Investigation is a serious matter.
What To Do Next?
As you can see, there are many reasons one of these letters can be sent, most of them being triggered when a mandatory report from the Liquidator of the failed company is sent to the State.
The first thing is not to panic, as the fact that a letter has been sent does not mean that you are ‘guilty’ of any criminal or civil offense.
This is because, at this initial stage, all that the IS know is that something ‘does not look right and that they need to look into it in more detail. Basically, the ‘IS’ are complete strangers to what has occurred in the company.
Only the Director (who has ‘lived’ the story with its ups and downs) knows the entire history. Thus, it is vitally important that the Director’s story is communicated effectively and to the best legal advantage in response to the ‘IS.’
In short, it is vital that the ‘IS’ investigator understands all the circumstances of the case, and only the Director (with the proper legal support) can provide this. But it must be supplied in a relevant and coherent way, which is just where firms like Neil Davies and Partners come into play.
So, if you have received one of these letters and want to know what to do next, I would suggest that you check out https://www.ndandp.co.uk/director-disqualification/ they are sure to be able to help.
Conclusion:
Receiving a director insolvency service letter is a serious factor. But if you are facing this on your professional front, then the first thing which you must do is keep your mind cool. And there are always some certain issues which are affecting your reputation. But the first thing which you must do is analyze every aspect of the factors along with actual factors.
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