Insolvency law – why rogue directors trying to avoid fines face a rocky ride

By Andy Curry, Enforcement Group Manager.


In my blog of April 25, I explained that of the 19 fines we’ve issued since April 2015, we’re still actively pursuing nine that have gone into liquidation or have not paid.

One of the nine being actively pursued is Reactiv Media Limited and I can today confirm that, along with other creditors, we voted to appoint insolvency practitioner Griffins to manage Reactiv Media Limited’s liquidation proceedings.

I asked Vaishali Sandhu from Griffins to explain the role of an insolvency practitioner and show why directors looking to dissolve their company to get off the hook face a rocky ride:

“In recent years the UK insolvency landscape has changed to enable insolvency practitioners to pursue rogue directors more effectively.

The job of the insolvency practitioner is to review the conduct of a company’s directors before the business became insolvent. That investigation can look at the directors’ action as much as six years before the insolvency, and even further if there are criminal claims.

Following the review, the insolvency practitioner will prepare a director report which is to be filed with the Insolvency Services, and if the report demonstrates unfit conduct, the director can face serious sanctions:

Possible offences and sanctions include:

Up to ten years imprisonment, a fine or both:

  • Fraudulent trading where the business continues to trade with the intent to defraud creditors. This can include admitting misleading accounts and false invoices to show the company is in credit.

Up to 7 years imprisonment, a fine or both:

  • Fraud in anticipation of winding up. This includes:
    • Concealment of property or debt
    • Fraudulent removal of property
    • False entry in a book or paper affecting the company affairs
    • Fraudulently parting with, altering or making omission in any document affecting the company’s affairs.
  • Any person who has been privy to or ‘in the know’ that any of the above was happening in anticipation of winding up or after winding up had started is also committing an offence.
  • Keeping company property. For example, a director retaining assets for his own personal benefit that belong to the company so should be available for creditors.
  • Misconduct in the course of the winding up process such as:
    • Failing to disclose company property
    • Not delivering up company property, books or papers
    • Withholding knowledge of a false debt for proving to the liquidator
    • Preventing the company books and paper being produced after the commencement of the winding-up.
  • Officer or contributory destroying or falsifying the company’s books. This also includes any person who knows there’s been a false entry in the company books with the intent to defraud or deceive.
  • Making a material omission from a statement relating to a company’s affairs. This relates to the company’s Statement of Affairs where, for example, the director may have significantly understated the assets owned by the company.
  • False representation or fraud for purpose of obtaining creditors’ consent to an agreement in connection with winding up.

Up to 2 years imprisonment, a fine or both:

  • Transactions that defraud creditors. That includes gifts or any transfer made of the company’s property.
  • Restrictions on re-using the company name including:
    • a name by which the liquidating company was known at any time in that period of 12 months or
    • a name which is similar to the liquidating company name which suggests an association to that company.

A fine or repayment:

  • Failing to co-operate with or attend on the office holder when required.
  • Misfeasance or breach of duty:
    • This applies to any person involved in the managing, running or dealing with the operation of the company.
    • The penalty would be to repay, restore or account for the money or property lost.
  • Wrongful trading – the director or shadow director knew or ought to have concluded that there was no prospect of avoiding insolvency.
  • Transactions at an undervalue – a gift or a transaction made for significantly less than its value.
  • Preferences – where the director is influenced by the desire to put a particular creditor in a better position than they would have otherwise been as a consequence of insolvency.”

So, even companies that have stopped trading or try to get themselves struck off cannot escape. We will do everything within our power to recover fines on behalf of taxpayers and those millions of people who have been hounded by unwanted calls.

andy-curryAndy Curry heads the team that enforces the Privacy and Electronic Communications Regulations. As well as cracking down on nuisance calls, his team investigates companies behind unwanted texts and emails and takes action when needed.

Last updated 16/5/2016 16:00

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One Response to Insolvency law – why rogue directors trying to avoid fines face a rocky ride

  1. Reblogged this on 121prodata and commented:
    This starts to address a big issue of company directors breaking the law and then putting their business into liquidation. Let’s hope they can’t escape the law.

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