Here are five facts that will help any Director facing Disqualification.
The first thing to say is that as it stands at the start of 2023, Director Disqualification cases are likely to continue to rise.
Director Disqualification Investigations (‘DDI’) and Director Disqualification Proceedings (‘DDP’) are both brought by the Insolvency Service, but the good news is that they will not always be proven if the right investigation and defence are put into place.
This can be seen by the number of times the Insolvency Service withdraw and abandons cases when persuaded there is no case to answer.
Here are Five Facts that could help and Director facing a DDI or DDP.
- Allegations of Unpaid Crown Debt or Unfit Conduct
Legal firms like Neil Davis and Partners keep a careful eye on the reasons the Insolvency Service bring such cases, at a case-by-case level.
- Unsurprisingly the IS bring the majority of claims against directors that fail to pay HMRC all that they are due when a business is liquidated.
- The good news is that there are things any director can do to counter such allegations both before and after the case is brought.
- Some Other Reasons the IS Bring Cases
Bounce Back Loans
There is little doubt that some BBLs were improperly applied for and that these funds were misused, thus every liquidation where a BBL was provided is subject to some level of investigation. However, the result is not automatically going to be against the Director.
Failure to Maintain / Preserve / Deliver Adequate Records
In another area of unfit conduct, the High Court has confirmed that these allegations will be made if the Director has no reasonable reasons for not supplying the Liquidator with all the required accounting records. This especially is the case where the lack of documentation seriously hampers the Liquidator from finding the true state of the financial affairs of the company in question.
Paying Creditors in an Unfair Manner
This occurs when some creditors are paid in what appears to be an unfair manner, particularly if there is a connection between the Director and supplier.
Excessive Payments
If it is found that a Director was drawing too much from the business before it became insolvent, then again the IS may believe there is a case to answer.
Incorrect Use of any Deposits Made By Customers
This issue is one that the IS are especially likely to home on to, so any reasons for this conduct must be correctly documented.
Failure of Control
If a business fails and this can be traced to any Director not properly controlling the company, it is likely to cause an investigation.
Dishonesty or Fraud
This type of action will always attract the attention of the Insolvency Service and is one that needs special attention and a careful defence.
- Investigations by Both The Liquidator and The Insolvency Service
Whilst this is quite common, the fact is that it is vital to deal with both in an equal manner, as they both have different remedies. Whilst the IS may be happy with just securing a director disqualification, the Liquidator could well be seeking funds from the Director on a personal level.
- Directors Have Options
Directors will always receive a Letter Before Action if the IS decides that disqualification is to be sought. This is the time to make their case in detail, either in person or by supplying detailed documentation. This may result in the allegation being withdrawn.
Then again the Director could just admit to the case, this being the least expensive option and can result in a lower period of disqualification.
The final option is to defend the case. However, this route should only be taken if the Director is willing to cover the costs whilst also understanding the additional dangers that litigation brings.
- Compensation Orders
If a Director is Disqualified, then it is possible that they can also be pursued by any creditors that have lost money.
Conclusion
There is a lot to consider if a Director Disqualification Investigation or Director Disqualification Proceedings are raised, and in every case, the best course of action is to contact an expert legal firm like NDandP.co.uk
