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Director disqualification: Get the details right

10th May 2012
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David Winch
By David Winch
10th May 2012 17:41

Acting whilst disqualified
There have been a number of cases of persons convicted of acting in the management of a company whilst disqualified where, following conviction for so acting, the prosecution have gone on to pursue confiscation proceedings under Proceeds of Crime Act 2002.

In such cases the 'benefit' has been held to be the net pay received by the disqualified person over the period he has been in breach.

In effect that means that the convicted person is ordered to pay into court the whole of the net pay he received whilst in breach of the disqualification.

The offence may also result in a finding that, for confiscation purposes, the disqualified person has a 'criminal lifestyle' (which can result in a substantially greater 'benefit' figure).

David

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By The_Saint
11th May 2012 11:18

Article Acting Whilst Disqualified

With cuts to Government Department spend and a reduction in investigations the likelihood of a miscreant director being punsihed, unless the offences are black and white, are remote.

The rate of detection, reporting and succesfull prosecution of CDDA offences is pitiful.

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Replying to David Treitel:
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By arprice
11th May 2012 11:50

Article Acting Whilst Disqualified

I agree totally with Saint - 1,400-odd disqualifications arising from 20,000 administrations and insolvent liquidations a year is very disappointing.

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By Romanista
11th May 2012 11:32

Ineffective reporting

Most insolvency practitioners openly admit that it is very difficult to prove that a directordeliberately acted in a way to knowingly prejudice creditors except in the most blatant cases.  That would suggest to me that only the very obvious cases get reported and many others are too difficult or expensive to substantiate. 

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Replying to Willow Warbler:
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By arprice
11th May 2012 12:00

Ineffective reporting

Romanista wrote:

Most insolvency practitioners openly admit that it is very difficult to prove that a director deliberately acted in a way to knowingly prejudice creditors except in the most blatant cases.  That would suggest to me that only the very obvious cases get reported and many others are too difficult or expensive to substantiate. 

On the contrary, our experience is that in the past we fairly frequently found cases we considered were suitable for disqualification, only to have them turned down by the vetting section of the disqualification unit. Some of these were, in our view, blatant however they were not pursued - often on what we considered particularly woolly grounds, such as not being "in the public interest". We have altered our reporting criteria to reflect the fact that some cases we think are worthy of disqualification do not accord with the Insolvency Service's apparently very strict criteria, and there is no justification in incurring costs at creditors' expense for no result.

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Replying to Kent accountant:
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By Romanista
11th May 2012 15:33

Thanks for keeping me right. 

Thanks for keeping me right.  I suppose that it is similar to trying to prove that someone who puts a bank account in a family pet's name does it deliberately to avoid tax.  The onus of trying to prove criminal intent is much more demanding.

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By The Minion
11th May 2012 12:05

Public Domain

I had a (thankfully ex) client who was disqualified.

when i tried to check how long the disqualification was for by going onto Companies House website he didnt appear as disqualified and still doesnt.

Having now found out, that he is to be prosecuted for acting as a shadow director i am now being told that CH isnt that accurate and to try checking on the BiS system!

It doesnt help if we are doing MLR checks on potential new clients (passport etc) and looking at CH to confirm directorship if the info isnt up to date.

Is there a place where all details are accurate and up to date?

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By The Rogue
11th May 2012 12:07

Can they still operate?

I am aware of one case where a disqualified director formed a new ltd company but made his wife a director.  He was on the payroll and, presumably, calling the shots.  As far as I know she did not have any relevant experience.  This one was being investigated by the DTI (at the time - I'm not sure what they are called this year) and they came to my company for witness statements.  I am also aware of a couple more cases where similar things were happening but they were not investigated as far as I know..  Should my company dob them in it?  We certainly refused to trade with them on credit.  The article does say they should not be doing this but how can it be proved?  Perhaps that is why the prosecution rate is low.

Another ex-customer went bust and the director immediately started up a new ltd company with himself as director but the record showed a different date of birth and the credit reference agencies hadn't made the link.  I don't know if Companies House had.  Is this another way of getting round a barring?

Is disqualification only applied to ltds and plcs?  The article says companies.  Could a barred director still trade as a sole trader or partner with no effective bar except the personal liability.  Which could be got round by becoming insolvent.

I suspect the unscrupulous director can still get round the rules but I don't have any ideas on how to improve things!

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By arprice
11th May 2012 12:31

Can they still operate?

The Insolvency Service has withdrawn the online search facility for both directors' disqualification and bankruptcy restrictions orders, although a bankruptcy search online should reveal if an individual is subject to a BRO.  We are therefore limited to only the Companies House information in respect of directors - which, presumably, is supplied by the Insolvency Service.

There is a "hotline" to complain about disqualified directors who are acting illegally - see http://www.bis.gov.uk/insolvency/Companies/insolvent-companies/complain-... In my view anybody who suspects a disqualified director to be acting in this way has a public duty to report it.  The Insolvency Service will no doubt pursue the matter with its customary level of enthusiasm.

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Replying to elvina:
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By The Black Knight
17th May 2012 10:52

Government department apathy

arprice wrote:

The Insolvency Service will no doubt pursue the matter with its customary level of enthusiasm.

Yep not really interested.

Neither are companies house (just use another name there) and most of what is filed at companies house is incomplete or incorrect.

P.S. The link did not work ?

 

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David Winch
By David Winch
11th May 2012 15:21

Reporting

Just to be clear, an insolvency practitioner has a duty in certain circumstances to report to the Insolvency Service on the conduct of a director / former director of a company.

An insolvency practitioner has a quite separate and additional responsibility to report under s330 PoCA 2002 / MLR 2007 to SOCA where he suspects a person may be engaged in money laundering.

In practice one would normally expect a statutory obligation to report under s330 to be triggered quite soon after appointment (because it is based on a suspicion - not on the results of an investigation) whereas a report to the Insolvency Service might be filed later (as an outcome of an investigation).

David

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By GACL
10th Jun 2016 14:57

Thanks for the article.

I am embroiled in a dispute with a customer. The statutory demand has been ignored and next step seems to be putting the co into liquidation.
However there may or may not be assets and I could be looking to the assets put back in.

My Q in relation to your article is : "No director shuld be punished for commercial misjudgement".

What does really mean? - in my case the client screwed up a contract and was negligent incompetent etc in the work involved in the contract yet I am on the end of the unpaid bill - which is significant.

Does this new legislation really provide any teeth?

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