Insolvency investigation? Get the knowledge here..
There are certain government departments which have the ability to strike an irrational fear into the hearts of the most rational of people. HMRC is one of them, the Insolvency Service is another. Should an investigation by either agency lead to a negative outcome, the consequences can be severe but it is worth remembering that these agencies are not out to trap people who have made genuine and minor mistakes. They are looking for instances of deliberate and more serious wrongdoing. Having said that, forewarned is forearmed and a little understanding can go a long way to relieving stress and fear, so here is a short guide to what directors need to understand about the insolvency service.
The Insolvency Service is a civil agency, not a criminal one.
If the Insolvency Service finds evidence of criminal activity, then it can pass this information on to the police, but in and of itself the insolvency service is unable to press charges under criminal law, which means that its investigation can only lead to civil (read financial or commercial) penalties rather than a prison sentence.
An investigation by the Insolvency Service can be triggered automatically
If a company is placed into compulsory liquidation, then the Insolvency Service will automatically investigate the circumstances which resulted in this. In essence they will look at the company’s financial history and analyse it to see if the directors acted reasonably in the context of what they could be justifiably expected to know at the time. As a part of this process, they may interview company employees at any level (officers and directors are particularly likely to be asked to respond to questions) as well as external service providers such as lawyers and accountants.
There is a difference between lack of judgement and unfit conduct
As the old saying goes, hindsight is always perfect and there is nothing particularly unusual about an investigation determining that directors might have brought about a better outcome had they acted differently on one or more occasions, but this, in and of itself is not necessarily unfit conduct. Unfit conduct essentially boils down to actions (or lack of actions) which are either obviously negligent or which amount to an individual feathering their own nest at the expense of others. This is essentially the allegation currently being levelled at (Sir) Philip Green regarding his role in the collapse of BHS, hence the interest shown by MPs and other regulatory bodies.
Politeness and promptness are generally beneficial
Generally speaking in life a smile opens more doors than a frown. Whatever your opinion of the Insolvency Service and whatever your view of their investigation (and indeed of their representatives personally) the fact is that they have a job to do and any behaviour which hinders them from doing it, or which simply is discourteous to them personally, is likely to be, at best, water of a duck’s back and at worst could have repercussions for the individual in question. It’s worth noting that lack of cooperation with an investigation can, in fact, be considered evidence of unfit conduct. It’s also worth remembering that the sooner the investigators get the information they need, the sooner the investigation will be completed and, all being well, the sooner everyone concerned can get on with their lives.
Getting the right advice as soon as possible can make the difference between stress and serenity
While it’s generally fair to say that those who have nothing to hide have nothing to fear, it’s also fair to say that those who get the right advice are in the best position to get the best outcome for them, even if that’s something as (relatively) simple as just getting the investigation over and done with as quickly as possible. If a company is starting to struggle, then it’s best to seek advice from an insolvency practitioner as soon as this becomes apparent, but, as the old saying goes, better late than never. If you are struggling to keep your business on track, contact our team today for a free, confidential discussion.
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I'm Jamie Playford and I'm a Licensed Insolvency Practitioner with 20 years’ experience of working in the insolvency sector throughout East Anglia and London. I am a member of the Insolvency Practitioners Association and R3
I have worked for many of the...