Getting tougher on Directors

Posted by admin - July 15, 2014 9:42 am Getting tougher on Directors

During 2013 there has been an increase of 25% on disqualifications made against Directors and with new proposals being planned by the then Business Secretary Vince Cable it seems that things are about to get tougher. Our current system is already one of the toughest whereby a director can be disqualified for up to 15 years but Vince Cable is proposing that Disqualified directors should also be personally liable to pay compensation.

Director conduct

As a Director you have a duty to act in the best interest of the company. Conduct matters that are looked into include continuing to trade while insolvent, not keeping proper accounting records, failure to prepare and file tax returns, acting as a Director while bankrupt and breach of Statutory obligations to name a few. Two directors have recently been disqualified for seven years for failure to keep proper books and records and failing to pay the company VAT bill!

Once you have been disqualified as a Director not only can you obviously no longer act as a Director but this extends to taking part, directly or indirectly, in the promotion, management or formation of a company. Therefore a word of warning if you decide to act as Director “in name only” and leave the company to be run by the former disqualified director you will be the one who will end up being disqualified by letting this happen!

Recent example

A recent disqualification order has been made against a Director who has been banned for 5 years for selling assets that did not belong to the Company. The assets were sold after they had been seized by the landlord. The Company was insolvent at the time of the sale and the funds obtained were not used on the general body creditors which included the landlord but instead went to pay specific creditors such as wages, the company accountant and solicitor and the prospective liquidator! All creditors of an insolvent company must be treated equally, in this instant some creditors were paid the full amount owed while at the detriment of the general body of creditors. It would appear that the Director did not personally benefit from these funds but can now only trade at his own risk!

This case highlights that obtaining and acting upon the advice of an Insolvency Practitioner can be crucial for Directors of an insolvent company.