Disqualified Directors Jailed for Continuing to Control Companies

Two disqualified directors have been handed a combined custodial sentence of 13 months and a further disqualification of 12 years each after continuing to control a company while banned.

The convictions, handed down in Southwark Crown Court, were the result of an initial Insolvency Service investigation and a criminal investigation and prosecution by the Department of Business Innovation and Skills.

The two directors, Mr Brafman and Mr Singh Sandhu, were sentenced to eight and five months in prison, respectively. Mr Brafman pleaded guilty to acting as a director of three companies while disqualified, and a fourth as an undischarged bankrupt. Mr Singh Sandhu pleaded guilty to acting as a director of two companies while disqualified.

Multiple breaches

Mr Brafman and Mr Singh were originally banned from acting as directors in 2001 (for seven years) and 2003 (for eight years), respectively. Despite their disqualifications, the unscrupulous pair continued to act as the directors of multiple companies.

Between July 2005 and January 2008, Mark Brafman acted as the director of the clothing retailer Atlantic Fashions Ltd. On 8 January 2008, he also incorporated Acton Farm Ltd with Mr Singh, and ran the company with two employees registered as directors.

Just a couple of weeks after Acton Farm’s incorporation, Atlantic Fashions entered into a pre-pack administration. On the date of administration, Atlantic Fashion had unsecured debts of £5.77million. However, its goodwill and assets were sold to Acton Farm, free from debts and liabilities, for £337,487.

It was not long before Acton Farm, another clothing retailer, began to rack up significant debt arrears itself, and by 26 November 2008, all of Acton Farm’s shops had closed. The company entered liquidation the following month owing a total of £1.63million to its creditors.

And there’s more…

That was not the end of Mr Brafman and Mr Singh’s unsuccessful foray into ladies’ fashion. The pair formed another company, Jet Star Retail Ltd, which purchased assets from Northworld Ltd.

They ran this company together until October 2008, when Mr Brafman made his exit, leaving Singh Sandhu in sole charge. Just another month passed before Jet Star Ltd entered into administration with an estimated £ 9.775 million owed to creditors.

On 18 October 2008, Mr Brafman’s disqualification came to an end. He celebrated by incorporating yet another company, Primary Colours Ltd in January 2009. This company sold women’s fashion across three different sites in London; however, it was not long before the business started to fail, and on 25 June 2009, Mr Brafman was made bankrupt.

Mr Brafman’s bankruptcy automatically disqualified him from acting as a company director, but as before, he chose to continue running the business. Primary Colours Ltd was later wound up following a creditor’s petition, owing £289,432 to its creditors.

The charges

Following the prosecution by the Department for Business Innovation and Skills (BIS), Mark Brafman was handed an eight-month sentence on four offences to run concurrently. Bulbinder Singh Sandhu was sentenced to five months imprisonment with both offences to run concurrently.

A spokesperson for the BIS, said: “Mr Brafman and Mr Sandhu were both experienced businessmen who were clearly aware of the responsibilities involved in directing companies.

“BIS conducted a lengthy and thorough investigation to gather the evidence to put them before the criminal courts. This case should serve as a warning to anyone flouting the law governing the running of companies: you will risk investigation, prosecution, a criminal conviction, and imprisonment.”

Insolvency Top tips

• If you cannot pay your bills and you can see no way of improving matters seek professional insolvency advice from a turnaround practitioner
• Do not continue to trade whilst insolvent without professional insolvency advice
• Never act as a director or in a senior management role if you have been disqualified or are a bankrupt
• An individual who has influence over the direction or decision-making within a limited company can be deemed a shadow director and made accountable – they do not need a director title
• Statistically, you are more likely to be disqualified if you are compulsorily liquidated by your creditors than if you liquidate the company appropriately via a creditors’ voluntary liquidation
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