Kent Entrepreneur of the Year Banned for Creating False Documentation before Company Liquidation

The former Kent Entrepreneur of the Year has been disqualified as a director for 12 years after failing to maintain his award-winning performance. Alan James Proto (48), an accountant and director of GML Construction Limited (GML), received the ban for creating false documentation and inventing a scheme to defraud the company’s creditors.

The Kent Entrepreneur of the Year in 2012, has given an undertaking to the Secretary of State for Business, Innovation and Skills, not to act as a director of a company or take part, directly or indirectly, in the promotion, formation or management of a company or limited liability partnership until 2026.

The creation of fictitious documents

An Insolvency Service investigation found that Mr Proto, a chartered accountant, had created and backdated fictitious documents in an attempt to legitimise asset transfers worth more than £1million when he knew the insolvent company was going to enter into company liquidation.

GML Construction was incorporated on 23 August 1991, went into administration on 16 January 2013, followed by liquidation on 7 January 2014, with assets of £1,893,379 and liabilities of £4,463,599. Company liquidation is not unusual following administration usually when no way forward for the company can be found.

The investigation revealed that in anticipation of entering a formal insolvency process in December 2012, Alan Proto decided to create false documentation that would effectively put the company’s assets beyond the reach of his creditors.

The scam

At the time the scam was put into practice, GML was owed an estimated £898,000 from a subsidiary company involved in the sale of a property development. It was anticipated that GML would receive this payment in part or in full once the subsidiary had sold the development.

However, Mr Proto created entries on his computer which wrote off the outstanding debt due from the subsidiary to GML, instead transferring the debt to himself personally, effectively hiding the money from the company’s creditors.

Mr Proto’s fall from grace continued, as he then created fraudulent documents which purported to show that other people, who it was later discovered Mr Proto had never met or did not exist, had agreed to the transferral of this debt. The next step in the scam was to backdate any correspondence he did have in an attempt to corroborate his story.

The final act was the repayment of a £150,000 loan made by Mr Proto to GML, which was repaid before debts owing to any of the company’s creditors.

Unfortunately for Mr Proto, his handiwork was exposed when notes he had made about the scam on his computer were retrieved, despite his best efforts to delete them.

Mr Proto did not act in the creditors’ best interests

Welcoming the court’s decision to impose such a lengthy ban, Cheryl Lambert, the head of outsourced investigations at the Insolvency Service, said: “This is a very significant ban which reflects the severity with which the Insolvency Service considers director misconduct.

“Directors of companies experiencing financial difficulties have a duty to act in the best interests of their creditors. This must include ensuring the transparency of the company’s trading activities. Mr Proto’s conduct in the running of GML’s affairs fell short of the behaviour expected. In such cases, the Insolvency Service will use its powers to protect creditors and prevent directors from acting in this way.

Directors often assume it is fine to transfer assets from an insolvent company in lieu of money loaned to the company. This is simply not the case and we have had several instances of where this has happened in the past – often on the advice of accountants. Whilst we have a lot of respect generally for the accountancy profession they do often make terrible gaffs with the best intentions. It is worth remembering it is the director who is held accountable not the professional advisor.

In this case the accountant director clearly knew what he doing but did not count on the Insolvency Service doing their job. We often advise directors that the Insolvency Service is very underrated and will take action if they find misfeasance.

If you are an insolvent company director and want to continue to trade then you must seek professional help. Call 08000 746 757 to speak to someone you can trust. Or visit our dedicated Kent Insolvency Practitioners page here.

 

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