Two unrelated sexagenarian directors have been handed disqualifications by the High Court for trading whilst insolvent and abusing a position of trust.

The first of our two sixty-somethings who really should have known better is David Charles Allen (62), currently residing in Dubai, United Arab Emirates, who received an undertaking not to act as a director of a limited company for a period of 11 years following an Insolvency Service investigation.

A breach of trust

The investigation found that Mr Allen, the sole director of Work Legal-E Limited, a payroll services provider registered in Edinburgh, breached his position of trust by knowingly instructing the submission of a VAT return which was under-declared by £5 million. The company entered a creditors’ voluntary liquidation on 26 July 2013 with debts of over £43 million owing to HMRC.

On 2 June 2011, the company’s accountant informed Mr Allen that Work Legal-E Limited’s VAT liability for the final quarter of 2011 was £8,417,468. However, the company submitted an online VAT return for the quarter that disclosed a liability of £3,417,648. The company then settled the liability on the same day.

During a meeting on 10 and 11 April 2013, Mr Allen told HMRC he had chosen to under-declare the company’s VAT liability as he believed the company was ‘tight on money’. Despite this claim, reviews of the company’s bank statements showed that there were sufficient funds for full payment of the true liability owed for the quarter.

To make matters worse, Mr Allen had been the recipient of three company payments totalling £1,650,000 on 13 June 2011 and 19 August 2011, just months after the company was allegedly short of money. There is also no contractual evidence to support his entitlement to those payments.

Directors have a duty to their creditors

Welcoming the disqualification handed down by the High Court, Robert Clarke, Group Leader of Insolvent Investigations North, said: “Directors who put their own financial interests before those of customers and creditors damage confidence in businesses and are corrosive to the health of the local economy.

“This ban should serve as a warning to other directors tempted to help themselves first; you have a duty to your creditors and if you neglect this duty you could be investigated by the Insolvency Service and removed from the business environment.”

Trading while insolvent

The next company director who failed to fulfil his obligations at the helm of a limited company is Russell Gwyn Williams (61), the sole director of Bets Centres Ltd, a car repairer and MOT specialist based in Barry, South Wales.
Between 25 January 2013 and 14 August 2013, Mr Williams continued to trade despite entering a company insolvency. This was to the detriment of the company’s creditors, with additional liabilities of £106,097 incurred during this time, including £89,134 for PAYE/NIC and VAT. Mr Williams also personally benefited from transactions that took place while the company was insolvent.

A disregard for creditors

The result of Mr Williams’ blatant disregard for his company’s creditors was a seven-year disqualification following an investigation by the Insolvency Service, which prevents him from becoming involved in the promotion, formation or management of a company until 2022.

Commenting on the High Court’s decision, Sue McLeod, Chief Investigator of the Insolvency Service, said: “In investigating insolvent companies, the Insolvency Service always looks very closely at individuals who demonstrate a disregard for creditors and appropriate action is taken where wrongdoing is uncovered.”

Bets Centres Ltd was subject to a creditors’ voluntary liquidation on 14 August with estimated creditor liabilities of £373,803.

If directors continue to trade whilst insolvent then there are substantial risks that can hurt personally financially. If you need help or advice regarding your company’s financial situation call 08000 746 757.