The Insolvency Service had been investigating the group headed up by Charles Gordon who falsely claimed his music and property empire to be around £50m. Mr Gordon had a string of limited companies that had been dissolved including: 1st Property Services UK Ltd, Property Power UK Ltd and Refined Property Services and all had been set up in such a way as to be confusing. The confusion element was relevant as one, or more of the companies continued to trade as Credence Property Services and operate from a property in Catford; South London.
In addition to the property services companies there was a property development company which traded in lettings and property investment called Credence Limited, Ashingtons Ltd, Piper London Ltd and Refined 1 Limited. There was a music business which traded via Genetic UK Ltd. Genetic Records Ltd and Music and Fashion Ltd.
Director used a string of aliases to avoid detection
Charles Gordon used a string of aliases to avoid detection and create further confusion over who owned and managed what, but in the end, the Company Investigations unit of the Insolvency Service caught up with him. Chris Mayhew made it clear that Mr Gordon had systematically abused the corporate and insolvency system in the UK over a considerable period of time. Mr Mayhew also made it clear the Insolvency Service “Will act when we discover there are serious failings, as here, in particular by confidence tricksters such as Mr Gordon”.
Mr Gordon did not operate alone and a number of individuals were also accused of a string of offences which will be investigated now by the Official Receiver. Numerous reasons were given for the Insolvency Service’s decision to instigate the winding up petition including; but not exclusively, lack of cooperation, abandonment, lack of transparency, filing false accounts and a breach of the Companies Act 2006. Despite some of the limited companies actively trading with £10m in revenues, thousands of transactions and £9m in property assets the company filed dormant accounts, so gave a false accounting position to Companies House and other government bodies, such as HMRC.
This was later discovered, and the court has accepted that legally, although not named as director in every case, he was the driving force behind the companies and as such, he was a shadow director and an undischarged bankrupt. This is likely to mean other charges may be brought against him, also.
There are numerous learning points in this case and here are some of them:
By filing dormant accounts, Mr Gordon was in effect saying that the limited company has not started to trade, as no revenues have been taken or accounted for. A director has a legal obligation to file accounts at Companies House and failure to do so can lead to a criminal offence and or fine up to £5,000 under the Companies Act.
Control of a Limited Company (Shadow Director)
Mr Gordon was in control of the companies and despite not having a director’s title this is irrelevant within the Insolvency Act 1986. Any individual who has sway, or control over company decisions and, or finances may be seen as what is termed as a ‘shadow director’, and this means that they will be regarded as an acting director; even though they hold no title as director.
An undischarged bankrupt is not allowed to hold the position of director, so he is very likely to be in breach of the Insolvency Act 1986, which in itself is a serious offence.
Lack of Cooperation
Any director is subject to investigation by the official receiver when entering compulsory liquidation and the director has a duty to cooperate. As part of this duty a signed statement of affairs must be provided by the director and failure to do so is a criminal offence under the Insolvency Act 1986. They must attend meetings as required and provide whatever documents are required by the official receiver. The failure to cooperate can result in a fine and disqualification for up to 15 years for the most serious offences.
The official receiver will invite Mr Gordon to attend a two hour interview where the conversation will be recorded and he must take documents as requested by the official receiver.
The official receiver will also investigate the actions of the acting directors and Mr Gordon and seek out wrongful trading which, in fact, means to trade irresponsibly. In this case, there appears to be ample evidence of wrongful trading and Mr Gordon, if found guilty, can be made personally liable for the business debts accrued in the period when he traded wrongfully. There was a clear lack of transparency and the companies, though legally independent, were operating purely as a vehicle for Mr Gordon as they were using one limited company to pay another’s costs.
This term usually refers to the last remaining director of a limited company resigning, leaving the company without an acting director. By abandoning the limited company it is not only a breach of the Companies Act 2006, but also leaves the directors open to the same situation, had they been liquidated; so abandonment is rarely a good idea.
This case may be an extreme insolvency example, nevertheless I’m sure that there are learning points for those directors who are under extreme pressure and tempted to let themselves be wound up; not cooperate, or tempted to simply walk away and let the company ‘sort itself’ out. The vast majority of directors are decent, hard working individuals who want a better life for themselves and their family, and do not want to let the creditors down.
An insolvent company needs to be handled with due-care and attention for the creditors and any director deliberately abusing the system can expect the full weight of the law to swing into action.