Directors Pay the Price for Breaching CVA

Two more directors have felt the full force of the Insolvency Service after breaching their respective insolvency arrangements. The first director has received an eight-year director disqualification for entering into transactions that were detrimental to his creditors while undergoing a Company Voluntary Arrangement (CVA). The second has been handed a nine-year bankruptcy restrictions undertaking for failing to disclose assets to the official receiver.

Eight-year disqualification for portable appliance tester

Michael Jon Devlin, the director of Nationwide Electrical Safety Ltd, is the second director of the company to be disqualified for failing to keep proper books and records, and for causing the insolvent company to enter into transactions that were detrimental to its creditors.

An Insolvency Service investigation found that Mr Devlin (aged 39), and Matthew Paul Adamson (38), had delivered up inadequate accounting records and breached the terms of a Company Voluntary Arrangement (CVA), which the company entered into on 20 April 2010.

At the time, the Statement of Affairs attached to the CVA proposals and signed by Mr Adamson, recorded the company’s liabilities as £711,643, of which £523,269 was owing to HM Revenue & Customs.

However, despite the terms of the CVA, Mr Devlin and Mr Adamson entered into transactions that were to the detriment of their creditors from which they both benefited.

A responsibility to discharge their duties properly

In the course of its investigation, the Insolvency Service was unable to establish and verify the purpose of payments totalling £572,511, made from Nationwide Electrical Safety’s bank account to three companies connected to both directors. It was also unable to identify the purpose of payments totalling £414,952, which were paid either directly to both directors, or contained the payee reference ‘Directors’.

From these payments, sums totalling at least £582,752 were paid in the three months before the company’s liquidation, after it had ceased making payments to HMRC in accordance with the terms of the CVA.

Commenting on the court’s decision, a spokesperson for the Insolvency Service, said: “Directors have a duty to ensure their companies maintain proper accounting records, and, following insolvency, deliver them to the office-holder in the interests of fairness and transparency.

“Furthermore, directors must act in the interests of creditors and in transferring these funds to connected companies at a time other creditors were outstanding, they have breached the duties directors must adhere if they wish to retain the benefit of limited liability.”

Bankruptcy restrictions for director who failed to disclose assets

Richard Michael Clarke (56) also felt the wrath of the Insolvency Service, receiving a nine-year bankruptcy restrictions order after failing to disclose his full assets to the official receiver at the time of his bankruptcy.

The Insolvency Service investigation found that Mr Clarke had been declared bankrupt on his own petition on 29 February 2012, and discharged from bankruptcy on 28 February 2013. However, In August 2014, it came to the attention of the official receiver that Mr Clarke had not fully disclosed all his assets at the time he presented his bankruptcy petition.

At the time of his bankruptcy, it was found that Mr Clarke had failed to disclose £53,891 of equity in a property and investments valued at £23,600. Furthermore, Mr Clarke sold his investments for £27,784 and made a £10,000 lump sum mortgage repayment, while also giving an associate £16,050 for no consideration.

Bound by bankruptcy restrictions until 2022

The court found that as a result of the documentation given to Mr Clarke at the time of his bankruptcy, he ought to have known that he was legally obliged to provide details of all his assets to the official receiver.

As a result of the undertaking given to the Secretary of State for Business, Innovation and Skills, Mr Clarke will now be bound by bankruptcy restrictions which usually last 12 months – until 2022. He is also not permitted to manage or control a company during this period.

Welcoming the decision, a spokesperson for the Insolvency Service’s official receiver’s office, said: “The Insolvency Service always looks very closely at individuals who disregard their duties and responsibilities whilst bankrupt and takes action where wrongdoing is uncovered.”

CVAs can provide a perfect solution for company insolvency in the correct circumstances. Directors, however, must take on board the proposal terms in a company voluntary arrangement as they are enforceable. Directors must be conscious of their responsibilities to the CVA creditors at all times.

To discuss a company voluntary arrangement and see how it may benefit you call 08000 746 757.

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