Two Directors Pay High Price for Failing to Keep Adequate Company Records

The directors of a restaurant in Covent Garden and a computer supply shop in Cardiff have been disqualified for ten years and eight years respectively for failing to maintain adequate accounting records.

The first of our disqualified directors, Gurvinder Luthra, began trading as Pinnacles (UK) Limited in 2006 when he opened his first restaurant in Covent Garden. After some initial success, Mr Luthra opened his second London restaurant in 2010. Unfortunately, the second restaurant did not enjoy the same roaring trade as the first, and the company soon began to struggle with the substantial overheads generated by two London restaurants.

Due to mounting debts, the company ceased to trade in November 2013, and subsequently entered into liquidation on 18 February 2014 and an Insolvency Service investigation began following an adverse report.

The Insolvency Service investigation’s findings

The Insolvency Service investigation found that Mr Luthra had not only failed to keep accurate records but had also submitted false VAT returns and filed incorrect accounts. More specifically, the investigation uncovered the following:

• Pinnacles had deliberately under-declared the amount of VAT due on returns between September 2010 and May 2012 and did not file any further returns or make any payments to HMRC.

• From 1 September 2010 to the company’s liquidation in February 2014, Pinnacles received at least £334,456 (including VAT refunds worth £97,687) and spent £334,461, of which no payments were made to HMRC.

• Mr Luthra also failed to provide the liquidator with adequate accounting records when he was asked to do so, which made it impossible to establish the recipients of £23,900 from the company’s bank account or the reasons for these payments. There were also payments made to a former company director totalling £28,183.

• At the time of the company’s liquidation, Pinnacles owed at least £155,980 to HMRC.

Computer company boss ‘logs off’

The second company director to feel the wrath of the court is Mohamed Inam Anwar, the director of a company supply company in Cardiff, which entered into liquidation with liabilities of £492,790 owing to its creditors. Mr Anwar was subsequently disqualified from acting as a company director for eight years for failing to keep proper accounting records.

An investigation by the Insolvency Service found that the lack of proper accounting records made it impossible to determine whether £47,600 withdrawn in cash, £164,348 paid out in cheques, and £53,480 in transfers out of the company’s bank account were for legitimate business reasons. It was also impossible to establish why £90,975 was paid for machinery that was delivered to Pakistan. There was also no trace of any money made in cash sales from September 2012 to the date of the company’s liquidation.

Every director has a duty to keep adequate tax records

Welcoming the court’s decision to disqualify Mr Anwar, Sue MacLeod of the Insolvency Service, said: “Every director has a duty to ensure adequate records are kept of business transactions, and we discovered a lack of transparency in regards to what went on at Land of Computers Limited.

“As a consequence of the convincing evidence we presented to the judge, Mr Anwar has been banned from acting as a director for eight years. This means he cannot continue in business unless he chooses to do so at his own risk.”

In both cases, the directors failed to keep accurate accounting records and we do warn directors on a regular basis that they have a duty to do so – irrespective of the size of the company. Failure to keep accurate records is a risk anyway but when a company is subject to insolvent voluntary or compulsory liquidation the risks can leave directors very exposed. There are things you can do before entering into liquidation such as making sure all your records are up to date. If you are unsure how to go about this and considering liquidating call one of our team on 08000 746 757 who will be happy to help.

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