The majority of people do not set up a company setting out to deliberately break the rules however there are some that do. Rogue director sanctions can have a huge impact on not just lifestyle but can hit home hard financially too. Fines are a common punishment for companies that break the rules, such as the so-called ‘marketing companies’ that make literally millions of cold calls. These operations can be set up relatively easily with little outlay on staff, equipment or premises. The directors then look to liquidation as a way of escaping paying their fines.

Thankfully, the UK has a strong insolvency regime and this has been made stricter in recent years to give insolvency practitioners more power to pursue rogue directors. Even companies that have stopped trading and been struck off in an attempt to avoid a fine can still be pursued for the penalty.

Investigating a company director’s conduct

It is the responsibility of the insolvency practitioner to review the conduct of the company directors in an insolvency situation. As part of their investigation, they can look at a director’s conduct for as much as six years before the insolvency took place. If there are criminal claims against the company, they can look back even further.

Once the review has taken place, the insolvency practitioner will then prepare a report on the director’s conduct which they submit to the Insolvency Service. If the report demonstrates unfit conduct, it is then down to the Insolvency Service, and the courts, to determine the sanctions the director should face.

What are the possible offences and sanctions?

The most serious sanctions for the worst acts of director misconduct are up to ten years imprisonment, a fine or both. This can be handed down for offences such as fraudulent trading, when an insolvent business continues to trade with the intention of defrauding creditors. This can include submitting misleading accounts or false invoices to show the company is in credit.

One step down is up to 7 years imprisonment, a fine or both. This punishment can be handed down for a wide range of offences, including:

• Fraud in anticipation of the company being wound up by. This includes:

– The fraudulent removal of property;
– Concealment of property or debt;
– False entries that affect the company’s affairs;
– Altering or making an omission in any document that affects the company’s affairs.

• A director keeping company property for their personal benefit that belongs to the company and should have been made available for the benefit of creditors.

• Destroying or falsifying the company’s books, or making a false entry with the intent to defraud or deceive. This includes any person who knows a false entry has been made.

• Understating or omitting the assets owned by the company in the company’s Statement of Affairs. For example, the director may significantly understate the assets owned by the company for their own benefit.

• False representation or fraud in order to obtain creditor consent in an agreement to wind up the company.

• Misconduct in the process of winding up the company. This includes:

– Failing to disclose company property;
– Not delivering up company property, documents or books;
– Withholding knowledge of a false debt;
– Preventing the company books and documents from bring produced once the winding up has commenced.

There are also offences for which rogue directors can face up to 2 years imprisonment, a fine or both.

These include:

• Transactions that defraud creditors. This includes transfers or any gifts of company property.

• There are also restrictions on reusing a company name that constitute an offence:

– Reusing any name used by a liquidated company for a period of 12 months; or
– Reusing any name which suggests an association to the liquidated company.

The final sanction the courts may choose to take is to impose a fine or ask for a repayment from the director for the benefit of the company’s creditors. In this case, the director can be made personally liable for a proportion of the company’s debts. This can apply to directors who:

• Fail to cooperate with the office holder or attend meetings when required.

• Breach of duty as a company director – the penalty for which is to repay, restore or account for the money or property lost.

• Continuing to trade despite the director or office holder knowing there was no prospect of avoiding insolvency i.e. wrongful trading.

• Transactions at undervalue – i.e. selling or transferring assets to an associated third party for less than their value.

Showing a preference to particular creditors by putting them in a better position than they would have been in insolvency.

How can we help?

At Company Debt we are here to protect you. If you are concerned that you could face a fine or be made personally liable for a proportion of the debts of your insolvent company, please call our directors’ helpline today on 0800 074 6757 or email: