This week we take a look at wrongful trading and illegal corporate activities and the actions of three company directors, two of a taxi firm based in Middlesbrough, and one the owner a Lincolnshire restaurant, and the actions that landed them with lengthy director disqualifications and even jail time.
The first convictions follow an initial investigation and successful winding up petition by the Insolvency Service, followed by a full criminal investigation by the Department for Business, Innovation and Skills (BIS) into a taxi hire company – Thornaby Cars Limited.
The company’s two directors, Mr Arfan Ali Khan and Mr Gerard Burns, both from Middlesbrough, ran the company which traded as Royal Cars. The investigations followed the insolvency of the taxi company, and revealed a number of offences committed by both men.
The investigation’s findings
The initial investigation by the Insolvency Service revealed that both Mr Kahn and Mr Burns had been involved in unlawfully transferring £150,000 out of Royal Cars before it was wound up, but after it had become insolvent. The money was transferred to another company they controlled despite the fact that there were considerable amounts owing to HMRC for unpaid VAT.
Mr Kahn also continued to use the business name Royal Cars, even though the use of the name had been prohibited for a period of 5 years, commencing on 28 July 2010, following the winding up of the company on petition from HMRC.
Both Kr Kahn and Mr Burns were also found to have failed to maintain adequate accounting records to show the true financial position of Thornaby Cars Limited.
An abuse of the public’s trust
On 20 July 2015, Newcastle-upon-Tyne Crown Court sentenced Arfan Ali Kahn, aged 34, to a 16 month custodial sentence and disqualified him from acting as a company for a period of 10 years for his part in the running of Thornaby Cars Limited.
Gerard Burns, aged 69, was sentenced to 10 months’ imprisonment, suspended for 2 years, and was disqualified from acting as a company director for a period of 5 years. Confiscation proceedings are also ongoing to claw back the money the directors attempted to hide.
Welcoming the Crown Court’s decision, Simon Button from the Department for Business, Innovation and Skills, said: “We will take firm action when we find that company directors have abused the trust the public expect from them when they hold such a responsible position.
Both Mr Kahn and Mr Burns were clearly aware that the money belonged to the company and its creditors, and was not theirs to do with as they wished.”
Restaurant boss disqualified for hiring illegal workers
In the next example of a company director operating outside the law, we meet Grantham based Yuk Kwai Chan (aka Eddie Chan), aged 57, who received a six-year disqualification for employing an illegal immigrant in his restaurant in Stamford, Lincolnshire.
The illegal worker was discovered after the restaurant was visited by the Home Office’s Immigration Enforcement Team in 2014. Following the discovery, Mr Chan gave an undertaking to the Insolvency Service not to be involved in the management or control of a company until 2021.
Commenting on the case, the head of company investigations at the Insolvency Service, said: “The Insolvency Service rigorously pursues directors who break employment and immigration laws. Taking on staff illegally means those staff do not enjoy basic employment rights and is a clear breach of a director’s duties.
“The public has a right to expect that those who break the law will face the consequences. Running a limited company means you have statutory obligations as well as protections, and this should serve as a warning to other directors tempted to take on illegal staff.”
Thankfully the vast majority of directors do not behave in this way but wrongful trading is often misunderstood and does not mean a director is trading illegally as such. Quite often advice provided by an accountant is provided with the best intention but often inappropriate when the company is insolvent.If your company is insolvent and you are unsure whether you are trading wrongfully then call 0800 074 6757 for free no strings attached advice.
Written by: Mike Smith