Figures recently published by the Government’s Insolvency Service show a growing number of company directors being disqualified for misconduct in running their companies.
Disqualification means that, not only is the individual concerned banned from being a director for the period of the disqualification, but also that he cannot, for example:
• Be involved in forming, marketing or running a company
• Be a member of the board of a charity, school or policy authority
• Be a pension trustee
• Be a registered social landlord
• Practise as a solicitor, barrister or accountant, nor be authorised as an insolvency practitioner
Last year, 1,299 directors became subject to disqualification orders made by the Courts or gave undertakings not to take part in managing companies for a specified period of time (undertakings have the same effect as Court orders). That was the highest number since 2010. The average length of a period of disqualification was 7.5 years, where the order was made by the Court, or 5.2 years when the disqualification was by an undertaking.
By far the greatest numbers of disqualifications were for unfair treatment of the Crown; in other words, not paying PAYE or VAT. This was a factor in more than half of cases.
The next highest categories were accounting matters (usually failing to maintain or preserve accounting records), followed by transactions to the detriment of creditors. Such transactions would include continuing trading and incurring losses when there was no realistic prospect of the business returning to profit, as well as preferences, transactions at an undervalue and void dispositions.
The message is clear. Whenever a business is underperforming or losing money, the directors need to exercise extreme caution, especially if continued trading requires extended credit from suppliers and particularly if it involves delaying payments to HMRC.
We’ll repeat our usual mantra – take advice and take advice early. At tri group we have a team with decades of unrivalled experience. There are few issues that we haven’t seen several times. We don’t charge for an initial discussion, yet it could be one of the most valuable business conversations you’ll ever have.