SEPTEMBER 2016 - Director D Reporting
One of the duties of an Insolvency Practitioner (“IP”) in corporate insolvencies is to report on the conduct of the director prior to the insolvency event. The Company Directors Disqualification Act 1986 (“CDDA”) requires the IP to look at the conduct of directors, whether present or so acting in the previous three years prior to the insolvency event. This confidential report needs to be lodged with the Insolvency Service within 3 months, they then decide whether the directors subject to the report should be targeted for further independent investigation by the Government. Directors subject to this further scrutiny can be requested to sign a directors’ disqualification undertaking for between 2 to 15 years or can have a disqualification order awarded against them by the Court for between 2 to 15 years. This will prevent them from acting as a director of other or existing companies for the period of disqualification.
In April 2016 the process of submitting the director conduct report was streamlined and is now submitted to the Insolvency Service online.
As the IP is often dealing with uncooperative directors and incomplete books and records the duty to report can often be challenging and complex. However, the IP is only required to report matters deemed as unfit conduct in terms of the CDDA which the IP comes across in the administration of the insolvency process. This means that the IP should not become an undercover investigator!
Two recent cases are of note.
The first case involved a disqualification undertaking from a director being accepted by the Insolvency Service for a period of 6 years. This followed the appointment of Eileen Blackburn as Liquidator. This particular director had failed to co-operate with the Liquidator, transferred assets of the Company for no consideration and traded the company utilising monies that should have been set aside to pay crown taxes.
In the other case, Eileen Blackburn was appointed Liquidator over a company where it was evident that serious misconduct had occurred. Following Eileen’s detailed report to the Insolvency Service, the sole director was disqualified by the Court for a period of 12 years. The Company had been placed into liquidation at the instance of HM Revenue & Customs with a deficiency to creditors in excess of half a million pounds. The investigation itself took around two years to reach a conclusion. The director has been impossible to trace and had effectively gone into hiding, (it is suspected he was a front man for members of a wider criminal fraternity). The disqualification against him was due to long firm fraud, substantiated by documentary evidence from third parties and statements made by creditors of the Company. Some creditors to date are still unable to locate their leased assets as a result of their dealings with the director. Moreover, there was an outright disregard to his obligations as a director under the Companies Act 2006. We liaised with the Insolvency Service to bring the proceedings against this director to a successful conclusion which the Insolvency Service also deemed to be in the public interest. This will ensure this particular individual is unable to act as a director until at least the year 2028.
If you have any queries regarding the obligations around directors reporting in insolvency, please click here to get in touch with our team.