Director disqualification: not just a tax debt issue

There is a perception within the industry that as long as tax debts are paid a director will generally avoid disqualification. The Insolvency Service only has a limited resource pool to pursue director disqualification, (hence the number of disqualified directors being roughly the same each year), and it is very easy, and requires less resource, for it to build a case through direct contact with HMRC. Recently however, there have been a few cases where directors have been disqualified for issues that are not strictly insolvency offences, but offences which relate to ‘activities which failed to promote the success of the business’. Here we outline some of these recent examples of non-tax related director disqualification cases.


4 cases of director disqualification that have nothing to do with non-payment of tax

Director disqualification #1: spam text messages

One of the more recent disqualifications of interest is the matter of Help Direct Ltd. The company made its money generating and selling marketing leads and would send out unsolicited text messages. It was issued with a £200,000 penalty after 6,757 complaints were received by the Information Commissioner’s Office. The company was unable to pay this debt and as a result, entered liquidation. 

The Insolvency Service pursued the matter because the director allowed the company to continue to accrue complaints despite repeated written warnings before a fine was issued. Commenting on the disqualification, Susan MacLeod, Chief Investigator at The Insolvency Service, said:

“In this particular case, the company had been warned by the Information Commissioner’s Office about sending unsolicited messages, and had been served with a notice requiring the company to comply with the law. Despite this, the company continued sending thousands of spam text messages which led to over 6,000 complaints from the recipients. Individuals who demonstrate such disregard for the law are clearly not fit to be a director of a company. Company directors should note that the Insolvency Service will take action to protect the public where directors have failed to adhere to the law.”

The director was disqualified for 6 years.director disqualification

Director disqualification #2: false advertising

In the case of Optima Energy Solutions Limited, one of the issues in question was the marketing material used to sell heating systems to domestic customers. The Advertising Standards Authority had become involved following a number of complaints that the heating systems they were selling and installing were not as energy efficient as advertised in the marketing information.

The company entered liquidation with almost £60,000 being owed to its customers. As a result of this offence and an ancillary offence in relation to lack of cooperation, the director was disqualified for a total of 7 years.
director disqualification

Director disqualification #3: illegal workers

There have been two cases at around the same time where directors have been disqualified for immigration offences. Under recent law changes there is a greater onus on employers to check the immigration status of workers before employing them.

The director of Rose Garden (UK) Ltd was disqualified from acting as a director for a total period of 7 years after his business was fined £100,000 for employing 5 illegal workers. The directors of M & Y Investments Ltd were each disqualified for 6 years after their business was fined £30,000 for employing two illegal workers.

In short, no matter how serious or small the offense, if a fine for employing illegal workers results in the company being placed into liquidation, it is likely the directors can expect to be disqualified for a significant period of time.
director disqualification

Director disqualification #4: misleading investments

Whilst the purpose of a company will be to make a profit this should never be at the expense of the general public. For those who have seen the Wolf of Wall Street it is clear that there is always someone out there to make money by selling ice to eskimos.

There have been a number of examples of this lately, summarised as below:

  • World Future Ltd and Cleartrade Ltd both were involved in the sale of carbon credits to the general public as investments via cold calling. These are complex investment products with no value at the level they were being sold.
  • Handmade Ltd secured investments to allegedly prepare film projects. However, the money was paid instead to family members.
  • On a slightly different tone, Go-Rise Ltd has been wound up in the public interest, with likely disqualifications to follow, for providing non-existent business listings and cold calling businesses. Representatives pretended to be from Google, selling businesses adword campaigns which would then not be provided.

 

The directors of these Companies have all received or are likely to receive lengthy bans for their offences of 12 – 15 years. Bans of this length are only given for the most serious of offences.

Final thoughts

It is clear that the range of offences directors are being disqualified for are far more wide-ranging than not just dealing with tax affairs. This is likely due to:

  • Recent changes allowing additional time for investigation with a view to disqualification of a director.
  • Increased cooperation between government departments: all of the above cited cases had some involvement from government departments meaning it is much easier for evidence to be prepared.

Directors should of course remember that as well as potential disqualification for offences which lead to the insolvency of the business, disqualification now also bares a financial penalty with compensation to the estate now being attached to disqualification orders.
Please contact us at business rescue expert if you have questions or need further advice on directors’ disqualifications.

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