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Liquidation2

We’ve all seen multiple examples of it on social media especially, people will gleefully share false news and images that a simple check of the BBC or other reputable news site could tell them is not true. 

Received wisdom and advice can be harder to disprove than this so we find it annoying when we hear false and wrong advice passed off as something credible. 

One example we’re sadly hearing a lot about recently is the idea that companies with debts, including bounce back loans, business rates and VAT arrears, can simply dissolve themselves and these obligations away into thin air. 

Usually sensible people have been taken in by this one in particular - we even had a good client ask us “why should I pay for my company’s liquidation? Can’t I get it for free if it’s struck off?”


Why are businesses with outstanding bounce back loan borrowing being stopped from closing down?


The main reason why you should consider a voluntary liquidation rather than a strike off is because of the directors investigation aspect. 

The liquidator has to investigate the conduct of the directors in the lead up to the liquidation as a mandatory part of the process but if you have done everything in your power to keep the business running and have kept your records in good order then you’ll have nothing to worry about. 

Even if, in hindsight, you’re worried about how a couple of your decisions and actions might be viewed, you can explain the circumstances and rationale to the liquidator and if you can provide supporting evidence, they will be quite likely to accept your version of events and say so in their report to HMRC. 

The same doesn’t apply for directors who try to strike off or dissolve their company with outstanding debts - whether they be bounce back loans, CBILS, VAT arrears or other tax payments they owe. 

The rules about striking off are very strict and explicit - no company with debts can be struck off. 

But this doesn’t stop some unscrupulous business owners from trying to dissolve the firm to avoid their obligations - or honest directors that have received some bad advice and been told that this is possible.

There’s a new law making its way through parliament at the moment - the Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill - that will give dishonest directors some pause for thought. 

Right now director disqualifications can be implemented for clear offences such as falsifying records and taking money out of an insolvency business. 

Any attempt to defraud HMRC by deliberately avoiding paying bounce back loan debts for example, would also very likely lead to disqualification.

The HMRC have held their fire considerably during the pandemic and subsequent lockdown periods because of the unique situation a lot of otherwise viable and profitable businesses found themselves in.

Things are changing as more industries begin to trade without restrictions, HMRC and The Insolvency Service will also be moving up the gears to begin recouping some of the historic levels of support paid out. 

One way they will do this is by using new powers given to them by the bill that allows retrospective investigations and actions to be taken against directors for the first time if they’re found to have dissolved their company with outstanding debts. 

Company strike offs and dissolutions will be examined to see if any were carried out with outstanding debts and if discovered could lead to punishments including fines, disqualifications of up to 15 years and personal financial liability to settle the debts placed on the directors. 

Business Secretary Kwasi Kwarteng said: “We need to restore business confidence and people’s confidence in business. 

“This is why we won’t hesitate to disqualify directors who deliberately leave employees and taxpayers out of pocket. Extending powers to investigate directors of dissolved companies means those who have previously been able to avoid their responsibilities will be held to account.” 

Chris Horner, Insolvency Director with Businessrescueexpert.co.uk, sets out the likely scenario.

“The new legislation is clearly aimed at those directors who thought they’d be clever and try to dissolve their companies to avoid paying their creditors - including HMRC.

“Directors who’ve done the right thing and liquidated their companies voluntarily through a creditors voluntary liquidation (CVL) or other process don’t have anything to worry about from the bill. 

“Dissolution or striking off a company is a cheap and efficient way of closing a dormant or debt free business and thousands of businesses do it every year. 

“It’s the small minority of directors who thought it was a great way to dodge their debts that should rightly be dreading a letter, email or increasingly possible from the end of September - a knock at the door. 

“An important point to make for businesses that legitimately took out bounce back loans or CBILS borrowing is that they aren’t HMRC’s primary target either.

“ As long as they have kept records and documentation or other evidence that supports their explanations on how the money was used, why they borrowed it, how their business functioned during the pandemic then they can be confident that they can answer any questions fully and convincingly. 

There are several other good reasons why you should be happy to liquidate your business voluntarily:

You can take advice and pick the insolvency practitioner choice of your choice to oversee the process and guide you through the issues and requirements. 

If a company goes into liquidation any personal guarantees directors have given on debt will crystallise - becoming payable immediately. A liquidator will help you create a plan to deal with this situation. Similarly, a liquidator has a duty to recover any funds owing from overdrawn directors loan accounts and can advise ahead of time the best course of action to deal with this eventuality.

A liquidator can advise on the redundancy procedure for existing staff and/or the transfer of existing staff to a new business (TUPE). 

One often overlooked but important detail is that directors who have been paid via PAYE are also eligible for redundancy payments. 

The liquidator can advise the best way forward to access what could be some vital income - especially as it may be possible to use it to finance the liquidation process with the proceeds.

There are a lot of things that have to be done correctly in a liquidation and it can be easy to lose track of them, especially if your attention is being pulled in several different directions. 

The liquidator will keep you on track of what needs to be done, how and when including the sale of assets, transfer of leases and several other requirements.

Topics such as liquidation and dissolution can be stressful at the best of times but even more so when sanctions such as disqualification and being made personally liable to repay any debts your company was closed down inappropriately or deceitfully. 

The vast majority of businesses that have closed down in the past two years have nothing to worry about. They did their duties to the best of their ability and made the difficult but ultimately correct decisions to close their companies down.

Several others might now be in a similar position and are nervous that although the correct decision is to liquidate the business, this wouldn’t be the end of matters for them or the company. 

We can reassure them in one conversation. 

After a free initial consultation with one of our expert advisors, directors will have a far clearer idea of what options they have to close or restructure their companies, the costs involved and what the likely timescales will be. 

Then, for the first time in a while for many, they will finally be able to see an end to their problems and be able to think of new beginnings instead. 

Train

The bounce back loan scheme was a success for many of the businesses who took them out. 

They helped them to keep trading or to support themselves and their employees whilst locked down and unable to function normally. 

The final official borrowing figures released by the government earlier this year showed that over 1.5 million bounce back loans had been granted for a total of £47 billion - all guaranteed by the government. 

Over 44,000 north east businesses took part in the scheme, borrowing an average of £26,751 each or £1.2 billion collectively - an amount equivalent to the cost of building fifty brand new stadiums the size of Sunderland’s Stadium of Light. 

27.5% of north east businesses, over one in four, applied for bounce back loan financing, which was the highest demand in the country. The average amount loaned however was the lowest amount - some £7,000 less on average than a London-based business which saves an average borrowing figure of £33,480 per loan - the highest average amount in the country.

Earlier this year, BusinessRescueExpert.co.uk conducted an investigation into the risk of defaults around bounce back loan borrowing done by businesses. 

In the North East they found that even under the official best-case scenario, approx. 15% of loans would remain uncollected. That would be 6,729 in our region - with a total of £180 million remaining unpaid.

At around the same time we published our results, the Department of Business, Energy and Industrial Strategy (BEIS) announced that they would begin to enforce bounce back loan debt recovery imminently but carefully. 

Business Secretary Kwasi Kwarteng wrote that: “HMRC would adopt a cautious approach to enforcement of debt owed to government that will have accrued” and that HMRC would soon update its enforcement methods so that any outstanding debt could be brought into managed arrangements for businesses affected by the pandemic and subsequent lockdowns. 

Specifically he said that using insolvency to enforce payment would remain a last resort and that he recognised that “the path back to full trading will be difficult for many companies, particularly those with accrued debt and low cash reserves.”

If BEIS are playing the good cop in this scenario then the Insolvency Service are playing the bad cop - promoting their recent successful attempts to wind up several limited companies that had been involved in fraudulent activity including dishonestly obtaining bounce back loans.

Dave Elliott, Chief Investigator at the Insolvency Service said: “The bounce back loan scheme was made available to help support businesses during the pandemic. 

“It’s outrageous that some directors have been trying to abuse this support, and the action we have taken shows we take this issue extremely seriously.”

Despite the tough talk, just how seriously are the authorities cracking down on bad bounce back loan behaviour by directors and business owners?

One growing trend we’ve noticed recently in the north east and elsewhere is where companies with outstanding bounce back loan arrears are attempting to dissolve their businesses, or have them struck off. 

Company dissolution is a perfectly legal method of closing a company but comes with a set of strict conditions

Dissolution is not an available tool if the company owes any money, including outstanding tax or a bounce back loan. 

New legislation, specifically aimed at unscrupulous directors, is due to become law later this year (but will apply retrospectively) and will be a big problem for those who’ve tried to close their company this way and avoid their legal responsibilities. 

The Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill 2021 will allow the Insolvency Service to specifically target and pursue directors who close their companies by dissolving their businesses when they have outstanding debts.

One of the main new measures will see the Insolvency Service given retrospective powers to investigate directors of struck off companies and how they acted in the circumstances leading up to the dissolution. 

Being retrospective, directors of north east businesses dissolved not only in 2021 but within the past couple of years can expect to be contacted in the near future if they had bounce back loans or tax debt.. 

Directors of businesses with outstanding bounce back loan debts trying to dissolve their business from now on can reasonably expect to receive an “Objection to Company Strike Off Notice”.

This prevents the company from being struck off and will also be an invitation for any of their other creditors to register their objections to the striking off as well. 


Disqualification and fines

No system is 100% perfect so occasionally a business with outstanding debts slips through the net and is struck off.

What are the likely consequences facing directors who have managed to get their businesses struck off with bounce back loan arrears? 

In the first instance the Insolvency Service will be looking to disqualify any directors of companies who have allowed their business to be struck off when it has debt. 

The disqualifications will be for up to 15 years depending on the circumstances. The directors will also be personally liable for fines and any costs incurred.


State of play

So now you’ve got a better idea of what could happen - we thought we’d go one step further and find out what’s actually going on with dissolution objections right now. 

Businessrescueexpert.co.uk lodged an FOI inquiry with BEIS earlier this month to ask if they are actively filing objections with Companies House against businesses with outstanding bounce back loans that are looking to be struck off. 

We also asked on what legal basis these objections were being lodged under. 

BEIS confirmed that it is filing objections where “a strike off notice has been issued against a company which has an outstanding bounce back loan”. 

The legal authority allowing them to do so is contained within the Companies House strike off, dissolution and restoration guidance updated in March 2021. 


Liquidation - a proper alternative to striking off

Now we have official confirmation that dissolutions are being officially objected to - with the consequences we’ve outlined - what can worried north east directors do?

Bounce back loan repayments are falling due, and the last support measures and protections against creditor actions are being removed within weeks

All of this adds increased pressure to cash flows that are already squeezed to the limit as they try to manage all the outgoings with reduced income - if they’re able to trade without restriction once again.

If a business is genuinely unable to meet all of its obligations and liabilities including bounce back loan arrears then there is still one legal insolvency process they can follow that would allow them to close their company, settle their debts and move on to the next chapter of their career efficiently and effectively. 

Company liquidation, or specifically a creditors voluntary liquidation (CVL), is the best route for a business with outstanding debts including unpaid bounce back loans, to follow. 

Once they’ve engaged a licensed insolvency practitioner, they will immediately take over all dealings with creditors and work through the rest of a businesses debts to compile a full picture of who is owed and how much. 

Chris Horner, insolvency director with Businessrescueexpert.co.uk, said: “Our FOI inquiry has proven that HMRC are treating improperly dissolved and dissolving companies as their highest priority, which should effectively close off this avenue for directors looking to close down their businesses. 

“We can expect to see more compensation orders being used to make directors personally liable for the debts of their struck off businesses if the Insolvency Service believe they’ve been done incorrectly or to evade oversight.

“Another common misunderstanding about bounce back loans is that because they are underpinned by government guarantee, they won’t be chased by lenders. They will. 

“The lender will try to secure repayment for at least 12 months as standard as a condition of reimbursement because they will have to show the government they tried to recover the funds they lent. 

“They probably won’t start insolvency proceedings just for bounce back loan debt but when restrictions are lifted at the end of September they could use debt collectors and bailiffs to enforce repayment. 

“If a business chooses to liquidate instead then the bounce back loan will be treated as any other unsecured debt and if the directors have fulfilled their duties to the best of their abilities, then the lender will ultimately be repaid by the government.

“The most important thing any business in the north east or anywhere else that’s having difficulties repaying any debts, including bounce back loans, can do right now is to get professional insolvency advice

“The rules literally change at the end of September so if they use this time constructively to protect themselves and their business financially and legally, they could already have moved onto their next venture by the time this happens.”

HMRC

 

The bounce back loan scheme was a success for many of the businesses who used it to help them to keep trading or to support themselves and their employees whilst lock down was in effect. 

The final official borrowing figures released by the government showed that over 1.5 million bounce back loans had been granted for a total of £47 billion - all guaranteed by the government. 

Earlier this year, BusinessRescueExpert.co.uk conducted an investigation into the risk of defaults around bounce back loan borrowing and found that even the official best-case scenario would see nearly 230,000 loans remaining unpaid for a total of £6.9 billion - or the equivalent of building six new stadiums the size of Wembley.

At around the same time the Department of Business, Energy and Industrial Strategy (BEIS) that they would begin to enforce bounce back loan debt recovery imminently but carefully. 

Business Secretary Kwasi Kwarteng wrote that: “HMRC would adopt a cautious approach to enforcement of debt owed to government that will have accrued” and that HMRC would soon update its enforcement methods so that any outstanding debt could be brought into managed arrangements for businesses affected by the pandemic and subsequent lockdowns. 

Specifically he said that using insolvency to enforce payment would remain a last resort and that he recognised that “the path back to full trading will be difficult for many companies, particularly those with accrued debt and low cash reserves.”

If BEIS are playing the good cop in this scenario then the Insolvency Service are playing the bad cop - promoting their recent successful attempts to wind up several limited companies that had been involved in fraudulent activity including dishonestly obtaining bounce back loans.

Dave Elliott, Chief Investigator at the Insolvency Service said: “The bounce back loan scheme was made available to help support businesses during the pandemic. 

“It’s outrageous that some directors have been trying to abuse this support, and the action we have taken shows we take this issue extremely seriously.”

Despite the tough talk, just how seriously are the authorities cracking down on bad bounce back loan behaviour by directors and business owners?


One growing trend we’ve noticed recently is where companies with outstanding bounce back loan arrears are attempting to dissolve their businesses, or have them struck off. 

Company dissolution is a perfectly legal method of closing a company but comes with a set of strict conditions. It is not an available tool if the company owes any money, including tax or a bounce back loan. New legislation, specifically aimed at unscrupulous directors, is due to become law this year (but will apply retrospectively) and will be a big problem for those  who’ve tried to close their company this way and avoid their legal responsibilities. 

The Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill will allow the Insolvency Service to specifically target and pursue directors who close their companies by dissolving their businesses when they have outstanding debts.

One of the main new measures will see the Insolvency Service given retrospective powers to investigate directors of struck off companies and how they acted in the circumstances leading up to the dissolution. 

Being retrospective, directors of businesses dissolved not only in 2021 but within the past couple of years can expect to be contacted in the near future if they had bounce back loans or tax debt.. 

Directors of businesses with outstanding bounce back loan debts trying to dissolve their business from now on can reasonably expect to receive an “Objection to Company Strike Off Notice”.

This prevents the company from being struck off and will also be an invitation for any of their other creditors to register their objections to the striking off as well. 


Disqualification and fines

No system is 100% perfect so occasionally a business with outstanding debts slips through the net and is struck off.

What are the likely consequences facing directors who have managed to get their businesses struck off with bounce back loan arrears? 

In the first instance the Insolvency Service will be looking to disqualify any directors of companies who have allowed their business to be struck off when it has debt. The disqualifications will be for up to 15 years depending on the circumstances. The directors will also be personally liable for fines and any costs incurred. 

State of play

So now you’ve got a better idea of what could happen - we thought we’d go one step further and find out what’s actually going on with dissolution objections right now. 

Businessrescueexpert.co.uk lodged an FOI inquiry with BEIS earlier this month to ask if they are now filing objections with Companies House against companies with outstanding bounce back loans that are looking to be struck off. 

We also asked on what legal basis these objections were being lodged under. 

BEIS confirmed that it is filing objections where “a strike off notice has been issued against a company which has an outstanding bounce back loan”. 

The legal authority allowing them to do so is contained within the Companies House strike off, dissolution and restoration guidance updated in March 2021. 

Liquidation - a proper alternative

Now we have official confirmation that dissolutions are being officially objected to - with the consequences we’ve outlined - what can worried directors do?

Bounce back loan repayments are falling due, and the last support measures and protections against creditor actions are being removed within weeks

All of this adds increased pressure to cash flows that are already squeezed to the limit as they try to manage all the outgoings with reduced income - if they’re able to trade without restriction once again.

If a business is genuinely unable to meet all of its obligations and liabilities including bounce back loan arrears then there is still one legal insolvency process they can follow that would allow them to close their company, settle their debts and move on to the next chapter of their career efficiently and effectively. 

Company liquidation, or specifically a creditors voluntary liquidation (CVL), is the best route for a business with outstanding debts including unpaid bounce back loans, to follow. 

Once they’ve engaged a licensed insolvency practitioner, they will immediately take over all dealings with creditors and work through the rest of a businesses debts to compile a full picture of who is owed and how much. 

Chris Horner, insolvency director with Businessrescueexpert.co.uk, said: “Our FOI inquiry has proven that HMRC are treating improperly dissolved and dissolving companies as their highest priority, which should effectively close off this avenue for directors looking to close down their businesses. 

“We can expect to see more compensation orders being used to make directors personally liable for the debts of their struck off businesses if the Insolvency Service believe they’ve been done incorrectly or to evade oversight.

“Another common misunderstanding about bounce back loans is that because they are underpinned by government guarantee, they won’t be chased by lenders. They will. 

“The lender will try to secure repayment for at least 12 months as standard as a condition of reimbursement because they will have to show the government they tried to recover the funds they lent. 

“They probably won’t start insolvency proceedings just for bounce back loan debt but when restrictions are lifted at the end of September they could use debt collectors and bailiffs to enforce repayment. 

“If a business chooses to liquidate instead then the bounce back loan will be treated as any other unsecured debt and if the directors have fulfilled their duties to the best of their abilities, then the lender will ultimately be repaid by the government.

“The most important thing any business having difficulties repaying any debts, including bounce back loans, can do right now is to get professional insolvency advice

“The rules literally change at the end of September so if they use this time constructively to protect themselves and their business financially and legally, they could already have moved onto their next venture by the time this happens.”

Disqualified

We’ve previously written about what the changes contained in the bill mean for directors of companies that have closed down, including ones that closed with outstanding CBILS or bounce back loan debt

Dissolving a company is a simple and relatively quick and cost effective way of closing down a business but only under a strict set of circumstances. 

We’ve covered at length the potential for the defaults from unpaid bounce back loans to run into the billions so the new law is a sign of how seriously the government is preparing to take the problem and what this means for directors. 

The only current way available for creditors unhappy with the conduct of directors of a dissolved company would be to apply to have the company restored so they could then apply to have it placed into liquidation and ask the liquidator to investigate the conduct of directors

This is a complex, time consuming and potentially expensive process which is why it is so rarely pursued. The new law simplifies matters and grants new powers to The Insolvency Service to investigate the conduct of directors of dissolved companies without resurrecting the business. 


Do you need to worry if your CBILS loan has a personal guarantee attached?


Directors Disqualification

According to the latest available statistics from The Insolvency Service, the number of company directors disqualified fell to 972 for 2020/21, down 24% from the 1,280 in 2019/20.

The fall will be partly due to various temporary support mechanisms and measures brought in to reduce company insolvencies such as statutory demands and winding up petitions being suspended and the suspension of personal liability arising from wrongful trading

The average length of directors disqualification held steady at around six years. 

Disqualification Length

Disqualifications can happen for actions uncovered by liquidators including attempting to defraud HMRC (which purposefully avoiding repaying bounce back loans and CBILS would be classed as), falsifying records and transferring money out of an insolvent business. 

In the early stages of the pandemic, HMRC gave as much forbearance as they could to delinquent companies as it was a unique situation but as the economy begins to open up and more businesses begin trading under more recogniseable circumstances, they will begin to step up their recovery actions. 

Combined with the new legal powers granted to The Insolvency Service, which the government expects to be used to generate a return, the number of directors' disqualifications will be almost certain to increase in the next 12 months.

Chris Horner, Insolvency director with Business Rescue Expert, acknowledges this could be a nervous time for some directors but wants them not to worry unnecessarily. 

He said: “Any director that liquidated their company through a Members Voluntary Liquidation (MVL) or a Creditors Voluntary Liquidation (CVL) has got nothing to worry about. I need to reiterate that as strongly as I can. 

“The new legislation is primarily aimed at unscrupulous directors who have tried to avoid repaying creditors and dissolved their companies to do it. 

“Done properly and for the right reasons, dissolution is the natural endpoint for many businesses and entirely correct - but using it to dodge your debts is not on. 

“It damages a perfectly good process by association, and it would be great to see The Insolvency Service punish those that have deliberately set out to defraud.

“Businesses that have outstanding bounce back loans or CBILS borrowing and have to close shouldn’t worry unnecessarily either. 

“As long as they have documentary or other evidence that outlines what the loan was for, the motivation behind the application, how the company dealt with the pandemic and restrictions and what the money was spent on, they will be in a good position to confidently answer any questions they may be asked in future.”

It’s a strange time right now for everybody - not just directors and business owners. 

It feels like a half-way house between eras, lockdown/post lockdown or pandemic/post pandemic, however you would describe it, we’re definitely changing from one set of attitudes, actions and sentiments to another. 

While these changes play out, directors might naturally be concerned, not only for the future of their business but also about the decisions they’ve had to take for the good of the company during the past year and a half.  

Anybody with immediate worries should get in touch with us for a free chat.  

We’ll be happy to set their mind at rest regarding their own actions and also be able to outline their immediate options to improve their short-term prospects. 

Sole Director

Some issues can be addressed relatively simply while others that require professional insolvency services such as CVAs and administrations can necessarily take a little longer. 

One new thing we’re going to do in 2021 is to use some of these inquiries as examples and answer them publicly as well as we can.

Not only will it help demystify the sometimes opaque world of business and insolvency advice but it could also give you some food for thought if your business is going through something similar.


This week’s question: “Can the sole director of a company resign? And if so, what happens to any debt?”

Being a director has extra responsibilities above regular staff and shareholders. 

They have legal responsibilities and duties they have to carry out and while they can leave a business, there’s still some steps they have to follow - they can’t just walk out of the door with their bags packed. These fiduciary duties are defined under the Companies Act and there is a risk of significant personal liabilities if these duties are not complied with.

In a limited company they should put their resignation in writing and send copies to any other directors or shareholders. They don’t have to divulge any reason but they are required to state the date the resignation takes effect.   

They also need to inform Companies House through a TM01 form so they can update their records accurately. 

While this will be the end of their official association with the company, their conduct may be investigated if the company subsequently enters an insolvency procedure within three years of their departure and any evidence of malpractice is discovered. 

This could potentially lead to disqualification from being a director for a period of years if convicted. Similarly, they’ll still be held jointly and severally liable for any personal guarantees given while a director if the company can’t repay them as well as any further losses as a result of resigning from the company in lieu of dealing with the company's affairs.

In short we strongly advise against trying to walk away from a company, if you are the sole director, given these risks.

We asked Business Rescue Expert’s Insolvency Director Chris Horner, a licensed insolvency practitioner, what the criteria was for sole director resignation. 

He said: “If they’re also the sole shareholder of the business then they are deemed to remain in control of the company. They are effectively still a director even if they formally resign.

“The debt will also remain with the company and won’t disappear. If the debt is of a nature that it will continue to increase, this is an even bigger risk for the director.

“What happens next depends on their intentions. Legally a company requires at least one director to continue to operate so they would either have to find a replacement, willing to act as director; look to sell the business to someone who can resurrect the business or look at closing the company.

“If the concern is the company cannot realistically meet its obligations and pay its debts, the latter would be the appropriate route and a Creditors Voluntary Liquidation (CVL), would probably be the most efficient way of closure. If the concern on going down this route is the cost, there are a number of options to effectively fund the liquidation


We hope this gives you a little more clarity surrounding the position of directors and what they can do if they want to extricate themselves from a company but we would always recommend getting professional advice before making any hasty decisions and acting on them. 

There may be some advantages or benefits available that you don’t know about or could access if you chose other methods of proceeding. 

The best thing to do is always getting in touch first to arrange a free consultation with one of our expert advisors. 

We can quickly get to understand your situation more clearly and be able to advise appropriate, effective and efficient actions you can take - quickly.

GC

Being the one who holds the purse strings and calls the shots means that you don’t take orders from anybody and can finally plot your own course. 

It also means that now all the oversight, responsibility and even blame rest solely on you too.

Like most jobs and positions, some people are naturally suited to their roles, others will grow into them and develop with experience, nurture and training while others will flounder and hope to move onto something else before something bad happens. 

We suspect there was something of the latter in the air last week when the Insolvency Service reported that it had banned self-proclaimed diva and TV personality, Gemma Collins from being a director of any UK company for three years. 

When she wasn’t dancing on ice or carousing around Essex for the cameras, Ms Collins ran a clothing store, the Gemma Collins boutique, based in Brentwood from 2012 until it was liquidated in 2017. 

Despite publicly claiming that the store had closed because widespread homelessness had killed the fun vibe of the area, the actual cause was financial. 

The Insolvency Service found that the store had repeatedly missed VAT payments and deadlines, running up additional arrears for fines until it owed over £70,000 by the time of its closure. 

The official report said: “Since at least 7 October 2013 until 11 July 2017, the date of liquidation, Ms Collins caused Gemma Collins Boutique Limited to trade to the detriment of HMRC by failing to ensure it submitted returns and made payments as required for VAT.”

The investigation also found that more than £280,000 went out of the company bank account during the period it was behind on its VAT returns including some £33,298 paid to Gemma Collins herself. 

The boutique company was finally dissolved in January 2019.

Ms Collins also resigned as a director of her other companies - Gemma Collins Limited and Gemma Collins Clothing Limited in January ahead of the ban which came into force on February 14th.  
Companies can fail for many reasons but when one goes into liquidation it’s an essential duty of the liquidator to investigate the circumstances. 

Being a director of a company isn’t just a fancy title to have on a business card or a LinkedIn profile - the position has legal obligations that have to be discharged including promoting the success of the company and always acting with reasonable care, skill and diligence. 

The liquidator is looking for specific examples of wrongdoing or bad practice including what Ms Collins has been banned for - using money that should have been set aside for tax to continue trading. 

Some of the other main behaviours that liquidators particularly frown upon include:

These investigations don’t just include any named company directors at the time of the liquidation but also anybody who’s been a director in the previous three years and anybody who’s acted as a director even if they’ve not formally been identified as one at Companies House. 

Of course any director who does their duty and their best to help their company thrive has nothing to worry about if the company does ultimately go into insolvency. 

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One of the key decisions any company director can make is to know when to ask for help.  

Even the best administered companies run into trouble now and again and knowing when to plough on through a temporary blip or call in the professionals can be the difference between sinking and survival. 

You can start the conversation by get in touch with us today.GC

Katie Price

They move from one gilded success to another without any downturn in between.  Even notoriously hard careers such as running their own business comes easily to them as the profits and plaudits perpetually roll in. Except when they don’t. 

The law applies to celebrities as much as it does to “civilian” directors as it turns out being a celebrity does not give you a golden ticket to business success - no matter how much of a winner you are. 

Take David Weir, better known as the Weirwolf. He’s one of Britain’s most decorated paralympians with eight London Marathon wins and six gold medals to his name with his sights set on adding to his collection in the Tokyo games next year. 

Training to paralympic standard leaves little room for anything else including meeting tax deadlines as he found to his cost this year when he was disqualified from being a company director for four years after failing to pay nearly £50,000 in overdue taxes. He’s unable to act as a UK company director now until 2023 at the earliest. 

He put his company, David Weir Limited, into liquidation in 2017 but further investigations by The Insolvency Service discovered that while he had received more than £400,000 from the company during its five years of trading, it had only paid £30,000 in corporation tax, owning an additional £49,469 to HMRC.

The Insolvency Service said: “Mr Weir failed to ensure that David Weir Limited met it’s financial commitments as regards to corporation tax and S455 tax and caused the company to continue trading whilst withdrawing funds for the benefit of himself. As a result the company became unable to meet its financial commitments to HMRC.”
Popular Greek international goalkeeper Dimi Konstantopoulos who served Middlesbrough and Hartlepool United with distinction recently saw his contemporary Greek restaurant "Great" close quickly.
Gareth Stobart, manager of Penza Properties' agent for the building, Linthorpe Property Management, confirmed the locks had been changed and told the Teesside Live website: "We have had to take the property back due to the amount of debt owed.
"The locks have been changed and we have gained access back to the building. Our lawyers are coming up with a few solutions to the way forward."

The Price is Right

Other celebrities try to diversify their business interests into different product ranges based on their fame and personality. 

Katie Price is a ubiquitous celebrity presence with many ventures including TV shows and appearances, clothing lines and fragrances.  

The Insolvency Service thought something smelled funny with her company KDC Trading Limited which hadn’t filed any accounts since 2017. Despite a warning that the firm would be dissolved if no accounts were forthcoming, the deadline passed in June this year and the firm will be broken up as a consequence. 

The company sold equestrian and clothing lines and the last filed accounts for April 2017 showed a deficit of £22,000. Katie Price also entered into an Individual Voluntary Arrangement (IVA) last year to avoid personal bankruptcy and give her the chance to pay off some of her personal debts. 

Liquidators are already going through the process of breaking up another Price owned company - Jordan Trading Ltd - which is the subject of a liquidators report to The Insolvency Service. 

Chris Horner, Insolvency Director of Business Rescue Expert, explains further: “When we work with an insolvent company, we have to submit a report on the conduct of each director of that company to The Insolvency Service. 

“Most of the time there’s nothing untoward to report and everybody has done their best to keep the company going. Sometimes though, we do find misconduct and we have to investigate the extent of it to determine if the director involved is unfit to manage companies in the future. 

“Misconduct covers many things including:-

“The Insolvency Service considers the report along with any other information or previous reports and will investigate further if necessary. They’d then look to go to court to enforce disqualification if the defendant does not accept a voluntary disqualification undertaking. 

“A voluntary undertaking would usually be more lenient than a court ordered disqualification regarding the length of the ban. The minimum disqualification period is two years but it can be up to 15 depending on the seriousness of the offences.  

“If a person acts as a director while banned then they’re committing a criminal offence and can be held personally liable for all the debts of the company they’re managing.”

The majority of clients we work with have been diligent with no blame attached as they executed their lawful duties to help keep their businesses alive. 

If you’re done everything you can and you need some help or if you’re anxious about the investigation process then contact us today.  

One of our expert advisors will set up a convenient and free initial consultation with you to discuss every aspect of the insolvency procedure including any possible likely investigations. 

Chameleon
 
 
 
 
 
 
 
 
 
We don’t mean that delightful, colour-changing reptiles are taking business decisions in boardrooms (although we can all think of companies where they couldn’t do a worse job).
 
According to David Pope of Hooyu, an identity verification and investigation company, a Chameleon director is one who has already been disqualified but by slightly altering their name - from Edward to Ed, Edd or Eddy for example - or their date of birth, can change to having a clean directorship.
 
He said: “Because it’s a government database, too often trading standards or other officers just take it as a fact that Companies House is reliable. But Companies House has no mandate to cross-check data, confirm identities, etc. It’s a real bugbear for them and there’s no diligence.
 
“There’s a systemic fault in how Companies House was set up. It needs more resources and there needs to be a change in the legislation to stop this happening.”
 
Additionally out of the 6,700 currently disqualified directors, over 800 or one in eight, still appear to have an active directorship according to the Companies House database.
 
It’s for this reason and several others, that Companies House have launched a wide-reaching public consultation on corporate transparency and register reform.
 

 
The consultation, the most comprehensive since companies legally began registering in 1844, is open until 5 August 2019 and concentrates on four main areas:
 

 
 
Louise Smyth, Chief Executive of Companies House, said: “This package of reforms represents a significant milestone for Companies House as they will enable us to play a greater part in tackling economic crime, protect directors from identity theft and fraud, and improve the accuracy of the register.”
 
Who goes there?
 
Identity checks are going to be a big part of the restructure. The consultation proposes “that directors, people with significant control and those filing information should have their identity verified. We’re also considering whether more information should be disclosed about shareholders.”
 
This is a serious change and it’s surprising that it doesn’t happen already. It means that if any prospective directors of a company are unable to satisfactorily verify their identity then Companies House will not incorporate the company. The small print of the consultation goes further and hints at changing the law so that if a registered company seeks to appoint a person whose identity hasn’t been verified then they will be committing a criminal offence!
 
The law regarding incorporation is slightly different as the appointment of a director doesn’t take legal effect until Companies House registers the incorporation documents.
 
Right now, Companies House accepts information and deals with any inaccuracies when they’re notified at a later date. A beefed-up and more aggressive regime will query information before submission and ask for additional evidence at the beginning of the process.
 
This puts the onus on the company to supply correct, verifiable information in advance rather than having to be chased up once incorporated or having other legal changes take effect.
 
They will also be able to take a more interventionist position regarding company names by proactively querying them and being able to reject them before they are registered.
 
They are also looking to work more closely with other government departments and databases including the HMRC to make automated cross referencing easier and improve joint statistical analysis. For instance they will scan company accounts submitted to HMRC and themselves for differences to highlight instances of fraud.
 
As Louise Smyth intimated, they will be more proactive in tackling other financial crimes such as money laundering. Businesses opening non-UK bank accounts will have to inform Companies House within 14 working days. There will also be a review of the misuse of corporate vehicles and structures.
 
One example being limited partnerships. Unlike limited companies or limited liability partnerships, limited partnerships can continue to exist even if the partners agree to dissolve it. It will be easier for courts to force them to cease business and shut down if it’s in the public interest to do so.  
 
They will also be taking a closer interest at other possible abuses including the number of companies that can be registered at a single address and more significantly on the number of directorships an individual can hold at any one time with mention of a possible hard cap.
 
Finally improved methods of data protection and privacy will be considered including carefully managed access to the register with only identified or authorised people allowed to file information and better protection for sensitive information.
 
The consultation is the first stage in the transformation project which will take years to complete and, of course, their fees are also expected to rise although reassuringly the government insists they will remain very low by international standards.

According to the Companies Act 2006, a director includes any person occupying the position of director, by whatever name called. Often, a company will receive advice on the day-to-day running from a person not holding the official position. Those who do not hold the official status of director - commonly called a de facto director or shadow director - are still bound by certain duties. Breach of those duties can lead to severe consequences, outlined later in the article.
While you may provide instructions the company does act upon, you are not solely considered a shadow director for providing advice in a professional capacity.
The below are examples where you could be considered a shadow director:

c
Shadow director

De facto director

As mentioned above, a de facto director is also not officially appointed a director, but they assume the role. For example, a company may rely on the skills and qualifications of an individual in a senior position. While there is no definitive test for determining whether a person can be considered a de facto director, relevant factors will be taken into account. For instance, what capacity was the individual acting? Has the individual been using the title of director in written communications? Is the individual part of the corporate governing structure? A de facto director will also be liable for the similar duties to a de jure director, under the Companies Act 2006 and Company Director Disqualification Act. You could be considered a de facto director if you:

Duties of a company director

As a director, there are specific duties you must adhere to. You must act in accordance with the company’s articles and memorandum of association and work to promote the success of the company. Similarly, you must exercise reasonable care, skill and diligence and avoid conflicts of interest. The director duties are owed to the company and enforcement can be taken if there has been a breach of duty. In an insolvency situation, director’s investigations will be carried out to look for any evidence of wrongdoing. You may be liable for offences under the Insolvency Act, so it’s important to err on the side of caution.

Risks from insolvency

Directors accept fiduciary, statutory and common law duties when holding the status. It has been said that shadow directors should also assume the same responsibilities. If you do this and act in the interests of the company, it’s likely you will reduce liability. However, if the company does enter insolvency, your actions will be scrutinised as part of a directors’ investigation. This will determine your role at the company, and identify any instances of personal liability. This might include:

Alongside the above risks, you could damage your personal reputation if associated with a company facing insolvency. This is even more prominent if you have been seen to act unlawfully to avoid legal repercussions.

Director disqualification

Shadow, or de facto directors, can be disqualified under the CDDA if in the ‘position’ three years before the start of the insolvency procedure. You can be liable for director disqualification if you have not met your ‘legal responsibilities’. For example:

The insolvency practitioner (IP) will file a report for the Insolvency Service to decide whether to commence disqualification proceedings. If the order is made, you will be unable to act as a director between 2-15 years. In addition, you may be ordered to contribute to the insolvent estate. Where fraud has been identified, you could even face criminal action. More information on the subject can be found here.

Manage the risks

There are certain actions available that can reduce the risks of the above procedures. You could allow board members to make the decisions on behalf of the company, and only act on their instructions. Alternatively, you could consider becoming formally appointed as a de jure director, so there is no doubt as to your position in the business.
Ensure simple measures are completed, such as completing and filing company accounts with Companies House. Taking care of these obligations will reduce pressure if the company faces signs of insolvency.
We do recommend seeking professional advice if you are unsure of your position, and need help mitigating the risks. Our business rescue experts have the experience to clarify your position and work to find the best possible solution.

Director disqualification

From 1 October 2015, it became possible for the insolvency service to start piercing the corporate veil, by seeking compensation orders in conjunction with disqualification orders. In corporate insolvency, the insolvency service will often seek disqualification against directors for a number of offences including:

If any of these offences have been committed after this date, the insolvency service may lift the corporate veil and have the director either compensate specific parties who have suffered, or compensate the estate of the insolvency company generally. More information on director disqualification can be found here.

Unpaid share capital

As mentioned early, unpaid share capital is, usually, the limit that can be called upon to be paid without lifting the corporate veil. In small companies, it is common for the share capital to remain unpaid indefinitely. In the event of corporate insolvency, this share capital will be called up to be paid as an asset for the insolvency company estate. Often, this may be as little as £1 to £100, so will be of little consequence and is often covered if the costs of liquidation are paid personally.
The real issue that may arise, allowing an insolvency practitioner to pierce the corporate veil, is if dividends are paid. While it is not an issue under the companies act, the company articles of association, in their standard form, specify that dividends can only be paid where shares have been paid up. In corporate insolvency, this would make the dividends illegal enabling the lifting of the corporate veil to recover these balances. Further details relating to illegal dividends can be found here.

Personal guarantees

Personal guarantees are a common way in which creditors will be successful in lifting the corporate veil. Signing a personal guarantee means a director will be jointly and severally liable for the debt due to the company, for either the full amount or up to a limit specified in the guarantee. Personal guarantees will most often be called upon in the event of corporate insolvency, but may also be pursued at the same time as looking for a debt against the company.
Directors should be careful when signing credit agreements with new suppliers as the agreement may contain a guarantee, which is not split into a separate document or particularly highlighted. Even if this is the case the guarantee will, most likely, be valid, as it is deemed you are responsible for reading any document you sign, and this will enable the creditor to pierce the corporate veil and pursue you personally. More information in dealing with personal guarantees can be found here.

Antecedent transactions

Under the provisions of the Insolvency Act 1986, there are various circumstances, which will allow an insolvency practitioner to lift the corporate veil and pursue the directors personally for various transactions under their care. These include:

In the event of corporate insolvency, the insolvency practitioner may seek to pursue the directors where there have been issues as listed above. If court proceedings become necessary costs and interest may also be payable as well as either an order returning the position to how it would have been had the transaction not taken place or requiring a personal contribution to the estate of the insolvent company. More information about the investigations an insolvency practitioner may undertake to pierce the corporate veil can be found here.

Conclusion

Several companies will advertise to creditors that they can look into piercing the corporate veil, allowing you to pursue the directors personally. The investigations they carry out rarely provide anywhere near information to proceed with a matter, and it's likely that it will already be information the insolvency practitioner is aware of through their investigations, which they are not directly charging you for.
If you have concerns about the conduct of the director of a company, you should provide this information to the insolvency practitioner in the first instance to allow them to pursue the matter.
Likewise, if you are a director who is concerned with regard to any of the above issues, you should obtain advice at the earliest possible stage. You can do this by speaking to one of our business rescue experts.

Business Rescue Expert is part of Robson Scott Associates Limited, a limited company registered in England and Wales No. 05331812, a leading independent insolvency practice, specialising in business rescue advice. The company holds professional indemnity insurance and complies with the EU Services Directive. Christopher Horner (IP no 16150) is licenced by the Insolvency Practitioners Association

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