Director Barred For Decade Over Covid Loan Controversy

| Career Insights, General

In mid-February 2023 the Insolvency Service released into the public domain its decision banning a person who was responsible for the day-to-day running of a dormant company specializing in the area of restructuring who on the facts of the case had inexplicably taken out the monies received by way of a financial borrowing facility to support the business during the Covid 19 pandemic and before the organisation entering into liquidation.       

What Happened In The Case?

The director and exclusive holder of shares communicated his intention to request the assistance of a financial credit facility of fifty thousand pounds to support the business during the Coronavirus pandemic. During the application process and on the paperwork the director represented that the approximate financial turnover figure was one-quarter of a million pounds.    

Be Sure Your Sins Will Find You Out…

Matters went off-piste twenty weeks after the financial support credit facility had been applied for. The director communicated with the Insolvency Service that it did not have an address to operate from, and was not currently operating, extraordinarily it had never operated and seemed dormant. The director may have believed that this was the end of matters for both himself and the organization. However, his opinion was a misconception as in light of the admissions made to the industry regulator regarding the dormant state of the organization felt compelled to probe the circumstances and it discovered evidence that before late April 2019, the business had submitted accounting paperwork confirming that the business was not operating with a financial turnover of one-quarter-of-a-million-pounds at all. Further evidence confirmed that the organization inexplicably had one asset which was a share capital valued at approximately one-hundred-pounds. Further, when the Insolvency Service forensically analyzed the accounting records from the date the financial credit facility was applied for they appeared to demonstrate that there was only just over two-hundred pounds in the business banking account facility belonging to the organization. It also became apparent that the business had received just over nine-hundred and fifty pounds in the previous twelve-month period.     

Feet to the Fire…

When the UK Government in the form of the Business Secretary perused the evidence it applied for the organisation to be liquidated citing public interest reasons and this occurred in early February 2021. Account documentation appeared to demonstrate that in mid-February 2021 business monies in the amount of twenty-five-thousand pounds were depleted from the account. Monies appear to have been made to the director, professional account advisers and interested third parties.  To the director’s credit, he accepted his responsibilities and agreed to be barred from acting in the office of director for one decade. However approximately thirteen thousand pounds is still owed.  

Lessons Learned? 

Legal professionals should advise clients seeking to apply for financial credit facilities to support their business by: 

  • ensuring their business is not making misrepresentations on their financial credit facility application form

  • cross referencing with their bank account entries to check on the credit-worthiness, solvency and liquidity of the business

  • adhering to the regulatory stipulations of the Insolvency Act 1986 and Companies Act 2006 and

  • not hoodwinking the regulator by fraudulently misrepresenting, exaggerating and overinflating the level of financial turnover

If those directors responsible for the day to day running of organisations do all they can to adhere to the above requirements, it will reduce the possibility of falling foul of their legal obligations when submitting financial support applications. 

If you have experienced something similar, or have an opposing viewpoint, please kindly leave a comment on the article or contact us.  

ASSESSING FIRMS

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THE ARTICLE WAS WRITTEN USING THE FOLLOWING SOURCES 

[SOURCE 1]Insolvency Service – Whyte, Thomas - 10-year ban for boss of Fortress Restructuring Ltd after wrongly claiming £50,000 loan - GOV.UK (www.gov.uk)

[SOURCE 2] UK Government – Fact Sheet – Bounce Back Loan – 31 March 2022 - Fact sheet: Bounce Back loans - GOV.UK (www.gov.uk) 

[SOURCE 3] UK Government – Corporate insolvency: effect of a disqualification order – 4th November 2011 - Corporate insolvency: effect of a disqualification order - GOV.UK (www.gov.uk)

[SOURCE 4] Insolvency Service – Effect of a Disqualification – 21 June 2022 - Effect of a disqualification - GOV.UK (www.gov.uk)

[SOURCE 5] Company Director Disqualification Act 1996 

[SOURCE 6] Insolvency Act 1986

[SOURCE 7] Companies Act 2006

 

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