INTENTION TO COMMENCE PROCEEDINGS TO DISQUALIFY ME

[Seb78]

I wanted to post this thread as I found out yesterday that the Insolvency Service are seeking to get me banned from being a director for up to 4 years and 3.5 years if I don't fight it.

I took over an existing restaurant business in 2017 using a brand new company. The restaurant was failing under the previous owners and I managed to take it from a £5k a week business into a £10k a week business in a matter of a few months.

The casual deal I had arranged with the owners of the brand was that I would pay them £1000 per week to operate the restaurant. When the owners saw how much I was making they demanded that it be increased to £1300 per week which I agreed to.

I managed to make the first £20k VAT payment and £5k PAYE payment but quickly realized that if I did not make the weekly payments to the owner of the brand that I would be removed from the site with 30 days notice.

I had an employee that was found to have stolen as much as £7k which was all documented with the Police and he was charged and convicted.

We also had a weeks worth of flooding damage done to the restaurant.

Long story short I did not manage to make any other payments to HMRC and after having failed to raise capital through high net worth investors which I hoped would allow me to trade through I placed the company into voluntary liquidation in Jan 2019.

I have informed the Insolvency Service about all of this already and I am now being pursued and wish to disqualify me for up to FOUR years.

I never took a salary during the time I ran the business and lived off my savings. I was left with a business overdraft debt to the bank for £25k which I had personally guaranteed.

The restaurant was taken back by the previous owners who now have benefited from the changes that I made. Now I have no money to defend myself. Please can I ask the experienced members of this forum your advice on what I should do next:

1. It seems detrimental to my future to just accept it without a fight. The Insolvency Service have only offered me 6 months less in any case to hold my hands up to something I don't believe to be true. Can or should I act as a litigant in person if I have no other choice?

2. Should I try and find the money to pay a direct access barrister to defend me?

3. What should I do with my other two companies that still exist?

4. I have been told that there are only 1000 bans per year and that I am clearly just very unlucky as the term they are seeking me to be banned for his only 4 years - almost the lowest. Is it possible that the IS will give up if they know that I intend to vigorously defend myself?

5. If I go to court and lose with they seek to recover costs from me?

6. Does the disqualification stay on my record forever?

7. Does it affect my personal credit score and my ability to get loans?

8. Other than Companies House where are the records made public?

9. There were hardly any other creditors owed money but it seems that if I had not paid someone other than HMRC then I would not be being pursued. Do you think this is true?

Please let me know any advice you think would be helpful to me in defending myself. Thank you!

 

[Mark T Jones]

Presumably there are some specifics around why they intend to ban you?

simply having a failed business is unlikely to be the reson

 

[Mr D]

If you are banned from being a director for a period of time then you could not be a director of your other 2 businesses.
You would need someone else to be a director of them or convert them to sole trader and carry on running them.

 

[Chris Ashdown]

This may well be a standard letter to scare you from HMRC, sometimes it's in how you read a letter, to one person its a threat, to another its just a warning of what action they could take if found guilty of deliberate misconduct

Far better to talk to them and get the whole story, or ask your accountant to get in touch with them

 

[MikmakFer]

Can you let us know what section of the insolvency act they're using to go for you? That would be the best starting point.

 

[Lisa Thomas]

What misconduct has been alleged to consider the disqualification?

Has there been any mention of a fine?

Are the Liquidators pursuing you for any misconduct?

 

[Seb78]

Can you let us know what section of the insolvency act they're using to go for you? That would be the best starting point.

Section 16 of the Company Directors Disqualification Act 1986.

 

[MikmakFer]

So I think that if you're looking for opinions (not advice - we're not lawyers) then you need to give us a bit more info.

What is the specific reason that they're trying to disqualify you? Is it wrongful trading, fraudulent trading, undervaluation etc. etc.

This is super important because that is what your defence would be based on.

 

[Seb78]

What misconduct has been alleged to consider the disqualification?

Has there been any mention of a fine?

Are the Liquidators pursuing you for any misconduct?

Hi Lisa,

1. They allege that I received over £450k and only paid them £20k in VAT when if the business was actually profitable I should have paid them another £76k.

2. They are not currently pursuing me for a fine.

3. The liquidators are not pursuing me for any misconduct.

I look forward to reading your thoughts.

Best wishes

Seb

 

[Seb78]

Presumably there are some specifics around why they intend to ban you?

simply having a failed business is unlikely to be the reson

Specifically that I didn't pay HMRC to their detriment.

 

[Seb78]

This may well be a standard letter to scare you from HMRC, sometimes it's in how you read a letter, to one person its a threat, to another its just a warning of what action they could take if found guilty of deliberate misconduct

Far better to talk to them and get the whole story, or ask your accountant to get in touch with them

I really hope it is just a letter to scare me but i think they will take it all the way sadly.

 

[Mr D]

Hi Lisa,

1. They allege that I received over £450k and only paid them £20k in VAT when if the business was actually profitable I should have paid them another £76k.

2. They are not currently pursuing me for a fine.

3. The liquidators are not pursuing me for any misconduct.

I look forward to reading your thoughts.

Best wishes

Seb

Eh?
VAT does not depend on business being profitable.

 

[Seb78]

If you are banned from being a director for a period of time then you could not be a director of your other 2 businesses.
You would need someone else to be a director of them or convert them to sole trader and carry on running them.

I think my big mistake was that I should have closed the company much sooner than I did but I was speaking with investors to come in and rescue the business which never materialized. If I was to be disqualified then should I resign as director of my two other companies first or wait to see what happens?

 

[Paul Kelly ICHYB]

What does your accountant say about HMRC's claims?

 

[Seb78]

What does your accountant say about HMRC's claims?

The accountant that I was using at the time on this business has gone into retirement and seems to be unreachable. It also possible they were owed a months worth of fees.

 

[MikmakFer]

Was the VAT an accounting error or a non payment issue?

Fundamentally speaking, if it's a non payment issue then they're going from a wrongful trading perspective.

In wrongful trading, it's your responsibility to ensure that you take reasonable steps to minimise creditor losses where there is no prospect that the Company can continue in the future. This is mainly a cashflow test (you could have a loss making business that could pass the cashflow test, They would however need to understand how they're going to get out of the mess)

From what you've said you have 1) recognised that the Company cannot continue trading profitably and 2) you've tried to secure financing which ultimately failed.

I think the only route you can go down in that instance is how hard did you seek finance and did you call in the practitioners as soon as it was clear this was not going to happen - this is your main defence, if you were in the wrong here then you've breached your fiduciary duty and you then need to fall back on skill level. You need to show that a person of your skill would not have been able to understand this and the intrinsic rules.

This is all opinion of course and I'd suggest you need to lawyer up if you want to avoid disqualification as they'll be able to present a case....

Good luck and let us know how you get on....

 

[Chris Ashdown]

So simply put how many months did you continue to trade without paying vat, but i Guess at the same time paying the restaurant owner the £1300 per week and your post seems to indicate you told HMRC this
If this is correct then one way they may look at it is, you paid one creditor in preference to HMRC and used the amount of vat you had collected from customers to pay the landlord a deliberate act

 

[Seb78]

Was the VAT an accounting error or a non payment issue?

Fundamentally speaking, if it's a non payment issue then they're going from a wrongful trading perspective.

In wrongful trading, it's your responsibility to ensure that you take reasonable steps to minimise creditor losses where there is no prospect that the Company can continue in the future. This is mainly a cashflow test (you could have a loss making business that could pass the cashflow test, They would however need to understand how they're going to get out of the mess)

From what you've said you have 1) recognised that the Company cannot continue trading profitably and 2) you've tried to secure financing which ultimately failed.

I think the only route you can go down in that instance is how hard did you seek finance and did you call in the practitioners as soon as it was clear this was not going to happen - this is your main defence, if you were in the wrong here then you've breached your fiduciary duty and you then need to fall back on skill level. You need to show that a person of your skill would not have been able to understand this and the intrinsic rules.

This is all opinion of course and I'd suggest you need to lawyer up if you want to avoid disqualification as they'll be able to present a case....

Good luck and let us know how you get on....

Thanks for this advice. Yes this was my first business and I certainly believed that I could trade out of this. If it had not been for the £1300 per week payment on top of the rent then I certainly would not have had this problem. If i had managed to find an investor to open more stores, I could have paid back the revenue without any problem. I will investigate if I can afford a solicitor but I suspect it will cost a lot of money. Do you think I should act as a litigant in person if they are unaffordable?

 

[Seb78]

So simply put how many months did you continue to trade without paying vat, but i Guess at the same time paying the restaurant owner the £1300 per week and your post seems to indicate you told HMRC this
If this is correct then one way they may look at it is, you paid one creditor in preference to HMRC and used the amount of vat you had collected from customers to pay the landlord a deliberate act

I think it was about 12 months. HMRC were not chasing me every day like the owner was. I have certainly learned my lesson but feel it is unfair that I should be banned as a director for this.

 

[Lisa Thomas]

I have to recommend you take legal advice but suspect this might not be worth fighting and might be easier to accept the voluntary disqualification.

There must have been some material misconduct for the Insolvency Service to consider disqualification as they only look to disqualify a small % of cases.

 

[Seb78]

I have to recommend you take legal advice but suspect this might not be worth fighting and might be easier to accept the voluntary disqualification.

There must have been some material misconduct for the Insolvency Service to consider disqualification as they only look to disqualify a small % of cases.

What kind of material misconduct could they have? If I was to fight it on my own then what else do I have to lose other than my time and a further six month ban?

 

[Mr D]

I think it was about 12 months. HMRC were not chasing me every day like the owner was. I have certainly learned my lesson but feel it is unfair that I should be banned as a director for this.

You acted badly as a director. Hence they want to stop you doing so again for a while. Either by forcing the issue or you choosing to take disqualification.

They cannot stop you running a business. They can stop you doing so as a director.

 

[MikmakFer]

Personally, I would rather represent myself in court but I've been an accountant for 10 years and now I am a turnaround consultant who often works in Companies who are struggling therefore I need to be well versed in these rules. This is because if I show an owner/director the path out then they can rely on that to satisfy wrongful trading claims. I need to ensure that I am on the correct side of the law at all times. You'll have a lot of researching to do to ensure you are comfortable with the claims against you and you'd need to put your points across in the manner accepted in a court.

You've obviously screwed up but the question is whether you have screwed up to the extent of being unfit to hold office.

To the other points - I'll add that these are opinions and not advice as you mention above :-
1. What made you believe you could trade out of it? Was this an opinion of someone else or was this calculations or (hopefully not) a gut instinct? This is important as is your main stance.
2. Investors - how hard did you try i.e. did you have sit down and minuted negotiations?
3. To the point above of "accept voluntary disqualification" - I wouldn't accept voluntary disqualification in any way. I'd fight it because if you fight it you've got a chance of winning but if you don't then you'll get disqualified anyway... Perhaps @Lisa Thomas can provide an opinion on the difference in penalties for voluntary disqualification vs court ordered disqualification?

 

[Lisa Thomas]

1. The stress, aggravation and time of dealing with a Court Hearing

2 The risk of a costs order being sought against you if you lose.

You are highly unlikely to change their minds about their grounds for disqualification. It is difficult to challenge them and they use very specialised Counsel.

There may be some scope to negotiate perhaps a voluntary undertaking for say, 3 years instead.

If your other 2 companies are Limited and you need to continue to be a Director you can apply to Court for permission to continue to be a Director for those 2 Companies however you will need to show the Court good reason for this and there will also be costs involved for the applications.

I can recommend a specialist Solicitor to help you, if you want to take formal advice. DM me.

 

[Chris Ashdown]

Are you the owner of the other two companies, as no doubt they will still want their money back even if the disqualify you as a director

 

[Seb78]

1. The stress, aggravation and time of dealing with a Court Hearing

2 The risk of a costs order being sought against you if you lose.

You are highly unlikely to change their minds about their grounds for disqualification. It is difficult to challenge them and they use very specialised Counsel.

There may be some scope to negotiate perhaps a voluntary undertaking for say, 3 years instead.

If your other 2 companies are Limited and you need to continue to be a Director you can apply to Court for permission to continue to be a Director for those 2 Companies however you will need to show the Court good reason for this and there will also be costs involved for the applications.

I can recommend a specialist Solicitor to help you, if you want to take formal advice. DM me.

1. Im quite familiar with the court system and I am not going to be intimidated by their threats.
2. If they are successful and obtain a costs order I don't have any assets so I am not sure how they think they are going to force me to pay.
3. This could take a few years to get to court. I think I would rather do that than just hand them what they want and have to resign from my companies within 28 days.

Please do let me know which firm of solicitors you think I should contact. I have already been in touch with a few. Thanks!

 

[Seb78]

Are you the owner of the other two companies, as no doubt they will still want their money back even if the disqualify you as a director

Not sure how they would try and enforce that. Surely that is the whole point of having a limited company? You are personally protected by the veil of the corporation.

 

[Mr D]

Not sure how they would try and enforce that. Surely that is the whole point of having a limited company? You are personally protected by the veil of the corporation.

A veil which can be removed.

 

[Seb78]

A veil which can be removed.

Yes they can apply to the court to have me banned from being a director but I don't believe they can enforce anything else.

 

[JEREMY HAWKE]

Are your other companies profitable ?
Does either of them have any record of missed payments to HMRC ?
Your were trading insolvent for 12 months(the impression that your post gives) and favouring a creditor above the vat bill and you cant really do that .

You say you have little money and no assets so I am wondering if it would be just less hassle for you to let the whole lot go and maybe pack in this business game in or a least running a limited company .

I don't think they will be looking to you to pay the vat bill personally but you do need to be aware that some solicitors claim to be able to make a director liable for company debts when they have evidence of the company trading insolvently !
HMRC don't miss a trick and if this is possible through the courts they could be looking at this option as indicated by one of the other usual suspects

It kills me to post this and you to be reading it as I don't like to make a persons situation feel worse but it is possible

 

[Chris Ashdown]

Not sure how they would try and enforce that. Surely that is the whole point of having a limited company? You are personally protected by the veil of the corporation.

Are they not assets?

Are they also VAT registered and if so are they under the same registration?

 

[Lisa Thomas]

1. Im quite familiar with the court system and I am not going to be intimidated by their threats.
2. If they are successful and obtain a costs order I don't have any assets so I am not sure how they think they are going to force me to pay.
3. This could take a few years to get to court. I think I would rather do that than just hand them what they want and have to resign from my companies within 28 days.

Please do let me know which firm of solicitors you think I should contact. I have already been in touch with a few. Thanks!

It seems you have made up your mind but I have DM'd you some contact details.

 

[Lisa Thomas]

Yes they can apply to the court to have me banned from being a director but I don't believe they can enforce anything else.

The Liquidators can pursue you personally for misfeasance and other misconduct.