Our recent updates have explained the rise in instances of fraud and the civil litigation options open to victims of fraudulent conduct.

In this update we focus on director disqualifications following frauds and financial mismanagement. Two recent cases help illustrate the potential consequences for directors.

First, in January 2022, Ilir Bajrami, sole director of Kleida Pizzeria Ltd was disqualified from acting as a director for eight years after he failed to ensure that the company maintained adequate accounting records (as required under sections 386 – 389 of the Companies Act 2006). Concerns arose following an investigation by the Insolvency Service after the company failed to pay a tax return and liquidators were appointed. Ilir Bajrami failed to co-operate with the liquidators and failed to provide company accounting records. The investigation identified that the company received a £50,000 Bounce Back Loan to be used to help the company during the pandemic. Mr Bajrami then arranged for the company to transfer £90,000 to an unknown account, which included the £50,000 bounce back loan. As a consequence, the Insolvency Service launched disqualification proceedings against Mr Bajrami.

Robert Clarke, chief investigator for the Insolvency Service, said: “The inability to account for the company’s income and expenditure is made all the more serious by the fact that £50,000 of that income relates to government funds to support businesses during the pandemic, which have now disappeared."

Second, in February 2022, Robert and Mandy Headspeath, former directors of the now liquidated Advanced Signs Ltd, undertook not to act as company directors for six years. Once again, concerns arose in the course of an Insolvency Service investigation into the company. The investigation identified that (1) neither director had ensured that the company’s accounts and records were adequately maintained (2) payments amounting to just under six figures were not accounted for and (3) the company had failed to file tax returns.

These two cases demonstrate action taken against individuals in circumstances where they fail to comply with their duties as directors. The Insolvency Service has been robust in investigating concerns around financial mismanagement. In the current economic climate, we can expect further Insolvency Service investigations and related action. It is therefore important for all directors to ensure they understand, and comply with, the relevant legal duties.

To discuss matters further, please contact Paul Marshall or Ramsay Hall.

Contributors

Ramsay Hall

Legal Director