In this final piece on hot disqualification topics I wanted to look quickly at the all too common situation whereby an individual who is already subject to disqualification, either through the impact of prior proceedings under the CDDA or by dint of a personal bankruptcy, continues to act in the management of a company.
They're not hard to spot these cases, and the alarm bells should be ringing the moment that you are contacted by an individual who clearly holds all the knowledge about the metal fabrication business you're dealing with, but for an unexplained reason isn't a registered director of the company, and has you writing to his wife at her hair salon, or his 86 year old father in New South Wales, to deal with the formalities.
Once you've asked the director why he isn't formally registered, it is a simple process to undertake your own enquiries using the Companies House database of disqualified directors and the Insolvency Service website. Alternatively give me, or one of my colleagues in the Investigation Directorate a call and we'll happily search our own internal databases.
Of course, acting in breach of a disqualification is a criminal act (not forgetting the fact that the individual has most likely been aided and abetted by the registered director(s)) and you should report any potential offence of this nature to the Conduct and Complaints Team at the Insolvency Service in accordance with your duty under Section 218(4) of the Insolvency Act 1986.
However, the Secretary of State will also run disqualification cases where the sole allegation relates to management of the company by a disqualified or bankrupt person – even in the absence of some misconduct linked to that involvement. Hence, in all cases where there is a person subject to restriction (as identified through your initial SIP 2 enquiries) acting in the management, if there is no leave of the court to act you should submit a D1 report.
Within that report evidentially it is a case that more, is definitely more, and the greater the breadth of the evidence available, the more likely you are to demonstrate misconduct. Keep the following points in mind:
1) Financial control is key - it isn't essential that the disqualified individual is a signatory on the bank account, but you should be able to show an element of control over who got paid, and when. Look in particular for cash withdrawals and ask who was then responsibile for disbursing that cash.
2) Look at all aspects of the business - production, finance, marketing, recruitment etc - and show involvement and control across the board for a solid allegation. Third party evidence is particularly relevant - who did suppliers, customers, banks, employees and other stakeholders think was controlling the company, and what did they base that perspective on?
3) Consider what the registered director's were doing - their inactivity will support an allegation that the disqualified individual was the controlling party.
4) Remember that for a criminal allegation, although the burden of proof is higher, it is only necessary to show that the individual acted in the management of the company. For disqualification purposes it must first be established that he/she can be shown to be a director, to meet the requirements of the CDDA.
5) Always check whether there has been an application for leave to act under Section 17 of the CDDA, and if leave was granted consider the conditions which would inevitably have been imposed by the Court and whether these have been adhered to.
Finally, once you've made an allegation of a disqualification breach make sure you keep track of the proceedings as if they are successful creditors should be considering recovery action against the individual concerned through the enforcement of personal liability under the provisions of Section 15 of the CDDA.
Similar considerations apply when you're considering an allegation that a director has breached Section 216 of the Insolvency Act 1986 and personal liability is again enforceable under the provisions of Section 217 of the Insolvency Act 1986.
Ultimately, it may be the partner who had the pen, but what we're all interested in is who was controlling the flow of the ink.
