Thursday, 8 August 2013

Mistakes can be costly

Directors must remember they could find themselves held personally responsible if their business makes a mistake, a local solicitor has warned.

Graham Davies is our senior partner and he said far from being untouchable, directors were likely to be in the firing line.

“When a company stops trading, generally any unsecured creditors will automatically lose any money or goods that they are owed. As a result of this, some directors believe that closing their business down could solve a whole host of problems. But in fact, taking the decision to bring down the shutters could lead to even worse difficulties and consequences.”

Graham said a prime example was the owner of a restaurant who was found to be employing several workers illegally. The UK Border Agency investigated and the company was ordered to pay a civil penalty of £25,000.

But the owner decided to transfer thousands of pounds out of the company bank account leaving insufficient funds to pay the fine, and he then declared the company insolvent and placed it into liquidation.

“The UKBA brought in the Insolvency Service and it did not take long to uncover the owner had taken in unlawfully transferring assets, which was a clear breach of his duty as a director,” said Graham.

“He has now been disqualified from being a director for eight years, which means he is unable to have any involvement with the promotion, formation or management of any UK company. The disqualification also means he cannot be a company secretary, or even become a non-executive director of a UK company. He’s banned too from being involved in a limited liability partnership and from acting as a trustee of a charity.

“It’s vital that directors are fully aware of their responsibilities and that it’s not just high profile cases that can trigger a disqualification – they can be given for lesser misdemeanours too including consistently late filing of statutory documents. Taking on a directorship is not a decision to be taken lightly, and brings with it a raft of rules and requirements which must be taken seriously.”