disqualification – ░░░ INSOLVENCY INTERFACE

UK directors disqualified for failing to maintain adequate accounting records

Corporate Insolvency, Insolvency Law, Insolvency practices, Records Management, Regulation, White collar crime Comments Off

Jan 102014

Encouraging news. According to an article published on insolvencynews.com on 9 January 2014, the United Kingdom insolvency authority has banned the directors of two unrelated companies from acting as company directors for failing to maintain adequate accounting records:

“The directors of two unrelated companies have been banned from acting as company directors for failing to maintain adequate accounting records.

The disqualifications, which followed investigations by The (UK) Insolvency Service, were handed to Bradley Carter of Dr Spafish Limited, and Alan Coffey of Datadesk Computer Services Limited.

Carter, whose company offered fish pedicures and also sold franchises, was banned for seven years. Spafish began trading in August 2010 and went into liquidation on 28 November 2011, owing £788,968 to creditors.

The investigation found that due to the lack of available accounting records, it was unable to determine the company’s turnover, who benefitted from cheques and cash worth £181,953 withdrawn from the company’s bank account, and what happened to £68,100 received as part payments for franchise.

Neither was it possible for the investigation to determine the full extent of losses incurred by customers or who these customers were.

Mark Bruce, a chief examiner at The Insolvency Service said: “Company directors must keep sufficient financial records that show and explain the company’s transactions.

“This director failed to do this and there remain a large number of unexplained transactions, representing significant amounts, over the company’s trading period.”

Coffery of Datadesk Computer Services, which operated as supplier of office and technology equipment, was also disqualified for seven years, at Airdrie Sheriff Court in Scotland.

The investigation found that the lack of proper accounting records meant it was not possible to verify if £312,266 paid out of the bank account was for the benefit of the company.

This included over £123,141 paid to a company which holds petroleum exploration and extraction rights in Sierra Leone, West Africa and £26,000 paid for the purchase of coffee and related products. In addition, there were unexplained cheque payments totalling £79,038.

The company entered liquidation on 3 February 2012.

Robert Clarke, head of insolvent investigations north, at The Insolvency Service, said: “The lack of records in this case made it impossible to determine whether there was other, more serious, misconduct at Datadesk and that is reflected in the lengthy period of disqualification.”

Relationship problems for insolvency practitioners

ASIC, Checklists and guides, Corporate Insolvency, Ethics, Insolvency practices, Regulation Comments Off

Oct 162013

Before accepting an appointment as liquidator or administrator of an insolvent company the insolvency practitioner (IP) must evaluate his or her relationships with the company and with those who are involved or have an interest in its affairs. In the following decision chart and accompanying notes I suggest that there are three main steps in the evaluation process.

Step 1 is fairly simple: the task is to ensure that the IP is not prohibited or disqualified from acting by the express laws on disqualification for reason of a specific connection that are contained in the Corporations Act 2001 (the Act), i.e., sections 448C and 532.

Step 2 may be far more difficult. It involves looking out for other relationships which the Act deems to be, prima facie, of interest to creditors of the company (sections 60, 436DA, 449CA and 506A). If such a relationship exists, the IP must evaluate whether the relationship is “relevant”. Unless such a relationship is “trivial”, it will be “relevant”.

If the IP is of the view that there are no relevant relationship, he or she may accept appointment. (His or her view that there are no relevant relationships must be declared in writing in the Declaration of Relevant Relationships presented to creditors (section 60)).

Step 3 in the evaluation process is required if the IP considers that there is a relevant relationship. Relevant relationships need to be evaluated to see whether they give rise to, or are likely to give rise to, a conflict of interest or a conflict of duty for the IP in the performance of his or her obligations. This is a complex issue, which is expanded upon in Note 3.

If the IP forms the view that because of a relevant relationship he or she has or is likely to have a conflict of interest or a conflict of duty, he or she must decline to take the appointment.

On the other hand, if the IP’s view is that there is no such conflict, the IP must – in the written Declaration of Relevant Relationships – give details of the relationship and explain why he or she believes that it does not and will not give rise to a conflict of interest or a conflict of duty.