DIRECTORS - 21.01.2020

Imprisonment and disqualification for rogue director

One disqualification order would be enough to make most people seek a different profession or play by the rules in future. However, some rogue directors never learn, as a recent Insolvency Service prosecution illustrates. Why was this director imprisoned and disqualified all over again?

The dodgy director

John Cotton (JC) was imprisoned in July 2011 for running a company with the intention of defrauding others and disqualified as a director for 15 years (the maximum term). However, this did not put him off. When he was released from prison in 2014, he began managing British Airwaves Ltd (“BA Ltd”). He was not an official director, but managing BA Ltd put him in breach of his disqualification order. JC was not trying to forge a legitimate career; for example, he was found to have paid off his remaining confiscation order debt using company funds. He was sentenced to 14 months’ imprisonment and disqualified for a further ten years.

Order. A disqualification order has a wide reach. It prohibits being in any way involved in the promotion, formation or management of a company, as well as being a director.

The accomplice

To make matters worse, JC roped in an associate from prison. Michael Clarke (MC) was registered as BA Ltd’s director, but JC ran and controlled it, forging MC’s signature on official documents like company accounts and credit applications. MC, however, was not an innocent bystander. He knew that JC was disqualified and was found to have helped set up BA Ltd for financial gain. He was convicted of aiding and abetting JC and was imprisoned for twelve months and disqualified for five years.

Serious sentences

Offenders face up to two years in prison, plus an unlimited fine, for breaching a disqualification order. Custodial sentences are only handed down in the most serious cases. Here, JC and MC’s previous convictions and financial motivations would have been aggravating factors. A disqualification undertaking is treated just as seriously as an order and the same sentencing powers apply.

Don’t be fooled

In this case MC knew that he was facilitating illegal activity. However, it is easy to see how an ordinary director could get caught up in a disqualified person’s breach, whether by misunderstanding the reach of the order or by helping out a friend or colleague who is down on their luck. The consequences for an accomplice can be just as serious as for the main offence, including personal liability for the company’s debts. Use our tips to protect yourself and your company. Tip 1. Check the disqualification register (see The next step ) before appointing a new director or someone in a senior managerial position (even if you know them). Tip 2. If one of your directors is disqualified, remove them from office and file Form TM01 at Companies House within 14 days. If they stay on, confine their duties to non-managerial work. Tip 3.  If a disqualified director is needed in a managerial role, they must apply to court for permission. A focused application is more likely to succeed, so confine their proposed duties as much as possible and be prepared to comply with any additional scrutiny that the court deems necessary, e.g. producing accounts to the court.

For a link to the disqualification register, visit http://tipsandadvice-business.co.uk/download (CD 21.08.06).

This director simply resumed his old ways when released from prison, using an accomplice as the official face of the company. Check the disqualification register before appointing a new director or someone in a senior managerial position.

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