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Monday, 10 October 2011

Directors Disqualification in Insolvency

There are many reasons why a director may be disqualified ranging from fraudulent or wrongful trading, theft etc.  However, when a business does become insolvent an investigation into the directors conduct is made.  In the case of a compulsory liquidation the Official Receiver has a statutory duty to look into the conduct of the directors.

Please see below is a recent disqualification case.

Christopher and Carol Howarth, both 49, ran two bridal wear and suit hire business in Warwickshire, Crystals Bridal Centre and Christopher's Suit Hire, in Nuneaton, after launching C&C Wedding Company in September 2005.

The pair has been disqualified from being directors for seven years each after 76 pre-paid orders worth over £35,000 were left unfulfilled.

C&C Wedding Company entered into a voluntary arrangement with its creditors in February 2009 but this had failed four months later.

It eventually entered into liquidation in November 2009 with debts of more than £287,000, by which time it had taken payments of at least £35,976 on 76 unfulfilled orders, forcing some brides to pay again for dresses.

The point here is that the couple continued taking deposits when they knew that they had no way of fulfilling orders. ie the CVA had fallen down in June.  The couple should have concentrated on fulfilling existing orders and not run up more large debts.  As such any director who finds themselves in the position of taking deposits in the hope of company viability has to be very careful and should seek professional advice.

Claire Entwistle, director of company investigations north, said: "The undertakings** signed by Christopher Howarth and Carol Howarth send a clear message to other company directors; if you run a business in a way that is detrimental to either its customers or its creditors you could be investigated by the Insolvency Service and as a result removed from the business environment."

**Disqualification undertakings were introduced in April 2001, they are an administrative equivalent of a disqualification order but do not involve court proceedings. Without specific permission of a court, a person with a Company Director Disqualification, including Undertakings, cannot:-

act as a director of a company; take part, directly or indirectly, in the promotion, formation or management of a company; be a liquidator or administrator of a company; or be a receiver or manager of a company’s property.

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