Director Disqualification Breach. Director Goes Straight to Jail
We have previously highlighted that the Insolvency Service are increasingly taking Criminal Law action to punish directors, to include those Directors who breach, inadvertently or deliberately, Director Disqualification Undertakings and bans.
Such breaches are considered to be very serious offences by The Insolvency Service, as this article shows, which looks at its investigation into the conduct of Mr Michael Graham Quinton (‘Mr Quinton’) in relation to his involvement with Limited Risk Limited and Defensa International LLC (‘the Companies’). An investigation which resulted in an 18 month prison sentence, suspended for two years. Here we look at the details of the case and the serious consequences that Mr Quinton is likely to face.
The Background to Mr Quinton’s Breach of His Director Disqualification Undertaking
Mr Quinton’s offence was that he acted in the management of the Companies, whilst subject to a Director Disqualification Undertaking dated 07 October 2009. This was in breach of section 13 of the Company Directors Disqualification Act 1986, which states:
“If a person acts in contravention of a disqualification order or disqualification undertaking or in contravention of section 12(2), 12A or 12B, or is guilty of an offence under section 11, he is liable….
- on conviction on indictment, to imprisonment for not more than 2 years or a fine, or both; and
- on summary conviction, to imprisonment for not more than 6 months or a fine not exceeding the statutory maximum, or both.’
An 18 Month Jail Sentence, Suspended for 2 Years
Following a Criminal investigation and prosecution by the Criminal Enforcement Team of the Insolvency Service, Mr Quinton was prosecuted in the Magistrates Court and has been sentenced to imprisonment for 18 months. He has also been disqualified from being a Director for 10 years and ordered to pay costs of £13,818.47.
Although Mr Quinton’s sentence has been suspended for 2 years, it is, nevertheless, a serious and strong punishment, as he now has a criminal record. It may well impact on many aspects of his life, including his ability to earn a living, travel freely (many countries impose travel restrictions on those with criminal records) and gain employment.
There Could Well be Other Legal Consequences
The Director may now also face Criminal Confiscation proceedings. Such proceedings could impact on his personal assets and lead to personal ruin. Why take the risk of breaching a director disqualification undertaking when the potential consequences are so severe?
What The Insolvency Service Said
The case lawyer, Ian Hatcher, from the Insolvency Service said:
“This case shows that the Criminal Enforcement Team of Insolvency Service will take action against those individuals who act as directors or are involved in the management of companies when they are not permitted to do so. Here, a disqualified director attempted to circumvent his ban by incorporating a company abroad and by using the names of others as directors of his British company. The Criminal Enforcement Team of Insolvency Service was alive to this, and took firm action.”
Our Comments on This Case
In early 2017, The Insolvency Service recruited a large team of Criminal Law Investigators to take action in relation to business crime. We predicted that prosecutions would follow. That is now happening. This case acts as a further reminder to those who are subject to Director Disqualification Undertakings that the Insolvency Service will take strong action in dealing with any contravention.
The reality is that it is quite easy to breach and fall foul of a Disqualification. All a Director needs to do to breach a ban is to act in the ‘management’ of a limited company. This is relatively easy to do, especially inadvertently, because ‘Management’ is a very widely defined term.
Why Take the Risk?
It is open to many disqualified Directors, depending on the facts of each particular case, to apply for and seek Permission of the Court to act in management or be a Director of an ongoing Company, despite a ban – see section 17 of the Company Director Disqualification Act 1986.
There are other steps that disqualified Directors can take to try and protect themselves, moving forwards. We explore and implement such strategies for Directors on a regular basis. The team here at NDP are well used to successfully making such Permission applications for disqualified Directors.
If you have any questions regarding your duties as a Director or the conditions of your Disqualification Order or Undertaking, please contact us or call us today on 0121 200 7040 for a FREE, no obligation initial chat.
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