Director Disqualification, Imprisonment and a Serious Crime Prevention Order.
This latest in our on-going series on director disqualification and the things that directors are disqualified for looks at a case where an already disqualified director, received a further 10 year period of disqualification and a 3 ½ year prison sentence for breaching the original disqualification. He also received the first ever Serious Crime Prevention Order obtained by the Insolvency Service.
This article looks at the detail of the case involving Mr Scott Kidd, a Director of Olivia Earl Limited and Carrington International Limited (“the Companies”), which led to the Insolvency Service’s investigation and to this serious punishment. Along with Director Disqualification Compensation Orders, a Serious Crime Prevention Order is a powerful new tool in the Insolvency Service’s Armoury for use against delinquent directors.
The Director had already served a prison term and was already disqualified as a director
Prior to this case, in September 2011, Mr Kidd had already received a 10 year director disqualification penalty and a 6 year prison sentence. He had been convicted for the serious crimes of carrying on a business with the intent to defraud creditors and theft. He was released from prison in 2014, but with a further 7 years to go on his director disqualification, he became actively involved in the management of the Companies, which was in total contravention of his disqualification order. Following a number of complaints, the Insolvency Service Criminal Enforcement Team launched an investigation into Mr Kidd’s conduct.
The Insolvency Service’s Findings
The Insolvency Service’s investigation exposed a number of offences, including fraud by misrepresentation, where Mr Kidd had obtained a tenancy agreement and a mortgage on a property by supplying false documentation in relation to his employment and salary. As a result, Mr Kidd was arrested on 9 November 2016, and then appeared before the Leicester Crown Court on 9 December 2016. He pleaded guilty to two offences of acting in the management of the Companies whilst being a disqualified director and two offences of fraud by false representation.
Another Prison Sentence and a Further 10 year Director Disqualification Period
Mr Kidd was punished severely. He was sentenced to a total of 3 ½ years imprisonment and faces a further disqualification order lasting 10 years. The Court also imposed the first ever Serious Crime Prevention Order (‘the Order’) obtained by the Insolvency Service. The Order runs for a period of five years following his release from prison and will ensure that he has to report all of his financial dealings to the investigators.
What Does the Order Mean?
Mr Kidd is required to report any bank accounts he opens, any credit he obtains and premises he purchases. He is also required to detail what businesses he is involved in as well as prohibiting him from using an alias name (which he had done in the past). Should Mr Kidd contravene the Order he could be sentenced to a further five years improvement and face an unlimited fine.
What the Insolvency Service Said
Glen Wicks, the officer in charge of the investigation said: “Scott Kidd was released from prison mid-sentence and even though he knew he was not allowed to act as a director in a company, began running two companies. His wife, Laura Carrington, knew exactly what he was doing and by changing their names they quite cynically and systematically ripped people off. This pair have completely disregarded the law and caused misery to honest hardworking people, including their own employees, who have all lost their jobs.” In addition, the Insolvency Service’s chief executive Sarah Albon, said she was pleased that the agency had secured its first Serious Crime Prevention Order: “Serious Crime Prevention Orders are a welcome addition to our investigative armoury. We will be able to keep a close eye on Mr Kidd when he is released, significantly reducing the chance he will reoffend as he has done in the past. This case will be a warning to others that we will use all the powers available to crack down on financial wrong doing and better protect the public.”
Serious Crime Prevention Orders – the Background
Serious Crime Prevention Orders (‘SCPO’) are made under the Serious Crime Act 2007 (Sections 1 – 41 and Schedules 1 and 2) as amended by the Serious Crime Act 2015. An SCPO is made upon an application by a number of bodies. These include: the Director of Public Prosecutions; the Director of the Serious Fraud Office; the Director of Public Prosecutions for Northern Ireland; and the Lord Advocate in Scotland. Applications can be made both to the Crown Court and the High Court. In the case of the former, the individual concerned must have been convicted of a serious offence by the Crown Court or committed to the Crown Court following conviction of a serious offence by a Magistrates’ Court. With respect to applications made to the High Court, a judge will need to be satisfied that the person has been involved in a serious crime (whether in England and Wales or elsewhere). This can include, but is not limited to the following:
- Money laundering;
- Computer misuse; and
Under the CPA Guidance, the Court in granting an application for an SCPO must have reasonable grounds to believe that an order would protect the public by preventing, restricting or disrupting involvement by the person in serious crime in England and Wales.
Our Comments on This Case
- The case is a reminder to those who are subject to disqualification orders that the Insolvency Service will take strong action in dealing with any contravention.
- It sets a precedent that the Insolvency Service will apply for Serious Crime Prevention Orders where the conduct of a Director has shown a complete disregard to the law.
- Applying for a SCPO by the Insolvency Service certainly is a powerful new tool in the armoury of the Insolvency Service.
- Have the Insolvency Service got the resources to investigate and pursue SCPO’s in more cases? It seems so. The Insolvency Service recruited and employed no less than 90 new criminal investigators at the beginning of 2017.
- The particular facts of Mr Kidd’s case were on any analysis serious and extreme. We suspect that applications for SCPOs by the Insolvency Service will be held back for the more serious cases.
What About Director Disqualification Compensation Orders?
- The Insolvency Service certainly have ever increasing financial and regulatory powers available to them, in their dealings with delinquent Directors. We reflect on (for example) the much heralded introduction of Director Disqualification Compensation Orders (‘DDCO’).
- DDCO’s have been available to the Insolvency Service to apply for since 01 October 2015. They provide for a disqualified Director to also be targeted and made liable for all financial losses that can be attributed to their personal misconduct.
- DDCO’s are we think likely to be a potent weapon in the Insolvency Service armoury, providing as they do for the Secretary of State/Insolvency Service to apply to Court seeking a DDCO in the period of 2 years after the date on which a Director Disqualification Order is made or a Director Disqualification Undertaking is accepted by the Secretary of State/Insolvency Service from the Director.
- That this provides for the following nightmare scenario for the Director:
- For the company that enters insolvency (liquidation or administration) today, under the new rules, the Secretary of State/Insolvency Service has 3 years from today to commence Director Disqualification proceedings.
- Let us assume the Insolvency Service issues Director Disqualification proceedings just before the 3 year deadline for so doing. That is not inconceivable (or unusual) where the Director has strongly resisted the claims against him, in the time up to that 3 years deadline. The then Director defends those proceedings through the Court but loses at Trial 18 months to 2 years later.
- The Secretary of State/Insolvency Service has an additional 2 years from the date of that that Order to commence and pursue an application for a DDCO. It could on these facts, be 2024 before the application for the DDCO is even issued! Scary stuff…
If you have any questions regarding your duties as a director or the conditions of your director disqualification order, please contact us or call us today on 0121 200 7040 for a FREE, no obligation initial chat.