Director Disqualification Proceedings and Missing Trader Fraud

Director Disqualification for Missing Trader Fraud is on the Increase. What You as a Director Need to Know

Despite the stringent regulations and guidance of law enforcement agencies, the number of Director Disqualification Orders that are being pursued and obtained in respect of missing trader fraud continues to increase. Missing trader fraud is the theft of VAT by organised crime groups that seek to exploit differences in how VAT is treated in different EU Member States. It is estimated to cost the revenue authorities in the EU over 60 billion euros in annual tax losses. This article looks at the steps the Director can take to protect himself/herself and the company against missing trader fraud and the consequences that flow from it, which include:

  • Possible Director Disqualification proceedings against the Directors
  • Criminal Prosecution
  • Civil Recovery proceedings against the Director personally

Ignorance is no Defence with Missing Trader Fraud

Being caught up, albeit inadvertently, in a missing trader fraud case is a risk that every business and director should be aware of.  Indeed, if you become involved in such a scenario, unless you are able to demonstrate that you have taken all due care (and this is an onerous obligation) to prevent against such fraudulent trading you could (at best) be prevented from claiming input tax on an invoice. At worst it could lead to director disqualification proceedings being issued against you, a misfeasance claim by any subsequently appointed liquidator and/or a criminal conviction being sought.

How Can You Protect Yourself and Avoid  the Above Consequences?

So what do you need to know to protect yourself and your company against organised criminals? Be vigilant and look out (for example) for the following tell-tell signs:

  • New or recently incorporated companies or those with limited or no financial history. Publically available information on the Companies House website will tell you when the last accounts were filed and whether the business is trading at a loss. A word of warning, however. Accounts are filed for previous financial periods and will not therefore provide an accurate picture of the trading partner’s current financial status.
  • Requests for payments to be made to accounts, often offshore, that do not belong to the contractor.
  • The potential contractor has limited knowledge of the market or its products.
  • Transactions involving the sale of high value products in high volumes, such as mobile phones or computer components.
  • Instructions to pay less than the invoiced amounts or less the VAT element.

The above are merely examples of some of the characteristics that you should be aware of that might cause alarm bells to ring.

Due Diligence

It always pays to have an enquiring and suspicious mind. Ask yourself why a trader wants to do business with you and how you factor into the overall or extended transaction. Speak to HMRC if you have any doubts as to the status of a potential trading partner.

If you cannot see the commercial viability of a transaction, or you cannot be satisfied as to the provenance of the goods and services, do your research and seek advice.

To walk away from a deal that looks too good to be true, is often better than the Director and the Company looking down the barrel of an HMRC or Insolvency Service investigation and possible criminal proceedings. Click here to see details of a recent 15 year disqualification for a director for fraudulent tax evasion following an Insolvency Service investigation.

Keep a Record

Challenges and attacks on the Company and/or the Director (arising out of whether adequate or proper due diligence was or was not done) often happen months or even years after the event.

  • Keep separate and standalone records of due diligence that you do on your customers.
  • Ensure that even if your company goes into liquidation, you keep and maintain a copy of those records for years to come, so that if challenged by a Liquidator (for example) you are able to respond in complete terms.

Here at NDP, we regularly advise Directors and their businesses that are faced with these potentially ruinous issues. We know through our experience how to best deal with such issues and how to achieve the best outcomes.

Contact us for Help and Advice to Minimise the Risk of Director Disqualification Proceedings or Criminal Investigations into the Company and its Directors

As the Government points out, the responsibility is on you the director to take due care to avoid being caught up in missing trade fraud, even inadvertently, and so avoid the risk of director disqualification proceedings against you. If you wish to discuss how to protect your business or if you find yourself caught up in a missing trader transaction, please contact our experienced Director Disqualification and Regulatory Law solicitors for advice on 0121 200 7040.

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