Director Disqualification and Accounting Records
9 Year Director Disqualification for Failing to Keep Accounting Records
One of the most common reasons for director disqualification is not keeping accurate and up to date accounting records, which is a statutory requirement of all company directors. This article looks at a recent case where The Insolvency Service investigated the conduct of Mr Javid Morgra (‘Mr Morgra’) and his conduct as director of Middleborough Ltd (‘the Company’) for this very reason, resulting in a 9 year director disqualification.
The Background to This Case
Mr Morgra was the sole director of the Company which traded in fizzy drinks, car parts and accident data. The Company, at liquidation, owed creditors at least £2,119,589.00 despite filing accounts showing a turnover of £2,321,657 for the period ending 31 August 2015. It is precisely this sort of data that attracts an Insolvency Service investigation.
The Company was wound up by the Court, in the public interest, on 14 November 2016. Following the investigation, Mr Morgra admitted that he had failed to keep sufficient company records and subsequently gave a director disqualification undertaking to the Secretary of State for Business, Energy and Industrial Strategy not be a director of a limited company for a period of 9 years.
The Relevant Provisions
Mr Morgra had failed to comply with his duty under Section 386 of the Companies Act 2006. This requires:
“Every company [to] keep adequate accounting records. Adequate accounting records means records that are sufficient: (a) to show and explain the company’s transactions; (b) to disclose with reasonable accuracy, at any time, the financial position of the company at that time; and (c) to enable the directors to ensure that any accounts required to be prepared comply with the requirements of this Act.”
What The Insolvency Service Said
Commenting on the disqualification, Ken Beasley, Official Receiver of the Insolvency Service’s Public Interest Unit, said:
“The Insolvency Service will not tolerate Directors who cannot show that their Companies are being run for legitimate purposes.”
“The director of this company has fallen far short of the standard of record keeping that can be reasonably expected and as a result, there were serious concerns over the true nature of this business.”
A lack of accounting records, in general, means that at liquidation it is very difficult for the investigation to verify what happened and why and to determine the accuracy of any financial reports and returns. This is why it is a serious offence that can lead to director disqualification.
Our Comment on this Director Disqualification Case
Had Mr Morgra ensured that the Company complied with its duty under section 386, the Insolvency Service would have been able to complete their investigations and Mr Morgra may have been able to adequately deal with concerns raised by the Insolvency Service. This case is a stark reminder to company directors of their statutory duties under the Companies Act and the severe action the Insolvency Service will take for a failure to comply with them.
If you have any questions regarding your duties as a company director, and the effect of non-compliance in any case, our director disqualification specialists can help. Have a look at some of our testimonials and if you think we can help, please contact us or call us today on 0121 200 7040 for a FREE, no obligation initial chat.