Disqualified Company Director ordered to pay over £500k by court
Dodgy directors: You’ve been warned!
Disqualified Company Directors and the history of Insolvency
The last major reform of insolvency law was over 30 years ago with the introduction of the Insolvency Act 1986 and the Company Directors Disqualification Act 1986. Since then the Insolvency Act 2000, the Enterprise Act 2003 and the Small Business, Enterprise and Employment Act 2015 (SBEEA), along with numerous pieces of secondary legislation, have tinkered with the system.
The 1986 legislation introduced the concept of insolvency practitioners reporting to the Secretary of State for what is now Business, Energy and Industrial Strategy in virtually every company insolvency, with a view to the Secretary of State (SoS) considering whether an application should be made to the Court to have dodgy directors banned from taking part in the management of a company for between 2 and 15 years.
The Insolvency Act 2000 and Company Director Disqualifications
The Insolvency Act 2000 introduced the concept of disqualification undertakings, whereby directors could enter a binding agreement with the SoS not to act in the management of a company for a defined period. This did away with the need to involve applications to the Courts, with all the attendant costs, etc, and has been used extensively. In 2018/19, for example, 1,242 directors were disqualified of which 1,027 (83%) were dealt with by undertakings.
A director being banned, however, does nothing for creditors (other than, perhaps, giving a degree of satisfaction or schadenfreude). So SBEEA introduced the concept of compensation orders (and compensation undertakings) under which a director, in addition to being banned, can be required to compensate either specified creditors or a specified group of creditors. The first compensation order under this legislation was made recently.
A cautionary tale of a Dodgy Director
Kevin William Eagling ran a company called Noble Vintners Limited (Noble). Noble acted as a wine broker, buying, selling and storing fine wines as investments for, mainly, high net worth customers. The company went into liquidation in June 2017 owing more than £1.6m to 122 customers.
Amongst its tricks was to telephone investors with buy/sell recommendations and then pocketing the money paid to buy or the proceeds of sales. Little of the money received by the company after November 2015 was used for business purposes, with £559,484 being transferred to another company owned and controlled by Eagling which, so far as can be established, never traded, never filed any accounts or returns and was eventually struck off in May 2017.
After the liquidation, Eagling took the well-travelled path of dodgy businessmen and disappeared to Northern Cyprus. In May 2019, hardly surprisingly, in uncontested proceedings he was disqualified for 15 years, the maximum term allowed by the legislation. Having obtained the disqualification, the SoS was then able to pursue a compensation order.
The Courts reaction
In November the Court ordered Eagling to pay £559,484 of which:
- £188,222 was to be paid to 9 creditors whose wine had been sold by the company but who had not been paid;
- £271,846 to be paid to 24 creditors, representing money paid to the company to make specific purchases of wine;
- and the balance of £99,147 to the liquidator for the benefit of creditors generally.
What does the future hold for Disqualified Company Directors?
This is obviously a particularly egregious, and fairly extreme, case. But the question of compensation is now clearly in the Insolvency Service’s sights and, having got the first successful case under its belt, we’re likely to see more examples of such orders being sought in the future, including where there is much less heinous behaviour and involving much smaller amounts. The message is now out. The compensation regime is in place and will be used.
see here for further reading on this case www.thegazette.co.uk
Do you have any questions?
Call us on 0330 1000 371
If you have questions about your duties as a Company Director, we are here to help you understand your financial obligations, just contact our offices. We’re available Monday to Friday, from 09:30-17:00 to take your call in confidence.