Directors beware – Books and Records

There are certain matters which directors need to adhere to when placing a Company into liquidation.

One of the Liquidators duties is to investigate the conduct of the Director. Part of this conduct review requires that all the books and records of the Company be delivered to the liquidator as soon as possible after the date of liquidation.

The consequences of not providing adequate books and records to the liquidator are explained below. The worst-case scenario is that it carries a potential of a prison sentence of between 2 and 10 years. 

Consequences of Inadequate Books and Records

First let us look at the possible penalties for failing to keep adequate books and records noting that these are significantly more severe than being disqualified as a director.  The point of this comparison will be made clear later in this article.

• Imprisonment between 2-10 years

• An unlimited fine.
• A criminal record.
• Criminal asset confiscation proceedings.
• Overseas travel restrictions.

Defining the Offence

To understand the dangers, you face it is worth defining the offence in a little more detail which is:

Whilst causing or allowing your Company enter insolvency and fail to;

• Maintain adequate books and records the keeping of which is a statutory obligation
• Preserve these books and records, being conveniently lost in a fire or stolen does not go down well being the equivalent of ‘the dog ate my homework’
• Deliver up these records to the liquidator.

The agency that is involved in this offence is the Insolvency Service’s Criminal Enforcement Team (CET) and it appears that they have recently become significantly more active.

What can cause the CET to start proceedings?

After a liquidation the question of a Director’s ‘Unfit Conduct’ is considered and one of the most common areas addressed is that of the adequacy of books and records maintained by them. If the CET consider these unsatisfactory then you will receive a letter from the CET asking you to attend a recorded voluntary interview to discuss the alleged criminal offences which have been listed in the letter.

If you have received such a letter seek help from an insolvency practitioner immediately.  Ignoring it is highly likely to lead to a prosecution being recommended and as with all things associated with insolvency the quicker you act the better the outcome.

Why might you have been the instigator of this action?

Earlier in the article we mentioned a connection with director disqualification and we now look at how an action taken in that process might unwittingly lead to an investigation by the CET.

As a result of the insolvency process it is possible that a Directors Disqualification Investigation is proposed which itself can lead to serious financial and other consequences.  One way of preventing this from proceeding is to use a Directors Disqualification Undertaking (DDU) which admits to the issues being investigated and voluntarily agrees to a term of disqualification.  If this is accepted there are some very obvious benefits to you.

• Avoiding the legal costs that might be payable if Director Disqualification proceedings were issued
• A possibly shorter disqualification period due to having made the admission of fault
• The opportunity to ask the Courts for permission to act again as a Director

In the past this has been a well-used route and many insolvent clients have been assisted in using this successfully by insolvency practitioners.

However recently, and particularly with respect to the failure to maintain adequate book and records, the admission in the Directors Disqualification Undertaking (DDU) is being used by the Criminal Enforcement Team (CET) as a reason to start an investigation.

It is therefore necessary to use a DDU with extreme caution and be sure that the Insolvency Practitioner that you work with is both very experienced and aware of the latest activities of the CET. Always take advice.

Next Steps

If you want to find out anything further about this subject then please feel free to call me on 0330 236 9930, 0330 236 9938 or 07961 116321. All conversations will be in strict confidence. You can also email me vee@navigatebr.com

This article is for information and interest only. It is not a substitute for full professional advice, which will take in to account the specific and individual circumstances. Navigate Business Recovery Limited cannot accept any responsibility for any loss arising as a result of any person or organisation acting or refraining from acting on any information.