Company directors can be disqualified for fraudulent behaviour. Fraud is considered a serious offence, so the authorities will seek a lengthy disqualification period.
If you are facing the threat of director disqualification, or you want to make an appeal, we can help.
Fraud: Grounds for Director Disqualification?
The primary reason for director disqualification is that the individual is ‘unfit’ to manage a company. ‘Unfit’ behaviour covers a litany of actions, including fraud.
Fraud can take many forms. Ultimately, it is anything that involves making false representations for your own advantage, or to cause a loss to others.
A company director may face allegations of fraud for:
- Submitting false information to HMRC
- Failing to operate PAYE
- Deliberate non-payment of tax
- Failing to file documents at Companies House
- Illegal dividends
- Contrived liquidation to avoid the repayment of debts
- Fraudulent accounts
- MTIC schemes
- Hiding assets during insolvency
The above list is not exhaustive. There are plenty of other types of fraud, including Covid-19 fraud. This has made headline news recently, with hundreds of directors having been struck off for fraudulent claims made under the government’s Covid-19 support schemes.
The first of these cases was that of Abdulrazag Zagroba, who applied for a bounce back loan of £20,000 two weeks after submitting an application to dissolve his company. The money should have been used for legitimate business costs. Instead, Mr Zagroba bought himself a car and distributed the remaining balance to his family living abroad. The company was dissolved long before the first repayment was required.
Mr Zagroba was prosecuted for bounce back loan fraud. He was sentenced to two years’ imprisonment and a seven year director disqualification.
This is by no means a stand-alone example of Covid-19 fraud. Over 200 directors have been disqualified over bounce back loan fraud to date, with more prosecutions in the pipeline.
Does there have to be a conviction?
However, a director disqualification can occur even without a fraud conviction. The legislation states:
The court may make a disqualification order against a person if, in the course of the winding up of a company, it appears that he—
(a) has been guilty of an offence for which he is liable (whether he has been convicted or not) under…the Companies Act 2006; or
(b) has otherwise been guilty, while an officer or liquidator of the company…of any fraud in relation to the company or of any breach of his duty as such officer, liquidator, receiver or administrative receiver
Therefore, a director disqualification can be disqualified ‘whether he has been convicted or not’.
Consequences of Director Disqualification for fraud
A director who is disqualified on the basis of fraud usually faces a lengthy period of disqualification. Fraud is a criminal offence which harms the UK economy. The authorities wish to impose harsh sentences to send a deterrent message, and to protect the public.
Director disqualification can last for between two and 15 years. The disqualification is typically between 11 and 15 years where fraudulent behaviour has taken place. The director may also be ordered to pay compensation if their fraudulent behaviour caused a loss.
A director disqualification means that you cannot be a director of a limited company or limited liability partnership for the duration of the ban. You also cannot be involved in the formation, running or management of a company.
Find out more: Consequences of a Director Disqualification
You can request permission to act as a director while serving a director disqualification. However, the courts are often reluctant to grant these requests where fraud has occurred.
Director Disqualification proceedings lawyer
If the Insolvency Service or other UK authority is currently taking action against you as a director, we can help. We offer expert legal support to directors facing disqualification, including those who have been accused of fraudulent behaviour or serious misconduct. We can advise you on how to get the best possible outcome.