Winding Up Petition ~ lessons to be learnt for company directors

The recent winding up by the Insolvency Service of Jacob H Ltd (JHL) on 14th May 2014 provides a few lessons for directors; apart from the obvious one of making sure that you provide services that you are taking payment for. The company traded in London, but offered large goods vehicle (LGV) driving services across the UK and did not actually provide the services in the majority of cases. You can read about the actual Insolvency Service case by clicking here.

The Insolvency Service investigations supervisor David Hill said: “This company appeared to have no intention of providing the services it claimed it could and instead duped customers into paying for service they were never likely to receive and winding it up protects the public from losing more money in this way. “The winding up should serve as a warning that the Insolvency Service will take action to remove rogue companies from the business environment.”

The company failed to file accounts but it is known that £130,000 was taken in deposits and even where refunds were agreed they were never paid. The average customer paid £920 deposit to book their lessons so the number of customers involved and eventually defrauded were quite substantial. It is not clear if criminal charges may follow but the directors Hussain Ahmed and Mohammed Khaled will now be interviewed by the Official Receiver and a full investigation of the directors actions will now follow. The directors can receive disqualifications from 2-15 years, fines and even a jail sentence for the most serious offences. The Insolvency Service was alerted by Islington Trading Standards who had received 40 complaints of services not being provided despite being paid for.

What the Insolvency Service does

The Insolvency Service is a government body and is responsible for all compulsory liquidations (winding up) in the UK via the official receiver. One of the key tasks of the official receiver on behalf of the Insolvency Service is to identify why the company ended in an insolvent liquidation and became insolvent in the first instance. It has a lot of other wide ranging powers from paying redundancy to insolvent company employees to investigating live companies that warrant their attention. You can learn more about the Insolvency Service here http://www.bis.gov.uk/insolvency.

Failing to file annual returns

Directors should be aware that failing to file accounts with Companies House is a criminal offence so can leave a naïve director with a criminal record and there is no point in blaming the accountant even if it is their fault. Whilst there is no law stating Directors must have qualification as a director you have the responsibility for filing the accounts and you will be expected to demonstrate ‘sufficient levels of skill and knowledge’ to manage the company affairs.

Directors have a legal obligation under the Companies Act 2006 to file annual returns and failure to do so on time will result in escalating fines, dependent on the delays and end in possible personal prosecution of the director and directors' disqualification. It is also worth noting that as a director you also responsible for acting responsibly and complying with other laws too such as

• Employment Law
• Health & safety Law
• Insurance law
• Tax law
• Insolvency law

Failure to comply with these laws can have severe implications for directors and this can range from disqualification from acting as a director to going to jail so if you are in any doubt you should seek relevant professional advice.

Abandoning the company

Simply resigning as a director will not negate any liabilities or responsibilities you may have incurred whilst acting as a director. In any event leaving a company without a director is also a breach of the Companies Act and may lead to the directors being disqualified and investigated as if they had been “liquidated”. The investigation can be instigated by the director of corporate enforcement so abandoning your company should not be considered an option. By abandoning the company you are openly demonstrating disregard or ignorance of the law and either one will not be received well by the Insolvency Service.

Wrongful trading   

The directors have continued to trade and subsequently increased the debts to the company and therefore are likely to be charged with wrongful trading. Wrongful trading is better thought of as irresponsible trading and this would be accurate on the face of it in these circumstances. If proven, wrongful trading can mean the directors being made personally liable for the debts accrued in the time period when the directors knew, or should reasonably have known, the company would end in an insolvent liquidation.

There is also the point of the deposits themselves and clearly they should have been kept separate from the company funds so that customers wanting a refund could have been made easy. By ring-fencing the deposits they also protect customers money from being absorbed into the company account for paying bills and being misused. For example if the customers were told that they can have their money refunded if they were not satisfied then the ‘not isolating’ the potential customer refunds only adds more evidence of misuse of customer deposits. This situation can be made worse if those monies were then used for the director’s personal use. So the simple answer is keep personal and business funds separate, but also keep deposits separate too, possibly in a customer trust account or something similar – ask your bank for more information.

Offering services you do not provide

There may be charges against the directors from Islington Trading Standards for not providing services as advertised.

Generally a company; when advertising goods must:

• Match the description
• Be of satisfactory quality
• Be fit for purpose   

Clearly in this case none of the above applied, so there may be a prosecution to follow on this matter, also.

To find out more information about a specific insolvency solution; get business debt advice, or to simply learn a little more about insolvency, in general, please visit our website by clicking here.

Is Your Focus Killing Your Business???

Focus... A small word with huge potential.

You may have heard of the old saying that 'you are what you eat'; well this concept can be applied to all walks of life and more specifically today, we want to cover this concept very briefly when related to business.

So moving away from the idea of food for a moment, what we are talking about here is where you place your focus and how that can affect the results in your business and in your life. Here's a good example; your sat at home watching the TV and the news comes on. Most people watch the news, yet few think about how the content of what is projected from this little box in your front room affects your mood and consequently, your actions from that point. Most of the information that is provided on the news is likely to not be very positive or happy as the press don't believe that it makes a good story and whilst watching one news broadcast is unlikely to have a lasting affect on your subconscious you may start to be convinced of certain beliefs about the world around you, due to the content of the information that you are absorbing.

... and it's not just the TV...

What we absorb in our daily routines and through our habits can and often does determine the type of lifestyle that we live.

What sort of people do you surround yourself with on a daily basis? What sort of books, or magazines do you read? Positive? Negative? Supportive? Destructive? Motivational? Limiting???

All these things should be taken into account in order to work towards becoming a more balanced business owner or employee.

Slowly, but surely you may have been engaging in negative or self-limiting actions due to the type of people, or information that you choose to surround yourself with every day. If you look for the negative in the world, guess what you will find. Likewise, if you always look for the positive, you will find that, also.

All this can be wrapped up in a very simple, slightly amended, adage which is 'We are what we absorb'; in every sense of the word, so take the time to focus your attentions into more constructive, positive and ultimately successful areas of your life and your business, because they are there; you just need to focus on them for long enough and new habits and in turn, new results will be formed.

When people are met with challenges in business they often seek to blame the environment for the outcome and this is normal behaviour for us humans. In some cases a lack of focus can lead to serious situations such as bankruptcy or a winding up petition from a creditor against your business which leaves you with few options. Prevention is the best remedy and where you decide to put your focus can make the difference between success and failure... so think about what you focus on - on a daily basis.

Here's to your health in all forms and success in business whether you are a Director of a Limited Company, or you are employed by someone else's business.

Small success leads to large success...

By Tony Smith

HMRC Responsible for Over 60% of Winding Up Petitions

The HMRC are still responsible for over 60% of all winding up petitions so they are still aggressive and a clear threat to companies struggling with failed time to pay arrangements.

Far too often we get calls from directors who are desperate for help, but who have tried to muddle through and left things to the very last minute. When HMRC are involved and they have decided to issue, or even threaten, a winding up petition you must act immediately. You have a limited time window to respond and act. Few directors fail to realise that once the HMRC have started to pursue a winding up petition they will not stop until your company is successfully put into liquidation, one way or another. The only way HMRC can be stopped is via the Court once the petition has been advertised and this can be very expensive as you will be expected to pay the HMRC legal costs. 

It’s also worth remembering that once advertised your bank account will be frozen and all the company assets are frozen too, so they cannot be sold which can often have disastrous affects if you want to start afresh with a new company. Any creditor can use the same petition to close your company even if you have paid to stop the original petition. We have just had a client come to us seeking help after borrowing a very substantial amount of money from family hoping to stop the petition. Having paid the High Court petition another creditor stepped in and took over the petition but the directors were unable to raise more funds leaving them in an impossible situation.