Patrick Manning reports on a director's disqualification case in which Howes Percival LPP acted for the Secretary of State for Business, Energy and Industrial Strategy. Tried and won in the High Court recently, the case involved non-payment of taxes with complicated underlying facts.
The Secretary of State for Business, Energy and Industrial Strategy v David Walsh (1), Andrew Rankine Taylor (2) and Jeremy Paul Burden (3) – re. NRG2 Limited [2018] EWHC 2160 (Ch).
NRG2 went into liquidation owing HM Revenue & Customs (“HMRC”) almost £847,000. This formed around 88% of all company debts.
The Secretary of State commenced disqualification proceedings against three directors alleging they caused detriment to HMRC by paying £1.6m to a connected company, which included repayment of a £750,000 loan to NRG2 by the connected company and full repayment of sums owed for supplies, when HMRC was owed £661,000 in Corporation Tax (“CT”) and VAT. The directors of NRG2 were also directors of the company that the payments were made to.
One Defendant gave a 5-year disqualification undertaking before trial. Trial against the other two took place in June 2018.
In the run-up to liquidation the Defendants employed a forensic accountant to investigate NRG2’s finances. He found that £1.4m had been moved from NRG2 to a group of companies controlled by the third director, some by now in administration. The funds being irrecoverable, the Defendants began an ‘orderly wind down’ of NRG2.
When the £1.6m payments were made the Defendants knew HMRC claimed unpaid CT for 2009 and was demanding £3.5m in all, including sums due for VAT under a group registration. The payments left NRG2 without funds to discharge its liabilities to HMRC.
The Defendants did not dispute responsibility for the payments but denied detriment to HMRC. They said NRG2’s VAT position was “in hand” but in the control of others including the administrators of the third director’s group; that NRG2 owed the connected company for support in earlier years; that trust principles obliged them to apply the payment monies as they did under a ‘Framework Agreement’ governing transactions between the connected company and a third party; that sums had been set aside to meet NRG2’s tax liabilities; and that the third director had deprived NRG2 of cash which could otherwise have been applied to tax.
The judge found that the Defendants had displayed “marked” incompetence: they knew or should have known that the payments would cause detriment to HMRC, no “responsible, competent” director would have made them.
They were disqualified for 4 and 3 years, the lower tariff reflecting a lesser role on the part of the Second Defendant in comparison with the First, an accountant.
The case’s complicated facts did nothing to prevent a finding of unfitness on its core premise.
At a later hearing, both directors were given permission to act as directors or managers in three companies, subject to conditions.
Please contact Patrick Manning ([javascript protected email address]) for more information or a copy of the judgment.
To learn more about our approach to cases such as the above on our Dispute Resolution and Litigation page.
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