Mr Zannetou was the sole appointed director of Ixoyc Anenis (2014) Limited (“the company”) from its incorporation in 2012 until its liquidation on 27 August 2015. The company commenced trading on 21 March 2014, when it acquired the assets of another company in liquidation, as a general provider of beauty treatments.
The company filed VAT returns for April, July and October 2014 and January 2015, but failed to file further returns and made no payments in respect of its VAT liabilities, for which Her Majesty’s Revenue and Customs (“HMRC”) claimed £74,945 in the liquidation.
In relation to PAYE, the company was liable to pay £62,510 for sums due in 2014/15 and 2015/16, but paid only £14,497. In the period between 08 June 2014, the day after the first VAT return fell due for payment, and the date of liquidation the company paid £731,165 from its bank accounts. All but £214 of the company’s outstanding trade creditors had fallen due for payment in 2015 (The Statement of Affairs recorded trade creditors of £54,446 at liquidation).
Accordingly the Secretary of State sought a disqualification order against Mr Zannetou for causing the company to trade to the detriment of HMRC. For his part Mr Zannetou argued that his was “a case of inadvertence in extenuating circumstances, not of the level of incompetence deserving of disqualification.”
The court considered the conduct by reference to four periods: -
March to June 2014
In this period Mr Zannetou admitted that he knew PAYE and VAT liabilities were accruing while the company was paying other creditors.
June to September 2014
Between June and September 2014 Mr Zannetou was in Cyprus as his grandmother was ill and died in June and then his father also became ill and died at the end of August. Mr Zannetou gave evidence that he gave his family affairs priority and as a result he left the affairs of the company to others. However, the company’s bookkeeper gave evidence that he had kept Mr Zannetou informed of the liabilities of the company including its tax liabilities and obtained his authority to make payments.
October 2014 to April 2015
Mr Zannetou was back in the country. On 05 December 2014 HMRC made a distraint call and subsequently a time to pay agreement (“TTP”) was reached with HMRC whereby the company would pay off arrears by monthly instalments, and pay all future liabilities on time. Whilst the company made the instalment payments on time up to April 2015, it did not pay its current liabilities.
May 2015 to August 2015 (liquidation)
The company failed to pay the May instalment under the TTP or make any other payments in respect of its liabilities to HMRC. HMRC cancelled the TTP on 03 August 2015 and demanded full repayment of £103,300 within 7 days. Mr Zannetou stated that the failure to pay in May was because the company swapped banks and the new bank made an error in the name of the account holder. However he said in evidence that there were funds to pay HMRC, but he did not consider it sensible to pay with the account being in another company’s name. HMRC’s note of conversations with Mr Zannetou at the time indicate that HMRC told him they required payment if the TTP was not to be cancelled
Mr Zannetou advanced the argument that the extenuating circumstances that might excuse him were: -
“(a) Mr Zannetou and the Company were subject to a series of unfortunate events, principally relating to his immediate family, (b) in addition to the filing of returns and the payment of some tax, Mr Zannetou was pro-actively co-operative in that he engaged in communication with HMRC, entered into the time to pay agreement and made some payments thereunder, caused the Company to submit accounts and annual tax returns to Companies House, provided a statement of affairs in August 2015 to facilitate liquidation, and has co-operated in the management of the present proceedings, (c) Mr Zannetou relied on professional advice from both his father and Mr Gay, (d) there was no cover up or hiding of the Company's liabilities – the failures to pay VAT and PAYE were limited in time and number, and Mr Zannetou then put the Company into liquidation when he ought to have done, (e) Mr Zannetou's conduct was inadvertent, not deliberate – both in failing to cause the Company to keep up with payment of its tax liabilities, and in giving priority to paying trade creditors who needed to be paid to keep the business going, (f) further, at all times he reasonably believed that the Company would trade out of insolvency and intended that the Company would meet its liabilities to the Crown, (g) Mr Zannetou put £41,000 into the Company (although it seems from the papers relating to the liquidation that ultimately he may have lost only £10,000), and (h) he is responsible, contrite, and positive about, and invested in, his business future."
The case was heard by HHJ Richard Spearman QC.
He found that Mr Zannetou had made a decision to pay pressing creditors, which was a conscious decision on his part and that meant that the company unfairly discriminated against HMRC. As a result Mr Zannetou had to provide extenuating circumstances to show that the conduct was not unfit and the Judge concluded “I am unable to regard the extenuating circumstances put forward by Mr Brown, either separately or cumulatively, as sufficient to warrant a departure from th(e) conclusion (that the conduct rendered Mr Zannetou unfit to be concerned in the management of a company).”
The judge did opine that had the conduct been over a shorter period, perhaps even over the first three periods mentioned above, he may not have disqualified Mr Zannetou, but as the period covered the whole history of trading and lasted 17 months he was bound to find unfitness.
Mr Zannetou was disqualified from acting as director of a company for 3 years.
This decision illustrates the high hurdle that a defendant to disqualification proceedings must surmount to provide sufficient extenuating circumstances to escape a finding of unfitness in an allegation of trading to the detriment of HMRC.
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