Directors' duties

Posted: 15th November 2016

SecretsCompany directors have a duty to carry out their functions responsibly and honestly and, when they do not, the courts have broad powers to bring them to book. In one case exactly on point, an alcohol wholesaler was banned from acting as a director for 13 years due to his company’s involvement in VAT fraud.

During a period of little more than six months, the company had engaged in over 40 transactions linked to missing trader fraud. A trader higher up the supply chain had failed to account for VAT and the total loss to HM Revenue and Customs (HMRC) came to over £300,000. The company, which operated on a fast turnover basis with overheads kept to a minimum, subsequently fell into insolvency with a deficiency in excess of £174,000. In those circumstances, HMRC launched proceedings against the wholesaler under the Company Directors Disqualification Act 1986.

Although the wholesaler was not formally a director of the company during the relevant period, the court found that he had acted as such and that the business was his brainchild. His attempt to disguise his true role within the company was a sham. He had either known, or wilfully shut his eyes to, the fact that the transactions were tainted by fraud. In the circumstances, the court imposed a directorship disqualification which would endure until just past his 60th birthday.