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Two recent cases highlight the personal risk to directors of failing to ensure compliance with the requirements of company law. One director has received a suspended prison sentence for failing to keep adequate accounting records. Another has been disqualified from acting as a director because he permitted his father, who had previously been disqualified, to act in the management of his company.

Accounting records

The first case concerns Invaro Ltd, a company set up to provide loans to solicitors acting in the UK personal injury market. After initial success, the company went into voluntary liquidation in 2004 with losses of over £75m.

Two directors were charged with failing to keep accounting records sufficient to show and explain the company's transactions. The prosecution allegations included the fact that the company did not even have a bank account: instead, transactions involving millions of pounds were banked through the personal account of one of the directors. New money that came in to the company got mixed up with other companies in the group.

Terence Lindon, the company chairman, pleaded guilty in December 2011. On 2 March 2012, he was sentenced to six months' imprisonment, suspended for one year. He was also disqualified from acting as a company director for seven years. Further charges of theft and false accounting were not proceeded with and remain on file.

The second director was charged only with the failure to keep adequate accounting records. He pleaded not guilty, although he admitted when interviewed that the company's accounts were in disarray. The case against him was discontinued when the main prosecution witness, who took over Invaro in 2004, gave evidence that he "had tried to do the best he could under the circumstances of the business".

Permitting a disqualified person to act as director

In the second case, Richard Sixsmith was disqualified from being a director for five years in 2008. Such a disqualification also means the disqualified person cannot manage or control a company. Despite this, Richard Sixsmith acted in the management of Bridgewater House UK Ltd. Following an investigation by the Insolvency Service, he gave an undertaking not to act as a director for a further 12 years.

But it was not just Richard Sixsmith who interested the Insolvency Service. They also took action against his son, Matthew, for allowing his father to act as a director of Bridgewater in all but name. In 2008, Matthew had confirmed to investigators from the Office of Fair Trading that he was aware of the implications of his father's disqualification and he had given them an undertaking that he would not allow his father to act as a director during the disqualification period.

Matthew Sixsmith was himself disqualified from being a director for eight years.

Contact us

For further information, please contact:

Ian Lumsden
Partner
0131 228 7165
ian.lumsden@mms.co.uk

Danielle Harris
Professional Support Lawyer
020 7002 8542
danielle.harris@mms.co.uk

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