Several directors of a recruitment company approached us for help when they became concerned over the conduct of a fellow director and the discovery of substantial liabilities owed to HMRC.
The business supplied contractors to the IT industry and though it had started as a viable business which would have enjoyed continued success, it fell victim to bad management. Three of the four directors were based overseas and had assumed that the business was being run efficiently and legally by the fourth UK based director. They were sadly mistaken.
By the time the directors approached us they had already incurred significant legal costs in obtaining High Court Injunctions and freezing orders against their fellow director and another company which he controlled. They were also becoming aware of other creditors chasing debts and were concerned that the business was insolvent. Upon reviewing the business it became clear that this was indeed the case.
The Solution – how we helped
As liquidator, Mike Grieshaber of MLG Associates had significant issues to deal with:
- No financial records had been kept
- The UK based director appeared to have misappropriated substantial funds
- No returns for VAT or PAYE had been submitted to HMRC who had raised assessments of over £600,000 based upon their own investigations.
Firstly we were legally obligated to report the offending director’s conduct to the Insolvency Service for investigation.
We began the task of reconstructing the financial accounts which were painstakingly pieced together from bank statements, emails and customer and supplier records. This process was important in providing a true picture of both the liabilities to HMRC and other creditors and the extent of misappropriated funds.
As soon as the accounting records were reconstructed and irregular transactions were uncovered, negotiations began for the repayment of misappropriated funds. Our work resulted in an early settlement and the agreed repayment of misappropriated funds in excess of £330,000 (including a significant contribution to the costs that the company had incurred). A clear and agreed strategy meant that significant ongoing legal and professional costs incurred through the High Court action were minimised.
The reconstructed accounts also allowed us to submit correct information to HMRC, enabling them to identify the actual liability for tax and VAT. This resulted in a significant reduction of some £500,000 in relation to the assessed amounts owed to HMRC. The company’s other liabilities were also identified and claims agreed within the liquidation.
Decisive action, thorough investigation and effective negotiation at an early stage ensured that all creditors would receive a significantly enhanced return by maximising recovery and minimising the associated legal and professional costs.
Following liquidation process, the director responsible for financial misconduct was disqualified from acting as a director for a period of three and a half years. The disqualification order was made by consent rather than legal proceedings and the came largely from the director’s failure to meet the HMRC obligations for VAT and PAYE.