This is the next in my series of blogs for the Director’s Friend.
Following a prosecution for breach of section 216 of the Insolvency Act 1986 (the ‘Act’) (re-use of a prohibited company name by a director) with confiscation proceedings following the Court of Appeal recently concluded that:
- a confiscation order can be made against an individual who is convicted for trading under a prohibited name / style; and
- the court is entitled to hold that the total turnover (not just the net profit) for the entire period of trading under that name is recoverable.
In summary, this is where a director of a company reuses the same or a similar name to a company that has entered into insolvent liquidation, so as to suggest an association. This name is known as a “prohibited name”. This can include any name registered at Companies House, a trading or other name.
A recent Court of Appeal decision R v Neuberg  EWCA Crim 1927 handed down by Lord Thomas of Cwmgiedd, CJ considered the law of confiscation following a successful prosecution against an individual for breach of section 216.
The appeal was as a result of a reference by the Criminal Cases Review Commission (‘CCRC’).
The Appellant was a director of company Watergate Services Limited trading as ‘Neuberg Metal Spinners’ (the ‘Company’) which went into liquidation on 19 November 2001.
By the time that the Company was placed into liquidation the Appellant was trading in her own name as ‘Neuberg Metal Spinners’.
After 19 November 2001, it was not lawful for the Appellant to use the name of “Neuberg Metal Spinners” but she continued to use that style until 14 June 2002.
The Appellant was charged with trading under a prohibited style, namely “Neuberg Metal Spinners“, without the leave of the court, between 19 November 2001 and 14 June 2002 contrary to section 216 of the Act. She pleaded guilty to that offence on 12 November 2004.
She was given a community sentence and disqualified from being a company director for five years.
Further, a formal Order for confiscation was made on 12 April 2006. The benefit was the turnover of the Appellants trading in the sum of £288,948. The realisable assets were £100,000. The Order was made in the amount of £100,000. The judge fixed the term of imprisonment in default at two years and ordered the appellant to pay £7,500 towards the cost of the prosecution.
The Appellant paid £100,000 as ordered.
It was found by the Court of Appeal that:
- the criminal activity was carrying on the business in the prohibited name;
- it was clear that the Appellant carried on the business under a prohibited name;
- it was the carrying on of that business under that name that gave her a significant benefit;
- For present purposes, it was sufficient to say that, as the court held in 2007, the judge was unquestionably correct in calculating the benefit by reference to the turnover; and
- On the basis of the information (a lack of financial analysis of the accounts) put before the Court, that there was nothing from which the Court could infer that the amount of the confiscation order in the sum of £100,000 was in any way disproportionate.
The Court observed that attempting to conduct in exercise in ascertaining the financial position of this business more than 14 years previously was one that would have been fraught with difficulty.
The Court therefore rejected the appeal and stated that it was a matter of some regret that the reference was made to the Court (by the CCRC) without a more careful analysis of the basis on which the reference was to proceed.
Following this decision, any director or other convicted of this offence could be ordered to pay a sum equal to the total turnover for the entire period of illegal trading. This would be in addition to any fine or prison sentence handed down as a punitive element.
The director could also be disqualified from acting as a company for a period of time.
In addition, again that director / individual could also find themselves personally liable to repay the creditors of the business under section 217 of the Act, although possibly not in the case under discussion. So, heavy sanctions!
WHAT TO DO NOW
If you are faced with a claim for personal liability or a prosecution under these sections please talk to me today. That is in order to protect your position without delay. The earlier that you speak with me the more that I can help. Why not call me today on 01992 558 411 and speak to me without obligation, pressure or cost.
There are options that are outside the scope of this article to avoid the draconian consequences under this law, but the well-advised director must move swiftly to protect their position.
If you are happy to instruct me my firm and I are happy to talk to you about fixed fees or staged fees that are agreed with you in advance of any work being carried out or we can liaise with your insurers. Your work will be carried out by me or others under my close supervision. I am happy to come to you to take instructions. My firm is based in London and Hertfordshire, here in the UK.
Finally, is you advisor a practising solicitor (and thus insured to advise you – check with the SRA) and if so is your solicitor a full member of the Insolvency Lawyers Association (‘ILA’) (ask them). Membership of the ILA is a public mark from insolvency peers that your representative has the requisite knowledge, skill and experience to advise you. I am both. Accept no substitutes.
Until the next time…
THE DIRECTORS FRIEND