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Wheels of justice

The UK is now officially out of recession, but the tough financial climate means that insolvency remains a live and often controversial issue, not just for the Government but for directors running large and small companies.

Statistics from 2009 recorded 1,438 company liquidations in the industry sectors which include the waste and recycling industries -an increase of 44% from 2008. Complete figures are not yet available for 2010, but statistics for the first nine months confirm 898 company liquidations including 48 receiverships, 242 administrations and 66 Company Voluntary Arrangements.

When waste management and recycling businesses are closing because of financial failure, it is important that everyone in the company, from director to employee, has an appreciation of the role played by the Insolvency Service (IS), which is an executive agency of the Department for Business Innovation and Skills (BIS). It includes Redundancy Payment Services, which deals with claims for redundancy payment entitlement, and last year dealt with 138,287 claims. It is also responsible for maintaining the framework for dealing with financial failure and any associated misconduct, through investigation of appropriate cases.

As part of the work to maintain business confidence, the IS takes action against corporate and insolvency wrongdoing, either through the Official Receiver or its investigation and enforcement teams. Each month, the IS disqualifies around 100 company directors for corporate abuse and secures more than 150 Bankruptcy Restriction Orders against bankrupts who have in some way abused the insolvency regime.

For example, investigations by the IS have led to three directors of a recycling company receiving bans from being directors. In September 2010, Derek William Pester, director of Devon Dismantling and Recycling, signed a Disqualification Undertaking and was disqualified from acting as a company director for nine years.

Roger Baker received a 14-year ban. He was not appointed a director, but investigation by the IS found he had been involved in the management of the company and was subject to a Bankruptcy Restrictions undertaking of nine years. A third director, Hannah Jane MacDonald, was disqualified for three and a half years. The company was compulsorily wound up on 11 September 2008 with liabilities totalling £143,516.

But for every company director who acts in an unscrupulous manner, there will a number of businesses affected financially through no fault of their own. The IS estimates that 27% of all corporate insolvencies are triggered by another firm’s insolvency or corporate wrongdoing. One way a business can avoid falling victim to another’s insolvency is by imposing strict credit control and debt collection procedures. This will guard against the ‘domino effect’ within the supply chain.

The IS receives hundreds of complaints each week from members of the public and other businesses about scams, unscrupulous business practices and directors acting in breach of a disqualification, so no investigation is ever the same. The IS will look at corporate failure and investigate where there is evidence of wrongdoing, fraud, negligence or other misconduct.

The average disqualification lasts for a substantial period of six and a half years and, once disqualified, directors cannot take part in the formation or management of a company. The IS also investigates live companies where there is reason to believe they are acting against the public interest.

It can ask the court to wind up companies in certain circumstances. In extreme cases, such as when evidence of fraud or theft is found, these are passed to the Police or BIS Legal for a criminal investigation to be initiated, and it is possible that those convicted may be sentenced to prison.
Robert Burns is head of investigations and enforcement at the Insolvency Service

WHAT YOU NEED TO KNOW

  • Anyone can report their concerns regarding a bankrupt acting in breach of a restriction or a director acting in breach of a disqualification order to the Insolvency Service’s enforcement hotline on: 0845 601 3546
  • You can register a complaint about a company by email at: enquiry@cib.gsi.gov.uk
  • For further information on insolvency, including how to wind up a company that owes you money, visit: www.insolvency.gov.uk
  • Check out the free disqualified director database: www.insolvency.gov.uk/doitonline/ddbase.htm
  • A further search of individual bankrupts can be found at: www.insolvency.gov.uk/eiir/

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