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20-year disqualification for directors who manipulated bank data (29 July 2016)

Date: 29/07/2016
Duncan Lewis, Legal News Solicitors, 20-year disqualification for directors who manipulated bank data

The directors of a digital and mobile healthcare software company have been disqualified for a total of 20 years, after being found to have falsified accounts and manipulated bank data.

In an Insolvency Service investigation, Michael Joseph Bell and Gavin Rupert Kipling – directors of Digital Spark Limited – were found to have misapplied funds obtained by way of secured loans, by diverting £161,800 to their personal bank accounts outside the terms and expressed purpose of those loans.

As directors, they did not maintain accurate accounting records – changing electronic data to obscure or hide payments to themselves – and created entries that inflated the company income.

They also filed inaccurate financial statements at Companies House, which showed the company to be solvent when it was insolvent – and obtained £109,000 from short-term lenders, after providing them with bank statements which had been changed to show that the account balances were hundreds of thousands of pounds more than the sums actually held in the bank accounts.

The Insolvency Service investigation found that the company had started developing a cancer care product – an IT based diagnostic programme. Having spent an estimated £500,000 on the project, it was only 80% complete and there was no confirmed market for it, so the directors took out loans in order to help with cash flow.

Loans totalling £600,000 were obtained from specialist local funds, which were paid into the company’s bank account on 10 October 2012 and 11 October 2012.

Between 11 October 2012 and 26 November 2012, a total of £161,600 was transferred from the company’s bank account to the directors’ personal accounts – £80,800 to each director.

The monies the directors paid to themselves – which they took on the basis of money they believed was owed to them – were, however, outside the scope of the funding agreement and were not allowable under the terms of the funding.

In April 2014, the company was approach by a third party interested in a merger. While conducting their due diligence, it became clear that the company was insolvent.

The secured lender then reviewed its position and the company was placed into administration and sold shortly afterwards as part of a pre-pack administration.

The Secretary of State accepted an undertaking from Mr Bell on 25 April 2016 not to act as a director of a limited company for 11 years from 16 May 2016 –while Mr Kipling also provided an undertaking on 13 April 2016 not to act as a director of a limited company for nine years from 14 May 2016.

Cheryl Lambert, Chief Investigator at the Insolvency Service, said:

“These are very significant bans, reflecting the severity with which the Insolvency Service considers the conduct of the directors.

“The concealment of the withdrawal of funds by the directors – and the provision of false financial information – shows a woeful disregard for creditors’ interests, with intent to deceive.

“This was an active scheme that required great planning and control and took place over a long period – major losers in this failure include NHS Trusts, as well as the general taxpayer.

“The motivation of the directors was, primarily, to maintain their business – this is no excuse or defence, especially given the extent of the manipulation of data and depth of the deception.

“In essence, they lied to get money – including to their own employee, whose job it was to maintain accurate accounts.”

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