Legal News

The Insolvency Service has investigated three company directors, who were subsequently disqualified for five years each, after it was found they had made retrospective accounting transactions to convert withdrawals from the company into salary, in order to avoid the repayment of the balance of their director’s loan accounts.

On 20 November 2013, the three directors of 121 Accident Management Ltd – Constantine Nicholas, 51, from Cheshire, Glenn Thwaites, 34, from Manchester and Mark Jenkins, 51, from Manchester – met with the company’s accountant and were advised to seek insolvency advice.

They were also informed that any outstanding loan accounts would be repayable on the liquidation of the company.

On 4 and 5 December 2013, amended returns were submitted to HMRC, declaring a combined salary for the three directors of £441,204 for 2011/12 and £442,464 for 2012/2013. These returns incurred a further PAYE and NIC liability for the company amounting to £448,211.

The Insolvency Service investigation found that accounting records provided were inadequate to disclose the full extent of the director’s loan accounts prior to the retrospective accounting. However, it was clear that the balance on the accounts was at least £102,866.

This amount was not paid over to the Liquidator for the benefit of the company’s creditors – and any other potential distribution of assets among the company’s creditors was diluted by the creation of an additional significant PAYE/NIC liability in respect of the directors’ withdrawals from the company.

Group Leader of Insolvent Investigations at the Insolvency Service, Rob Clarke, said:

“The Insolvency Service and Business department will take firm action when we find that directors have not acted in the best interests of a company and its creditors.

“This disqualification should serve as a reminder to others tempted to retrospectively manipulate the tax treatment of their drawings for their own benefit that the Insolvency Service will rigorously pursue enforcement action against them.”

121 Accident Management Ltd was incorporated on 7 March 2008 and traded from premises in Salford, providing claims management services.

All three directors were appointed from 7 March 2008 to 23 January 2014 –
the Company went into Creditors Voluntary Liquidation on 23 January 2014, with an estimated deficiency of £653,378.

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