Directors disqualified for misleading HMRC
Directors who were economical with the truth in dealings with HM Revenue & Customs (HMRC) have been disqualified from acting as directors on grounds their conduct meant they were unfit to be directors.
The directors failed to make PAYE and NI contributions but told HMRC that they were in financial difficulties, and that the board were not taking salaries. They had also kept from HMRC the fact the company had won a new contract.
First, the court said that it was irrelevant that the creditor was HMRC – the same rules applied to all creditors. It also said that the factors in this case creating a danger of disqualification included:
- The directors had taken unfair advantage of HMRC’s forbearance in chasing the sums due.
- They had a policy of not paying HMRC (whether conscious or not).
- They were still benefiting personally while not paying creditors.
- During their attempts to agree a deferral of payments, they had not told HMRC the full story.
It ruled that the last factor was particularly damaging to the directors. It also dismissed the defences they put forward, including that:
- They intended to pay PAYE and NI eventually.
- They were acting in good faith, only paying other creditors to keep the business going.
- They had only withheld payment for a short time.
- HMRC had not enforced its right to payment.
The Court dismissed all of the excuses. It ruled that, overall, HMRC were not given sufficient accurate information to decide whether they should insist on payment of PAYE and NI or agree to defer it. There was also a policy, conscious or not, of paying other creditors before HMRC. Altogether, this was unfair, and amounted to misconduct that made the directors involved in it unfit, so they should be disqualified.
Directors of companies in financial difficulties and proposing to pay one creditor, but try to defer payment to another, should:
- Take specialist professional advice on their position; and
- Particularly, ensure they give sufficient, accurate information to all creditors or risk disqualification.