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Insolvency - News and Legal Updates, April 2021

In this bulletin we focus on directors' duties and liabilities, in light of the recent decision in The Official Receiver v Batmanghelidjh & others which followed the high profile collapse of the charity Kids Company in 2015. Katie Farmer considers the key aspects and the lessons learned from the failed disqualification proceedings against the trustees/directors and the CEO, who was alleged to be a de facto director; Amy Gallimore and Olivia Reader set out the background to the charity's collapse and reflect on the factors relevant to determining whether individuals are regarded as de facto directors for the purposes of director duties and disqualification. Separately, Karolina Lewandowska outlines the civil and criminal liabilities for directors re-using prohibited names - an issue which may become more commonplace as Covid restrictions are lifted and government support is withdrawn.

 

Keeping Kids Company

The high profile collapse of the charity Kids Company in 2015 threw its charismatic CEO, Camila Batmanghelidjh and its trustees into the public spotlight, leading to a parliamentary enquiry, a lengthy investigation by the Insolvency Service, and disqualification proceedings.

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Director disqualification – lessons to be learned from the Kids Company decision

Following the compulsory liquidation of Kids Company (the background to which we outline in our article here), the Official Receiver (OR) alleged that the charity trustees and the CEO were unfit to be involved in the management of a company because they caused or allowed the charity to operate an unsustainable business model.

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What makes a director? De facto directors revisited

We revisit the key factors considered by the court in determining whether an individual is a de facto director, and how that was applied in the Kids Company director disqualification case.

The provisions of the Companies Director Disqualification Act 1986 (CDDA) cover not only de jure directors, but also individuals who are or were shadow or de facto directors in the last three years of the company’s operation, as “director” is defined as “any person occupying the position of a director, by whatever name called” (s22(4) CDDA)

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Updates

Prohibited names - directors beware

On 1 April 2021, Chester Crown Court found Allan Bark, a director of Cheshire Fitted Furniture Ltd, guilty of acting as a director while disqualified and using a prohibited name in breach of section 216 of the Insolvency Act 1984, and imposed an 8 year ban on him acting as a company director. Mr Bark was also given a 22 month prison sentence for 22 connected fraud offences. In the current climate where it is expected that many business will be forced into liquidation, it is a timely reminder that directors face significant financial liabilities as well as criminal prosecution if involved with re-using a name connected with a company which has gone into liquidation - as outlined in our article on the general prohibition on the re-use of a company name and the exceptions directors can use to avoid liability.

New director liabilities under the Pension Schemes Act 2021

The Pension Schemes Act 2021 received Royal Assent on 11 February 2020 and many of its provisions are expected to come into force this autumn. Directors will need to be mindful of the new criminal offences the Act introduces in relation to (i) avoidance of employer debt; (ii) conduct risking accrued scheme benefits and (iii) failure to comply with a contribution notice. In addition the act creates a new civil liability of up to £1 million for providing false or misleading information to The Pensions Regulator.

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