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Compensation Orders – What Directors need to know

Published on:February 26, 2020Author:darcey

Article by Laura Walshe of The Business Debt Advisor

 Many business owners and directors will be aware of the company director disqualification regime, which has been in force for more than 30 years.  Each year approximately 1,200 directors are made subject to either a disqualification order, or an undertaking which prevents them from acting as a director (or being concerned in the management of a company) for a defined period between 2 to 15 years.

However, business owners and directors may not be aware that The Insolvency Service can apply to the court for a compensation order if a director is subject to a disqualification order or undertaking, and their conduct has caused a proven loss to one or more creditors of an insolvent company.

The Case

In a landmark case for the Insolvency Service – The Secretary of State for Business, Energy and Industrial Strategy v Ealing, the High Court recently ordered a disqualified director to repay more than £500,000 to company creditors.

The case concerned the conduct of Mr Kevin Eagling, a Director of Noble Vintners Limited (“the company”).  The company had traded as fine wine broker, targeting high net worth individuals.  It was alleged that Mr Eagling paid almost all of the company’s income over to a different company which was controlled by him, without any commercial justification for so doing.

The amount paid over totalled £559,484 and included money which was due to be paid to customers in relation to unfulfilled orders.

The Decision

In May 2019, the judge made a disqualification order against Mr Eagling for the maximum period of 15 years in relation to his conduct as a director of the company.

The court subsequently considered an application for a compensation order and in a judgment handed down on 1 November 2019, Mr Ealing (who now resides in Northern Cyprus) was ordered to pay compensation in the sum of £559,484 – equivalent to sums paid, without justification.  It was ordered that £460,067 be paid to the Secretary of State for the benefit of 28 named creditors of the company, and the balance of £99,416 be paid to the Liquidator of the company as a contribution to its assets.

Conclusions

Directors of a company which is facing financial difficulty could be at greater risk of being held liable to make a contribution to company assets.  Accountability for your actions a director is no longer limited to a disqualification order, or disqualification undertaking, with no financial implications.

Cautious directors should document their decisions, and the rationale behind them.  If a company is under financial pressure it is also important to seek independent advice from licensed Insolvency Practitioner.  If you have concerns regarding the stability of your business please fill out our Contact Formand we will be in touch.

Alternatively, call our FREE ADVICE LINE on 0800 781 0990.  Our team has extensive experience in dealing with businesses across all sectors and can arrange an initial consultation at no cost, usually on the same day.