The accounting systems of car dealerships have always been fairly complicated, and when trading conditions are hard it is often difficult for directors to make sure that appropriate standards of record keeping are maintained.
Recently, the car market that has felt the recession acutely – and two directors of a car sales company found that as their company failed, so did their record keeping.
The company went into administration with a deficiency estimated by the administrator at more than £1 million.
The directors then found themselves charged with failing to keep adequate accounting records and other breaches of the law relating to keeping proper records. In addition, they were charged with causing the company to enter into transactions that were detrimental to creditors when they knew, or should have known, that the company was insolvent.
A conviction for the latter opens the door for creditors to make a personal claim against the assets of the director.
As a first step the Court disqualified each of the directors from acting as a director for eight years..
If your company is in difficulty, you may think that keeping it in business is the paramount consideration. However, a director who helps keep an insolvent company trading when he or she should know that there is little hope that the creditors of the company will be able to be paid is taking a significant personal risk. Since a director is considered to have knowledge of the company’s position, even non-executive and part-time directors can face sanctions…so if you are a director it is important to make sure you are au fait with the company’s position and are acting appropriately.
If your company is experiencing trading difficulties, contact us for advice.