Leicester - disqualified directors and a HMRC hotspot

Leicester has found itself in the headlines for more wrong reasons than good recently. 

The town was subject to the first local lockdown in the country on June 29th after local cases spiked. Restrictions still remain in the area and people are still forbidden from meeting other households in homes and gardens. 


Then the retailer BooHoo was accused of contravening Covid-19 regulations and also breaking anti-slavery legislation by paying workers as low as £3.50 per hour despite the minimum wage for workers aged over 25 being more than double this total at £8.72. 


It’s also a hotspot for director disqualifications with more than 50 people linked to the textile industry in Leicester being banned from acting as directors for a collective total of more than 400 years. 


This group represents 40% of all disqualified directors in the town yet only 2.5% of the businesses on Companies House register or 1,000 out of the 38,393 businesses in the city are involved in the textile trade. 


Andrew Bridgen MP for North West Leicestershire who was also former regional chairman of the Institute of Directors for the area had previously described the way the garment industry in the city was operating as “the wild west” and that the activities of some companies were putting legitimate competitors out of business.


“Many of those who have been struck off will continue to act as shadow directors and clearly what’s going on in Leicester is an area of concern. 


“They need to risk-assess these businesses and sectors and concentrate their resources where there are obvious problems.” 


There are various loopholes that can be exploited. For instance if a director is struck off over tax issues, they aren’t barred from owning a company if others manage it. Frequently these directors play an active role in the running of new companies by installing a new director to sign documents and be the public face of the business. 


Several struck-off directors remain “persons of significant control” in companies created after previous businesses have gone into liquidation. These are more commonly referred to as Shadow Directors.


HMRC are also taking a closer interest into a number of Phoenix Companies being set up in the area involving the same personnel and premises as formally insolvent companies. 


There is some recourse available to authorities. 


If HMRC finds that former directors are acting in breach of their disqualification or undertaking then they could be made personally liable for any tax debts accrued while disqualified as well as potentially facing criminal investigation and a prison sentence.  


The majority of directors do their level best to run their companies properly, meet their legal obligations and pay off their creditors to the best of their ability but sometimes even the most competent managers and their businesses run into trouble and need additional help. 


If you’re worried about your business’s ability to make its way in a rapidly changing world – get in touch with us today. 


We can arrange a free virtual consultation to discuss where you might need some help and how we can help you get it quickly and professionally.