Overview Of Company Director With No Records. What Do You Do?
Not a Dennis Hopper pop quiz for a hotshot but a serious matter that may be faced by a Liquidator; dealing with the vexed question of a company Director with no records.
The purpose of this post is to explain why the option of Liquidators litigating for company records may have to be ruled out if a company Director is without records.
A fundamental duty it is, a Liquidator obtains company records. However, there are instances when Liquidator duties may be outflanked by the forces of reality. A Liquidator’s deployment of their Stakhanovite efforts cannot produce what does not exist.
In such instances, there might be not a lot the Liquidator can do but report his or her concerns to the relevant regulatory authorities.
If there are no records they cannot be produced by the Director.
Many small companies will have one Director who was keeping company records. Such companies often will have a controlling Director who a Liquidator may approach for compliance with their Director duties to the Liquidator to hand over these records.
Director Saying There Are No Records
The starting point is not to leave the matter unaddressed when a company Director says there are no records they can provide.
The starting point perhaps is to consider the words of His Honour Judge Matthews which were referred to in an earlier article called Section 303 Trustee In Bankruptcy Application Succeeds. This involved Insolvency Practitioners in a Bankruptcy case:
Any trustee, but especially professional trustees in bankruptcy, ought to possess a certain degree of robustness. You are looking after someone else’s interests, not your own.
The Liquidator can consider the likelihood that there are no records based on the nature of the company that has gone into Liquidation.
If a Director says there are no records then the why, who, what, when, how and whether can be queried to obtain an account of how this position developed. Next is to ask the other Directors (if there are any) for their version of what happened to the records.
Reconstruction Of Company Records
Once it is established that none of the Directors can produce any company records then the Liquidator can consider going to third parties such as banks, accountants, solicitors, employees and others to see if they can provide records through a forensic technique of records reconstruction in insolvency proceedings.
A process of information gathering can be embarked upon to seek out information and then potentially press for more once some is provided and also pursue other sources as they become known. Such a process can potentially reconstruct most of a company’s records but it can be a lengthy, time consuming and expensive process.
Court Application Against Company Director With No Records
When an application is made to Court under for example Section 236 of the Insolvency Act 1986 the burden of proving the case to seek an Order from an Insolvency and Companies Court Judge is on the Liquidator.
Whilst the view of the Insolvency Practitioner is usually given considerable weight by the Court, it is an application typically made against a company Director who has to be named. If a Court were to grant an Order for a Director to deliver up company records to a Liquidator then they will usually only do so if the Liquidator has convinced it that such a person does indeed have something to produce. It is unlikely the Court would be minded to grant such an Order if aware a Director responding to the application has informed the Liquidator they have no company records.
No matter how seemingly unlikely it might seem in view of a Director’s duty pursuant to Section 386 of the Companies Act 2006 (“Section 386”) (to keep proper books and company records), if the Director says they have no records then the Court would be unlikely to grant the Order. The reason would seem to be because it would force the Director into the prospect of in effect being in Contempt of Court.
The fact that a breach of Directors’ duties may have arisen from an apparent contravention of Section 386 does not change the fact the Director cannot produce what is not there. Furthermore, a Liquidator is not the enforcement or prosecuting authority for breaches of Director duty under the Companies Act 2006. That is a role reserved largely to government bodies such as the Insolvency Service and the Department for Business, Energy & Industrial Strategy.
A Liquidator embarking upon an application to Court against a party that has expressly stated they do not have what has been asked for could be at risk of not only adverse costs but conceivably so on the indemnity basis.
Some Potentially Better News
All is however not lost.
A Liquidator faced with this situation whilst attempting to properly investigate a company can still make use of the statutory power under Section 236 of the Insolvency Act 1986 to interview (examine) the Director on oath and obtain information verbally.
Finally, a company Director who incorrectly says they have no records might still be a matter capable of being addressed. A Court application might be possible if evidence comes to light that proves the relevant Director has company records in their possession. In such an instance there would appear little reason why such a Section 236 application for their production would not conceivably have merit.
Are you a UK company Director?
If you are a Director or creditor of an insolvent company or a bankruptcy, Oliver Elliot can help you. We Know Insolvency Inside Out.
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Disclaimer: Company Director With No Records. What Do You Do?
This page is not legal advice and should not be relied upon as such. This article Company Director With No Records. What Do You Do? is provided for information purposes only. You can contact us on the specific facts of your case to obtain relevant advice via a Free Initial Consultation.
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