Common types of shareholder dispute
June 12, 2018
5 top tips about business disputes, from a business solicitor
July 12, 2018

“Help! I’ve received a Section 16 letter!”

If you’ve received a Section 16 letter, it means your conduct as a director has been investigated by the Insolvency Service working on behalf of the Secretary of State, and they obviously think there’s a case to answer.

It will be headed something like: ‘This is a letter pursuant to Section 16 of the Company Director Disqualification Act 1986’. It will summarise the allegations against you, and state that a director disqualification order is likely to result. It will offer you a voluntary director disqualification undertaking in lieu of formal legal proceedings.

It might also include a questionnaire for you to complete, asking about the people responsible for the management of the company and its finances, plus any external advisers that were involved, and specific details of any individual transactions under investigation, such as payment of HMRC liabilities.

Remember, director disqualification is intended to protect the public. So a common question may be: “In your opinion, why did the company go insolvent?” It’s critical to take advice before answering this type of question – it’s designed to trip you up so the Insolvency Service can bring proceedings against you.

Time is ticking

It’s important not to ignore the letter, and to seek the help of a specialist solicitor – immediately. (Someone like us, hint, hint!)

Here are some of the other urgent actions to take.

  • Ask your fellow directors whether they have also received a Section 16 letter. If yes, you can work together to build your case
  • Don’t return the questionnaire with your answers just to be helpful. This is because you could inadvertently say something detrimental. First, talk to a specialist director disqualification solicitor – we cannot over-stress how important this is
  • Often, a Section 16 letter is accompanied by draft affidavit evidence. Ask to see the full evidence immediately, so you can understand the allegations in more detail. It may take a while for them to prepare this. When it arrives, add your comments against every paragraph number
  • Gather all relevant paperwork. If you email us 100 documents, we have to print everything and sort it all out – this costs you money. Ideally, please collate your paperwork in a lever-arch file, tabbed in date order. This will save us time, and so save you costs
  • Be aware that there is an alternative to accepting voluntary director disqualification, and that you do not have to accept the suggested time period if disqualification does go ahead. We can help you negotiate the best possible outcome

Case study

We acted for the director of a PLC. His bookkeeper/cashier had made a payment from one company that was in liquidation to another. It looked as though it had been done deliberately to save money. As a result, the director was at risk of disqualification.

After we investigated, we found that it was a genuine error.

We met the Insolvency Service and their solicitor for two hours to present the relevant correspondence, and managed to persuade them to withdraw court proceedings.

It’s critical to talk to a solicitor early.

If the director had seen us earlier, we could have helped him complete the initial questionnaire and the case might never even have gone as far as court proceedings.

What this means to you

With our specialist insight into how the Insolvency Service works, we have successfully defended many other directors from being disqualified. Maybe we can help you too.

Give us a call on 020 7467 3980.

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