A company director has been sentenced to 33 weeks’ imprisonment for failing to preserve company books and accounting records for a three-year period. The offences relate to three separate restaurant management companies, based in Sheffield and Birmingham, which have since gone into liquidation with an unpaid combined debt of £302,105.89 to HMRC.
The conviction arises out of an initial investigation by the Insolvency Service and a full criminal investigation and prosecution by the Department for Business Innovation and Skills (BIS).
1. Duty to keep accounting records (section 386 Companies Act 2006 (CA2006)) – every company must keep ‘adequate’ accounting records, meaning records that are sufficient:
(a) to show and explain the company’s transactions;
(b) to disclose with reasonable accuracy the financial position of the company at any time; and
(c) to enable the directors to ensure that any accounts required to be prepared comply with the requirements of CA2006.
2. Where and for how long records to be kept (section 388(4) CA2006) – these records must be preserved for three years in the case of a private company (or six years for a public company).
3. Duty to keep accounting records: offence (sections 387 and 389 CA2006)) – if a company fails to comply with (1) and (2), an offence is committed by every officer of the company who is in default.
The BIS investigation found that the director failed to ensure the companies’ books were in order and as a result, the companies could not be delivered up to the liquidator as required.
The lack of books and records meant the Insolvency Service was prevented from properly investigating the failures of the companies. It was also prevented from protecting existing assets for the benefit of the companies’ creditors.
BIS Deputy Chief Investigation Officer Simon Button said: “The Insolvency Service and the Department for Business will take firm action when we find that office holders of limited companies have clearly failed to comply with their legal responsibilities and this has led to an undermining of the insolvency regime.”
All company directors, not just finance directors, should take note. Make sure your company’s records are “adequate” and are kept for the required period to avoid time behind bars.