One of the most important duties required of a company director is to keep, maintain, preserve and, if necessary, deliver up adequate accounting records. The High Court resoundingly made that point in imposing a seven-year directorship disqualification on a businessman who appeared entirely oblivious to such obligations.
The man was sole director of a franchising company that went into liquidation with a six-figure deficit. The Secretary of State for Business, Energy and Industrial Strategy applied for an order against him under the Company Directors Disqualification Act 1986 on the basis that he was unfit to act as a company director.
Upholding the application, the Court found that the wholly inadequate evidence he gave in his defence was to a large extent untruthful. Whether or not proper company records had in fact been kept, they had not been delivered up to the company’s liquidators with the result that they were seriously impeded in their task.
Although he alone bore responsibility for meeting statutory duties in respect of the company’s records, he had sought to blame others for letting him down. What was really concerning, the Court observed, was that he did not even know what proper books of account were and had no concept of why it was important to maintain records of the company’s sales, purchases, receipts and outgoings.
The Court emphasised that the crucial importance of the duty to keep, maintain and preserve adequate corporate accounting records, and to deliver them up to office-holders if a company enters administration or insolvency, could not be overstated. Dereliction of that duty can result not only in findings of unfitness but, in some circumstances, criminal prosecution.