House of Lords Report on Personal Service companies

House of Lords report on Personal Service Companies and their taxation
http://ow.ly/vztfQ

Landlords victory over Administrators (DWF LLP)

Date: 25/02/14

A clear Judgment in favour of the landlords was handed down by the Court of Appeal yesterday in the litigation generated by the video games retailer, Game, going into administration in March 2012. This decision changes the position on the question of when rent is payable as an expense of the administration, and so in priority to unsecured debts.

One of the companies in the Game group was the tenant of numerous leasehold retail properties from which the group traded.  Most of the leases provided for rent to be payable quarterly in advance on the usual quarter days, as a result of which on 25 March 2012 approximately £10,000,000 in rent became due under the various leases.

The group entered into administration on 26 March 2012.  Whilst some stores were closed immediately many continued to trade in a new business which was rapidly sold to a separate company called Game Retail Limited.

At the heart of this appeal there were two recent well known High Court decisions:

In Goldacre (Offices) Limited v Nortel Network UK Limited (2009) the Court found that if a quarter’s rent payable in advance fell due during a period in which the administrators were retaining the property for the purpose of the administration, then the whole of the quarter’s rent was payable as an administration expense, even if the administrators were to give up occupation later in the same quarter.
In Leisure (Norwich) II Limited v Luminar Lava Ignite Limited (2012) the High Court decided that where a quarter’s rent payable in advance fell due before entry into administration none of it was payable as an administration expense, even if the administrators retained possession for the purposes of the administration for the whole of that quarter. In those circumstances rent was simply provable as a debt in the administration.

The consequence of those two decisions was that it became increasingly common for companies to enter into administration on the day immediately after a quarter date, thereby avoiding liability to pay the rent in full even if they retained possession of the leasehold property for the whole of that quarter.

Lord Justice Lewison, in a very clear judgment, overturned both the above decisions by applying the well-known “salvage principle” and making it clear that the application of that principle and the right of a creditor to prove for a debt in the insolvency were not mutually exclusive.

The salvage principle has its basis in cases dealing with a landlord’s right to levy distress on goods following on from the liquidation of the tenant.  The principle is well expressed in the case of Re Lundy Granite Co [1870-1871] in which James LJ stated:

“but in some cases between the landlord and the company, if the company for its own purposes, and with a view to the realisation of the property to better advantage, remains in possession of the estate, which the lessor is therefore not able to obtain possession of, common sense and ordinary justice require the Court to see that the Landlord receives the full value of the property.  He must have the same rights as any other creditor, and if the company choose to keep the estates for their own purpose, they ought to pay the full value to the landlord, as they ought to pay any other person for anything else, and the Courts ought to take care that he receives it”.

Over subsequent years this principle was gradually extended by the Courts beyond the narrow confines of distraint.

The Court of Appeal in Game set out their views clearly, stating that it must be remembered that the salvage principle is based in equity and not common law. As such, the relevant insolvency office holder must make payments at the rate of the rent due under the lease for any period during which he retains possession of the demised premises for the benefit of the winding up or administration.  That rent will be treated as accruing from day to day, and those payments are payable as expenses of the winding up or administration.  The duration of the period is a question of fact, and is not determined merely by reference to which rent days occur before, during or after that period.

It will be interesting to see whether this issue goes to the Supreme Court, given the significant impact that it will have on the conduct of administrations. However, for the moment at least the position seems to be clear and considerably fairer.

The Scottish courts considered for the first time the question of the payment of rent as an expense of an administration in Cheshire West and Chester Borough Council in the Administration of Springfield Retail Limited [2010]. The court held (following the decision of the English courts in the case of Goldacre) that rent in respect of the period during which the third party occupied the property in terms of the licence should be paid as an administration expense. It is therefore anticipated that The Court of Appeal decision in Game will be followed in Scotland.

In Scotland, the landlord should consider exercising his hypothec which is the landlords’ right in security over moveables on the premises (such as stock and fixtures and fitting). The landlord has a preferential claim in the insolvency if they exercise the hypothec. The hypothec covers arrears of rent due but unpaid.

The case is fully reported as Re Games Station Limited (Jervis –v- Pillar Denton Limited) [2014] EWCA Civ 180.

For further information contact Alan Walker (Partner, Manchester), Sophie Morley (Associate, Leeds) or Philip Knight (Senior Solicitor, Edinburgh)

This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.

Jail for Newcastle health club crook who broke ban and conned investor (Insolvency Service)

Jail for Newcastle health club crook who broke ban and conned investor

14 May 2013 11:00

Michael Jeffels, a company director and a former semi-professional footballer, has been sentenced to 15 months immediate imprisonment after pleading guilty to running a company while banned and posing as a millionaire to convince an investor to part with tens of thousands of pounds.

Mr Jeffels pleaded guility and was sentenced at Newcastle Crown Court, following an initial investigation by The Insolvency Service and a full criminal investigation and prosecution by the Department for Business Innovation and Skills (BIS).

He was also convicted of perverting the course of justice for forging a document to make a claim for damages following a car accident.

Mr Jeffels had been banned from running a company for six years for his conduct while director of a previous company NECOE Ltd, which collapsed in 2002 owing £145,000 to creditors.

But the investigation showed that from 30 December 2007 to 16 September 2009 Mr Jeffels set up and ran a leisure club chain Ultimate Health and Fitness Ltd, (Ultimate Health), in clear breach of this disqualification.

Furthermore, Mr Jeffels posed as millionaire to dupe a businesswoman Elizabeth Chambers into investing substantial sums in the company.

Mr Jeffels even persuaded a former colleague and magistrate, Kamiljeet Kundi, to write a letter to Ms Chambers to vouch for his financial position. In fact, Mr Jeffels’ bank had stopped a number of payments from his account because of insufficient funds.

She agreed to a three-way partnership, with Mr Jeffels and his girlfriend Gillian Grainge, where each would invest £25,000 plus VAT, to expand his business from one club, Kicks Leisure – which he was legally running as a sole trader – by leasing two more clubs. Ms Chambers borrowed the money from a friend on a short term basis and handed it over to Mr Jeffels in June 2008. He then persuaded her to part with a further £10,000, saying it was needed urgently to pay stamp duty or they risked losing the clubs.

Mr Jeffels used the money to lease two clubs, in Wallsend, North Tyneside and in Oldham but neither he nor his girlfriend invested any significant funds of their own. More than £130,000 in membership fees from these clubs was then paid into Mr Jeffel’s bank account. It is unclear where this money has now gone.

Confiscation proceedings for proceeds of crime have been commenced by BIS against Mr Jeffels.

Mr Jeffels was also convicted of perverting the course of justice for forging a letter, purporting to be from Ms Chambers, which he used to try and claim damages following a car accident in 2008. The letter said he had been employed by Ultimate Health and Fitness Ltd as a consultant at the time of the accident and had suffered loss of earnings of £40,000.

Deputy Chief Investigation Officer Mike Williams from the Department for Business Innovation and Skills said:

”Mr Jeffels ignored the law and broke his ban to enrich himself. He is now in jail. His fate should be a warning to others tempted to ignore a disqualification order. Not only do you risk a prison sentence but we can also confiscate any ill-gotten gains acquired through acting in breach of a disqualification.”

Notes
1. Michael Jeffels, 29/04/1964, was sentenced by Mr Justice Eder at Newcastle Crown Court on 9 May 2013.

2. Section 13 of the Company Directors Disqualification Act 1986 makes it an offence to act as a director or be involved in the management of a limited company whilst disqualified. Mr Jeffels was disqualified from acting as a director for six years from 12 May 2006 until 11 May 2012. This disqualification arose from his conduct as a director of company NECOE Ltd, which went into liquidation on 27 November 2002 with a total deficiency of £145,655. On 1 November 2002, knowing that the company was insolvent, Mr Jeffels caused company funds of £123,455.93 to be paid to himself, ahead of other unsecured creditors. The funds came from the sale of the company’s premises on which VAT was charged. The VAT was paid to the defendant rather than to HM Customs and Excise, as it should have been.

3. Timeline of significant events in case.
6 MARCH 2012 First hearing at Newcastle Magistrates’ Court
5 NOVEMBER 2012 Mr Jeffels pleads guilty to one charge of acting as a director while disqualified and one count of perverting the course of justice
9 MAY 2013 Mr Jeffels was sentenced at Newcastle Crown Court

4. Offences:

Michael JEFFELS, between the 30th day of December 2007 and the 16th day of September 2009, being disqualified from so doing by virtue of an undertaking given to the Secretary of State, directly or indirectly was concerned or took part in the promotion, formation and management of a company, namely Ultimate Health and Fitness Ltd, without leave of the Court.

Michael JEFFELS, on days between the 31st day of August 2008 and the 22nd day of January 2010, with intent to pervert the course of public justice, did a series of acts which had a tendency to pervert the course of public justice in that he brought and prosecuted a claim for lost earnings against Malcolm Evans which was false.

5. Sentence:
Mr Jeffels was sentenced to 15 months’ imprisonment in total which was split as follows: two months for acting in the management of a limited company whilst disqualified, and 13 months for perverting the course of justice. He was disqualified from acting as a director or being involved in the management of a limited company for a further eight years.

6. The Insolvency Service administers the insolvency regime investigating all compulsory liquidations and individual insolvencies (bankruptcies) through the Official Receiver to establish why they became insolvent. The Service also authorises and regulates the insolvency profession; deals with disqualification of directors in corporate failures; assesses and pays statutory entitlement to redundancy payments when an employer cannot or will not pay employees; provides banking and investment services for bankruptcy and liquidation estate funds; and advises ministers and other government departments on insolvency law and practice. Further information about the work of The Insolvency Service is available from http://www.insolvency.gov.uk.

7. BIS’ mission is to build a Dynamic and Competitive UK economy, in particular by creating the conditions for business success and promoting an open global economy. The Criminal Investigations and Prosecutions team contributes to this aim by taking action to deter fraud and to regulate the market. We investigate and prosecute a range of offences, primarily relating to personal or company insolvencies. Further information about the work of the Criminal Investigations and Prosecutions team is available at https://www.gov.uk/fraud-bis-investigations-prosecutions-and-enforcement

Need help in avoiding situations like these?

The UK authorities, notably HMRC and the Insolvency Service,  have been having a field day in recent weeks with the number of successful prosecutions and disqualifications that they have reported.

How many of the individuals and companies might have escaped the trauma had they involved professional help at an early stage.

Many of the successes stem from the inability, or unwillingness, to keep a basic set of accounting records!!! In some cases it is out and out fraud which probably would have happened in any event if proper controls and checks and balances have not been set up.

Have a look at the blog for a selection of the best examples.

http://www.lease-a-finance-director.co.uk/blog.

If you need help to avoid such situations, then use the contact form on the website.

Tax barrister beaten in court (HMRC)

Tax barrister beaten in court

12 April 2013 09:36
A top tax barrister who designed his own tax avoidance scheme and defended it in court against HM Revenue and Customs (HMRC) has lost his attempt to avoid paying £190,000 in tax.
Rex Bretten QC designed a highly complex scheme which involved setting up trusts and investing £500,000 in discounted securities. He claimed his scheme created a loss of £475,000 which he could set against his income. The tribunal said that the securities had been issued solely to facilitate Mr Bretten’s tax avoidance scheme and that there was no genuine loss, so the tax is payable.

Although the structure was unique, the principles ruled on by the tribunal could be directly applied to a number of other cases involving further tax of around £2 million.

The Exchequer Secretary to the Treasury, David Gauke, said:

“The vast majority of individuals and businesses pay the tax they owe. There are, however, a small minority who will seek to exploit the rules and try to avoid their responsibilities by engaging in artificially contrived schemes.

“This is simply unacceptable and this case serves to highlight the work HMRC is doing to tackle evasion, avoidance and fraud. This Government has invested over £1 billion in HMRC and we are determined to ensure that the tax that is due under the law is collected.”

Jim Harra, HMRC’s Director General for Business Tax, said:

“This is another important success for HMRC at tribunal which may well have repercussions for other similar tax avoidance schemes.

“Some people make the mistake of thinking that a complex avoidance scheme backed by a senior lawyer is safe from HMRC’s challenge. That would be a big mistake, as this outcome proves. People should always ask themselves whether a proposed scheme is too good to be true.”

Notes
1. See http://www.financeandtaxtribunals.gov.uk/Aspx/view.aspx?id=7112 for a summary of the tribunal decision.

2. The Finance Act 2003 abolished the “discounted securities” loss relief claimed by Bretten.

3. At the 2013 Budget, the Government published ‘Levelling the Tax Playing Field’, which sets out the progress that has been made in the drive against tax avoidance. See http://www.hmrc.gov.uk/budget2013/level-tax-playing-field.pdf

4. A significant crackdown on tax avoidance and evasion, which will in total raise over £4.6 billion in new revenue over the next five years, was announced at the 2013 Budget. See http://www.hmrc.gov.uk/budget2013/evade-avoid.htm

5. Since 2010, HMRC has won more than 50 tax avoidance court cases, protecting billions of pounds.

London housing market consultant banned for 6 ½ years for tax dodging (Insolvency Sewrvice)

London housing market consultant banned for 6 ½ years for tax dodging

10 April 2013 12:00
Richard Charles Fordham, director of housing market consultancy Fordham Research Group Limited (FRG), based in London, has been disqualified from acting as a director for six and a half years for failing to pay taxes. The disqualification follows an investigation by The Insolvency Service.
Mr Fordham, 60, who represented himself in court, was banned from acting as a director of a limited company until September 2019.

FRG provided consultancy services and carried out research into the housing market for clients including local and central government, and house builders and developers. The company went into liquidation on 15 February 2010 owing almost half a million pouds to creditors, the majority of which – £429,941 – was made up of taxes owed to HMRC.

The Insolvency Service investigation showed that FRG had unpaid taxes dating back from March 2009. The company paid just £44,945 towards this debt – a tenth of the total owed by the time it entered liquidation.

Just three months prior to the company’s collapse, Mr Fordham caused FRG to convert his director loan account, which had a balance of £189,600, into director’s remuneration. The effect of this conversion was that the loan account was not treated as an asset at liquidation, therefore was not recoverable to pay FRG’s creditors.

The conversion also resulted in a substantial PAYE income tax and NIC liability, which the company did not pay. Furthermore, Mr Fordham paid himself £22,800 from FRG’s bank account, despite FRG being substantially overdue in its taxes and failing to comply with arrangements it had made with HMRC over late payment. Thus he acted to benefit himself to the clear detriment of HMRC.

Mr Fordham was previously a director of Fordham Research Limited (FRL), which went into liquidation on 19 December 2007 and sold its assets to FRG. FRL owed £601,635 to its creditors, with HMRC being the largest creditor with unpaid taxes totalling £347,671.

In total, the two companies racked up a debt of £777,612 in unpaid tax.

Commenting on the disqualification, Mark Bruce, a Chief Examiner at The Insolvency Service said:

“By disqualifying directors who seek an unfair advantage over their competitors by not paying tax we are upholding commercial confidence and promoting the UK’s reputation as a great place to do business. They should not expect to get away with it.

“Mr Fordham displayed a cynical attitude to the payment of tax in both his companies. Over £750,000 has been lost to the taxpayer. Just think what a school or a hospital could have done with that money.

“Other directors tempted to follow this path should remember that if they run a business in a way that is detrimental to either its customers or its creditors they lose the protection afforded by limited liability. The Insolvency Service will investigate them and seek to remove them from the business environment.”

Notes
1. Fordham Research Group Limited was incorporated on 8 September 2006 and went into liquidation on 15 February 2010. The company’s registered office was at 57/59 Goldney Road, London W9 2AR and it traded from the same address.

2. The disqualification order was made on 27 February 2013 where Mr Fordham is banned from being a director for six years and 6 months. The disqualification commences on 20 March 2013.

3. A disqualification order has the effect that without specific permission of a court, a person with a disqualification cannot;
•    act as a director of a company;
•    take part, directly or indirectly, in the promotion, formation or management of a company or limited liability partnership;
•    act as an insolvency practitioner; or
•    be a receiver of a company’s property.
In addition many other restrictions are placed on disqualified directors by other regulations. Further information on director disqualifications and restrictions can be found at http://www.bis.gov.uk/insolvency/Companies/insolvent-companies/director-disqualification-and-other-action.

4. The Insolvency Service administers the insolvency regime investigating all compulsory liquidations and individual insolvencies (bankruptcies) through the Official Receiver to establish why they became insolvent. The Service also authorises and regulates the insolvency profession; deals with disqualification of directors in corporate failures; assesses and pays statutory entitlement to redundancy payments when an employer cannot or will not pay employees; provides banking and investment services for bankruptcy and liquidation estate funds; and advises ministers and other government departments on insolvency law and practice. Further information about the work of The Insolvency Service is available from http://www.bis.gov.uk/insolvency

Web of rip-off landbanking companies torn apart by Insolvency Service

Web of rip-off landbanking companies torn apart by Insolvency Service

05 April 2013 12:00
Six companies that scammed the public into investing in plots of agricultural land have been wound up by the High Court on public interest grounds, following an investigation by The Insolvency Service.
The companies falsely claimed to investors that they would obtain planning permission to dramatically increase the value of this land.

The six companies, all based in the North of England were:
•    Green Crest Homes Ltd in Halifax;
•    Brand Trader (UK) Ltd (formerly known as Green Crest Homes (UK) Ltd) in Formby, Merseyside;
•    Sutton Wells Ltd in Horwich, Lancashire;
•    Curved Ball Ltd in Horwich, Lancashire;
•    JCB Marketing Ltd in Beverley, Yorkshire and
•    NSS-Operations Ltd in Horwich, Lancashire.
The companies traded from premises at 70 High St, Newton-Le-Willows, Merseyside, WA12 9SH. Collectively they operated a landbanking scheme selling small plots of land at a site which they described to investors as the ‘Pennine View Project’ in Liversedge, West Yorkshire.
Prospective investors were told that Green Crest Homes Ltd was seeking planning permission for residential development of the land and once they obtained this permission, the value of an average investment of £11,000 could increase by more than ten times, to as much as £120,000.

However, The Insolvency Service investigation found that the companies had made no application for planning permission to develop the land and, even if they had done, it was extremely unlikely that permission would have been granted.

At least 43 plots were sold to investors for around £11,000 each. Green Crest Homes Ltd and Brand Trader (UK) Ltd received the sale proceeds, while Sutton Wells Ltd, Curved Ball Ltd and JCB Marketing Ltd acted as marketing companies for Green Crest Homes Ltd.

Previously the three marketing companies had performed a similar role for another landbanking company CLS & Partners Ltd, which took almost £1 million from investors in exchange for plots of land at Ossett, Wakefield and was shut down in the public interest in May 2012, following an investigation by The Insolvency Service.

The Service’s more recent investigation found that Curved Ball Ltd had received funds from landbanking schemes run by CLS & Partners Ltd, as well as the Pennine View Project and several others. In total, Curved Ball Ltd had received more than £1.8m from the landbanking schemes but all of these funds had been dissipated and the company had been dissolved on the application of its directors. No adequate records were produced to explain where the money had gone.

NSS-Operations Ltd provided administrative services to Green Crest Homes Ltd and CLS & Partners Ltd.

Commenting on the case the Investigation Supervisor with The Insolvency Service, Colin Cronin, said:

“These companies persuaded members of the public to invest thousands of pounds in plots of land that they falsely claimed that they were seeking planning permission for. The companies said this planning permission was highly likely to be obtained and would result in a significant increase in the value of the land. In reality, no steps had been taken to obtain planning permission and there was very little prospect of any being granted.

“The Insolvency Service will take firm action against companies and their directors when the public are deliberately misled in this manner.

“The advice to anyone who is approached to invest in land in this way is to take time to reflect, seek independent advice and research the company in question. If a scheme sounds too good to be true, it usually is.”

Notes
1. Landbanking is a practice whereby agricultural land, often situated in the green belt, is bought at nominal value, then divided into smaller plots and sold on to investors for a substantial mark-up on the basis of representations that large returns will be received if planning permission is granted.

2. Green Crest Homes Ltd was incorporated on 12 January 2011 (company number 7491022). Its registered office is at Holmfield Mill, Holdsworth Road, Halifax, HX3 6SN.

3. Curved Ball Ltd was incorporated on 19 July 2007 (company number 6317570). Its registered office was at 166-170 Lee Lane, Horwich, BL6 7AF. On 4 July 2011 Curved Ball had applied to be struck off the Companies Register and it was dissolved by the Registrar of Companies on 1 November 2011. The Petitioner successfully applied to restore the company to the Companies Register to enable an investigation into its affairs.

4. Brand Trader (UK) Ltd (company number 7338586) was incorporated on 6 August 2010 under the name of Sterling Price Ltd. On 22 March 2011 it changed its name to Green Crest Homes (UK) Ltd and on 8 March 2012 the company again changed its name to Brand Trader (UK) Ltd. Its registered office is at 2 Friars Walk, Formby, Merseyside, L37 4EU.

5. Sutton Wells Ltd was incorporated on 15 October 2009 (company number 7043537). Its registered office is at 166-170 Lee Lane, Horwich, BL6 7AF.

6. NSS-Operations Ltd was incorporated on 12 February 2010 (company number 7155417). Its registered office is at 166-170 Lee Lane, Horwich, BL6 7AF.

7. JCB Marketing Ltd was incorporated on 6 June 2011 (company number 7659450). Its registered office is at 72 Flemingate, Beverley, Yorkshire HU17 0NY.

8. The petitions were presented under s124A of the Insolvency Act 1986 on 15 February 2013. The companies were wound up on 28 March 2013.

9. Company Investigations, part of The Insolvency Service, carries out confidential enquiries on behalf of the Secretary of State for Business, Innovation & Skills (“BIS”).

10. The Insolvency Service administers the insolvency regime investigating all compulsory liquidations and individual insolvencies (bankruptcies) through the Official Receiver to establish why they became insolvent. The Service also authorises and regulates the insolvency profession; deals with disqualification of directors in corporate failures; assesses and pays statutory entitlement to redundancy payments when an employer cannot or will not pay employees; provides banking and investment services for bankruptcy and liquidation estate funds; and advises ministers and other government departments on insolvency law and practice. Further information about the work of The Insolvency Service is available from http://www.insolvency.gov.uk

As an interim, get deregulated

•    Subject: As an interim, get deregulated
4th April 2013 – by Mike Measures, Interimconnect

As part of the Government Drive to reform regulation The Department for Business Innovation and Skills (BIS) is out to consultation until 11th April to replace the present Employment Regulations which cover interim managers. (Limited company opt outs and the like).

OK sounds good – BUT… Whereas now you can opt out of the Regulations in the future you cannot.

The recruitment sector is lobbying hard so that professional interims and highly paid contractors are entirely excluded from the scope of the new legislation – the strong argument being they are in business on their own account, are not “vulnerable”, to be included erodes their “in business on their account” and they should not be subject to inappropriate employment legislation.

You can respond to the BIS consultation at: http://www.surveymonkey.com/s/9B5BTB2. Please note the consultation closes on Thursday 11th April.

Read the full article on the Interimconnect blog: http://www.interimconnect.co.uk/blog/interim-managers/get-deregulated/
Posted By Amy Fowler

Breakdown in the working relationship: a fair dismissal? (TLT LLP)

Breakdown in the working relationship: a fair dismissal?

Updated March 2013

In the case of Handshake v Summers the Employment Appeal Tribunal (EAT) has concluded that a dismissal by reason of a “breakdown in working relationships” was unfair.

Background

In order to successfully defend an unfair dismissal claim, an employer must demonstrate that:

(a) there is a potentially fair reason for the dismissal; and
(b) the employer acted reasonably in treating that as a sufficient reason to dismiss the employee.

There are five potentially fair reasons for dismissal: conduct, capability, redundancy, breach of a statutory restriction and some other substantial reason (SOSR).

SOSR has a potentially broad remit. Previous case law has shown that a breach of trust and confidence and a subsequent breakdown of the working relationship can, depending on the circumstances, amount to an SOSR.

Facts

Mr Summers was one of three senior managers at Handshake Limited. At the outset of his employment no terms and conditions were formalised, however he did receive an offer letter. The offer letter stated that Mr Summers would receive 30% of the issued share capital of the company.

A long running dispute arose in relation to Mr Summers’ share entitlement, the disagreement focusing around the correct assessment of the company’s net profits and the calculation of Mr Summers’ 30% share.

The dispute involved numerous meetings and correspondence between solicitors and eventually, after six years of unsuccessful attempts at reconciliation, Mr Summers was dismissed. The reason cited for the dismissal was a breach of trust and confidence and a breakdown in the working relationship.

Decision

What amounts to a breach of trust and confidence and a breakdown of the working relationship is a question of fact for the Tribunal. The EAT held that there was no such breakdown here and therefore Mr Summers’ dismissal was unfair.

The EAT noted that Mr Summers remained cheerful and friendly throughout the dispute and both parties were very amicable and had a good relationship. Consequently it could not be said that there was a breakdown in this relationship, despite letters from Mr Summers’ solicitor expressly stating the contrary. There was also nothing untoward about the way in which the debates were conducted to suggest a breach of trust and confidence.

The EAT commented that power struggles, tension and disagreements are not a breach of trust and confidence or a breakdown in the working relationship and therefore not a fair reason for dismissing an employee.

Comment

Whilst a breakdown in the working relationship has been held to amount to SOSR, it is unusual for it to be accepted as fair where it is the sole reason for dismissal.

What actually amounts to a breakdown is unclear and case law demonstrates that Tribunals take a robust approach to avoid reliance on this as a catch-all reason for dismissal. The Tribunal noted that it would be dangerous for disagreements in the workplace (particularly in relation to terms of employment) to amount to a breach of trust and confidence that could then be relied upon as a reason for dismissal as this would deter employees from asserting their rights and raising queries.

Breakdown in the working relationship and breach of trust and confidence are both difficult to prove and difficult to rely on as a fair reason for dismissal. Employers should bear this in mind and exercise caution when considering a dismissal on the basis of one or both of these reasons and perhaps look to rely on one of the other four reasons for a fair dismissal.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at March 2013. Specific advice should be sought for specific cases; we cannot be held responsible for any action (or decision not to take action) made in reliance upon the content of this publication.

TLT LLP is a limited liability partnership registered in England & Wales

Seven year ban for payroll boss who left £15m hole in accounts (Insolvency Service)

Seven year ban for payroll boss who left £15m hole in accounts

27 March 2013 09:30
A Hertfordshire resident Greg John Middleton, director of Sigma Labour Services Limited, a company that provided payroll services in Essex, has been disqualified from acting as a director for seven years for failing to keep proper accounts, which meant transactions worth £15m went unexplained.
The disqualification follows an investigation by The Insolvency Service.

Mr Middleton, 43, of Rickmansworth, Hertfordshire has given an undertaking that he will not act as a director of a limited company from 1 April 2013 to April 2020.

Sigma Labour Services Limited entered voluntary liquidation on 20 May 2011. The Insolvency Service investigation found that the company’s records failed to:
•    establish when it had started trading;
•    the extent and nature of the company’s business; or
•    explain £15,000,000 of transactions in and out of the company’s bank account.
This lack of a proper paper trail also meant it was not possible to establish the company’s true tax debt.

Commenting on the disqualification, Mark Bruce, a Chief Examiner in Company Investigation Team South at The Insolvency Service said:

“The substantial period of this disqualification reflects the fact that when a company fails to keep adequate financial records, it could lead to other, more serious, impropriety in relation to the management of its affairs. The sheer scale of unexplained transactions during the last 11 months of this company’s trading raises serious questions.

“Directors have a vital duty to keep proper records, especially when a company is experiencing financial difficulties. Directors who neglect this responsibility damage business confidence and are bad for growth. The Insolvency Service will seek to remove them from the business environment.”

Notes
1. Sigma Labour Services Limited was incorporated on 14 May 2009 and went into voluntary liquidation on 20 May 2011.

2. Mr Middleton gave an undertaking on 11 March 2013 to the Secretary of State not to be a director for seven years. The disqualification commences on 1 April 2013.

3. Disqualification undertakings were introduced in April 2001, they are the administrative equivalent of a disqualification order but do not involve court proceedings. Without specific permission of a court, a person with a company directors disqualification, including undertakings, cannot act as a director of a company; take part, directly or indirectly, in the promotion, formation or management of a company; be a liquidator or administrator of a company; or be a receiver or manager of a company’s property.

4. Further information on director disqualifications and restrictions can be found at http://www.bis.gov.uk/insolvency/Companies/insolvent-companies.

5. The Insolvency Service administers the insolvency regime investigating all compulsory liquidations and individual insolvencies (bankruptcies) through the Official Receiver to establish why they became insolvent. The Service also authorises and regulates the insolvency profession; deals with disqualification of directors in corporate failures; assesses and pays statutory entitlement to redundancy payments when an employer cannot or will not pay employees; provides banking and investment services for bankruptcy and liquidation estate funds; and advises ministers and other government departments on insolvency law and practice. Further information about the work of The Insolvency Service is available from http://www.bis.gov.uk/insolvency.