Director disqualified for failing to report frauds

A director who neglected to report two incidents of fraud within his firm has lost his appeal against being disqualified from being a director of a new company.

The High Court was told that within a week of returning from holiday, the director discovered that two frauds had been perpetrated against the bank while he had been away. He didn’t inform the bank of either incident.

The company later built up substantial debts and an administrative receiver was appointed. In the meantime, the director had acquired another company. He became sole director of this new company but then found that disqualification proceedings were being brought against him for failing to report the frauds.

The day before the trial, he gave an undertaking that he had discovered the frauds within a week of returning from holiday and that he would not become a director of another company for 10 years without permission from the court. He then applied for court permission but swore in an affidavit that he had not discovered the frauds until after the receiver had been appointed and when it was too late to inform the bank.

The court refused his application. It said the way he retracted his admission that he knew about the frauds within a week of returning from holiday showed that he did not appreciate the seriousness of his conduct and so there would be a risk to the public if he were allowed to continue as a director. He appealed but the ruling was upheld by the High Court.

The case illustrates the serious consequences of failing to comply with company law. Anyone in doubt about the correct procedures to follow should seek legal advice.