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The importance of maintaining proper accounting records

The director of a company set up to market a fuel-saving device has been disqualified from acting as a director for failing to maintain and preserve proper accounting records.

It has been reported that the director of Pure Strategic Limited has given an undertaking (disqualification undertakings are the administrative equivalent of a disqualification order but do not involve court proceedings) to the Secretary of State for Business Innovation and Skills, that he will not act as a director of a company for a period of six years from June 2016.

The director was disqualified after an Insolvency Service investigation found he had failed to maintain and preserve adequate accounting records.

In October 2013, Pure Strategic Limited was placed into compulsory liquidation following a winding up petition issued by HM Revenue and Customs. Following the liquidator’s appointment, the investigation found that for the period from at least October 2011 to October 2013, the company’s books were inadequate, as follows:

  • The liquidator was unable to verify expenditure from the company’s bank account totalling £260,442 or verify whether receipts into the company’s bank account totalling £296,617 were a true representation of the sales achieved by the company.
  • The liquidator was unable to verify whether there were any further company assets to those realised at the date of the liquidation. Additionally, in the event that any assets were disposed of prior to the liquidator’s appointment, it was not possible to verify either whether these assets were disposed of for full value or for the benefit of the company and its creditors generally.
  • The liquidator was unable to establish the true level of liabilities owed to HM Revenue and Customs.
  • Verify the position with regards to the personal withdrawals to the director totalling £110,500.
  • Provide HM Revenue & Customs with corporation tax returns for the periods ended 28 February 2008 to Liquidation, to establish the true level of any liabilities owed for corporation tax for all years from 2008 to liquidation.
  • Verify the number or nature of any employees the company may have had and consequently the extent of any consequential PAYE or NIC liabilities that may have been outstanding. 

The verification of the company’s true financial position was hampered further as a result of the director’s failing to lodge a statement of affairs for the company or ensure that the company complied with its statutory obligation to file accounts with Companies House from the date of incorporation.

Robert Clarke, Head of Company Investigation at the Insolvency Service said: “keeping proper records is a pivotal duty for directors and there is no place in the business environment for those who neglect their responsibilities in this area and cover up the activities of the companies they manage. The lack of records in this case made it impossible to determine whether there was other, more serious misconduct at Pure Strategic and that is reflected in the period of the disqualification.”

The fact that this director has been disqualified for a significant number of years is a reminder to all directors that proper accounting records should be kept.  When a company enters into insolvency, the liquidator will report the failure to maintain proper records to the Insolvency Service, who will investigate you and may seek to disqualify you from acting as a director.  If any director is unsure of what accounting records should be kept and for what period, they should seek advice from their accountants.

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