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Directors beware – are your co-directors up to no good?

The Wilkes Partnership Solicitors

It will come as no surprise to read that company directors are at risk if they do not act with a sufficient level of care and skill.

However, what is not so widely known is that innocent co-directors may also be at risk of liability and disqualification if they negligently fail to check on what their other directors are doing in respect of the company’s affairs.

Ignorance is no defence. Earlier this year, two directors were disqualified for a combined total of 20 years.

Craig Cooper and Jeffery Kushner were joint directors of Crimson Fine Wines Limited (CFWL), a company which dealt with investment in fine wines.

The Insolvency Service began investigating CFWL after it had been put on notice of an increasing number of complaints that CFWL had consistently failed to allocate wines to customers in exchange for their investments. CFWL later went into liquidation and there were both insufficient funds and wine to satisfy customers’ claims.

Investigations revealed that director Craig Cooper had been misusing company money for his personal benefit and wrongly claiming company dividends. Jeffrey Kushner, the co-director was not found to be complicit in these acts but was found to be negligent in his role as director for failing to monitor the company’s finances (despite residing in Canada).

The Secretary of State was not sympathetic to Mr Kushner, it was his failure to monitor company funds which allowed Craig Cooper to act in the way that he did. In total, customers lost out on £989,258 with the overall costs of the liquidation equalling over £1,000,000.

Kushner made undertakings to the Secretary preventing him from being a director for 9 years.

Andrew Garland, Partner in the Business Recovery Team at The Wilkes Partnership observes that directors will be at risk if they do not take their role as a director seriously and make proper enquiries to ensure that co-directors are dealing with matters properly.

If individuals give their business partners free rein to act as they please they too may be disqualified as a result of negligence because they failed to fulfil their duties as directors.

This case shows that the Insolvency Service are actively trying to make examples of directors who act in such a way.

If you are a director of a company, are concerned about any aspect of the above, and want advice in an insolvency situation then contact the Director Defence Team on 0121 710 5818, email at AGarland@wilkes.co.uk or visit www.directordefence.com