The High Court was faced with a request to disqualify a director for overstating the turnover of his company in a ‘Bounce Back Loan’ application.
Background:
The Secretary of State sought an order that Mr. Mohammad Ahmedivand be disqualified from acting as a director of a company pursuant to Section 6 of the Company Directors Disqualification Act 1986 (CDDA) by virtue of his conduct as a director of UK Dream House Ltd. UK Dream House Ltd was incorporated in May 2018 with the defendant serving as the sole director since January 2020.
Mr. Ahmedivand caused UK Dream House Ltd to breach the terms and conditions of a Bounce Back Loan (BBL) by knowingly overstating the company’s turnover in order to obtain more funds than it was entitled to. He applied for a BBL of £20,000, claiming that the company's turnover was £80,000, a figure which was significantly overstated. When the company entered into creditors' voluntary liquidation in September 2021, it had a recorded deficiency of £39,738.
Decision:
ICC Judge Barber first laid down the requirements under Section 6 of the CDDA 1986, namely that 1) the person is, or has been a director of a company, which has become insolvent; and 2) his conduct as a director makes him unfit to manage a company. The Judge analysed the leading authorities regarding a director’s unfitness.
The Court ruled that the BBL application form was short and expressed in clear language with sufficient detail. The Judge continued, noting that “the disparity between the claimed turnover and actual turnover (claimed turnover being at least four times actual turnover) is so significant in this case that it is simply impossible to explain away as a genuine but mistaken estimate.” Indeed, the real turnover for 2019 was estimated to have been between £14,000 and 19,000 rather than the £80,000 claimed. Indeed the defendant never produced evidence as to why he believed £80,000 was the correct figure.
The Court also rejected the defendant’s claim that he had forecasted that the turnover would be £80,000 as the BBL application was very clear and asked for the actual turnover. The Judge continued by noting that “Even if, contrary to my primary conclusions at [65], [68] and [70] above, the defendant did consider the company entitled to proceed on forecasted turnover, he has failed to adduce any evidence to support, still less substantiate, a 'forecast' of £80,000.” ICC Judge Barber concluded that Mr. Ahmedivand must have known when completing the form that it was a material overstatement.
The Court also rejected the argument by the defendant that he had received advice from an accountant when completing the form. The reasons for the rejection are manifold, although the Judge remained unconvinced, as the defendant could not name the accountant and nor was the accountant's advice mentioned in the Insolvency Service questionnaires.
Based on those findings, the ICC Judge Barber found that the defendant’s conduct amounted to misconduct – thereby making him unfit – and he was disqualified for 9 years.
Implications:
This case emphasises the importance of honesty in the self-certification process. The judgement provides a good summary of the authorities on unfitness. It also underscores the importance of having good evidence to back any claims. For instance, the accountant's advice argument was eviscerated by the Judge based on the lack of evidence provided.
The decision highlights the potentially severe consequences for those directors who fail in their responsibilities as directors.