Director disqualified for failing to question colleagues’ VAT fraud

A businessman with an exemplary record has been disqualified from being a director after failing to question a VAT fraud at his company.

The case involved the Secretary of State for Business, Energy and Industrial Strategy and XE Solutions Ltd.

Three of the company’s directors were disqualified for between 11 and 14 years under the Company Directors Disqualification Act 1986 because they had caused or allowed their company to participate in missing trader intracommunity VAT fraud.

A fourth director who had been far less involved in day-to-day operations was also unfit to be a director, as he had abrogated his duty by failing to investigate when the company’s turnover had suddenly hugely increased, and had deferred to one of the other directors when he should not have done.

The court accepted his evidence was more credible than that of the others and accepted that he had decided to delegate the operations of the company to the other directors. That may have been a reasonable decision, but he had failed to fulfil his duty to protect the company’s interest and ensure it traded lawfully.

He had not asked for details of one the other director’s previous convictions and had deferred to him in relation to the running of the company, dealings with HMRC and the instant litigation, even when he knew he was not being provided with the required information. 

That was a serious dereliction of duty. His failure to investigate when the company’s turnover had undergone a sudden and extraordinary uplift was a reprehensible abrogation of duty. He was unfit to be a director and was disqualified for four years.

He had had a distinguished 30-year career and the effect on him would be more pronounced than it would be on many directors. However, he had evidenced no real appreciation of what had gone wrong or the seriousness of the situation.

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Secretary of State for Business, Energy and Industrial Strategy v Selby
Also known as: XE Solutions Ltd, Re
8 December 2021
Where Reported
[2021] EWHC 3261 (Ch)
Judge Prentis