A recent Insolvency Service prosecution has highlighted the serious consequences of breaching bankruptcy restrictions, misusing Covid support funds and continuing to run a company while disqualified.
The case involved a Newcastle recruitment consultant who was sentenced at Newcastle Crown Court after what the Insolvency Service described as a string of offences involving Covid fraud, director disqualification breaches and phoenix company activity. He received a 22 month prison sentence, suspended for two years, a further seven year director disqualification and 250 hours of unpaid work.
For directors and individuals involved in distressed businesses, the case is a reminder that insolvency restrictions are not technicalities. They can carry criminal, regulatory and personal consequences if ignored.
What happened in this case?
According to the Insolvency Service, the director was made bankrupt in July 2019 after failing to pay council tax. He had previously been a director of United Recruitment and Employment Limited, which went into liquidation in January 2019.
- The Insolvency Service said they later set up Unify Group Limited in September 2019, after his bankruptcy, and that the new company traded under a similar name to the failed company.
- The source states that this breached the Insolvency Act 1986 restriction on reusing a company name to evade creditors after insolvency.
The source also states that he concealed his involvement by appointing a nominee director who had no knowledge of the appointment. In December 2020, he fraudulently obtained a £30,000 Bounce Back Loan for Unify Group Limited and transferred more than £12,000 to his own account. A further £8,000 was paid to a company or individual in France with no known links to Unify Group Limited.
Why does acting while bankrupt create serious risk?
A bankrupt individual is subject to significant restrictions. One of the most important is that it is a criminal offence to act as a company director while bankrupt, unless permitted by the court.
This matters because company directors control company assets, creditor payments and trading decisions. Where an individual is bankrupt, the law restricts their ability to manage limited companies in order to protect creditors and the wider public.
The Insolvency Service said the director ignored the bankruptcy and continued to run a company. It also said he was later disqualified as a company director for five years in January 2022, but continued to act as director of Unify Group Limited despite that disqualification.
When can phoenix companies and company name reuse become unlawful?
Phoenix company issues often arise where a new business is formed after a previous company has entered liquidation or administration. Not all phoenix activity is unlawful. In some cases, a properly advised business rescue or asset sale may be legitimate.
The risk arises where a company name is reused unlawfully, creditors are left behind unfairly, or the new company is used to avoid liabilities of the former business.
The Insolvency Service stated that Unify Group Limited traded under a similar name to the failed predecessor company, United Recruitment and Employment Limited. It said this breached the Insolvency Act 1986 rules which restrict directors from reusing a company name to evade creditors after insolvency.
For directors, the practical point is clear. If a company has failed and a new business is being considered, the name, trading style, assets, employees, customers and liabilities all need careful legal and insolvency advice before steps are taken.
Why does Covid support fraud remain under scrutiny?
The case also involved a Bounce Back Loan. According to the Insolvency Service, a £30,000 loan was fraudulently obtained for Unify Group Limited in December 2020, with part of the money transferred to the individual’s personal account and another payment made to a company or individual in France with no known link to the business.
- Covid support scheme investigations continue to affect directors, former directors and bankrupt individuals.
- These cases may involve Bounce Back Loans, furlough claims, CBILS lending or other pandemic related support.
The fact that the original application may have been made several years ago does not prevent later investigation. In many cases, concerns emerge only after insolvency, when office holders review company records and report director conduct.
When does company money create personal risk for directors?
The Insolvency Service said its investigations revealed that more than £190,000 was transferred from Unify Group Limited to Ekamba-Elombe’s personal account between June and October 2022. The source states that funds were then transferred to the solicitors who conducted conveyancing for two property purchases.
This part of the case is particularly relevant for directors because use of company funds for personal purposes can raise serious issues, especially where the company is insolvent, creditors remain unpaid or there are restrictions on the individual’s ability to manage a company.
Where company money is transferred to directors, associated individuals or connected businesses, the transactions may later be reviewed by liquidators, trustees in bankruptcy, creditors or enforcement agencies.
Why does this matter for directors and creditors?
This case brings together several areas of legal risk which often overlap in distressed business situations. Bankruptcy restrictions, director disqualification, phoenix company rules, Covid support claims and company asset transfers can each create separate consequences. When they arise together, the risk can become far more serious.
- For directors, the key lesson is that informal workarounds are rarely safe. Appointing someone else as a director, trading through a similar company name, moving funds out of a company or continuing to influence management decisions while restricted can all create further exposure.
- For creditors, the case also shows that suspicious post-insolvency conduct may be investigated beyond the original company failure. The Insolvency Service confirmed that it is seeking to recover the fraudulently obtained funds under the Proceeds of Crime Act 2002.
How can FWJ help?
Francis Wilks & Jones advises directors, bankrupt individuals, creditors and office holders on disputes involving director disqualification, bankruptcy restrictions, phoenix companies and insolvency related claims.
We regularly assist with Insolvency Service investigations, claims arising from company failure, allegations of acting while disqualified and disputes concerning misuse of company funds.
Our team also advises directors on how to structure business rescue or restart options lawfully, including where there are concerns about company name reuse, creditor pressure, HMRC debts or personal exposure.
