A recent Insolvency Service prosecution shows how quickly company financial distress can move from a civil insolvency issue into criminal proceedings where company assets are removed before creditors are paid.
The case involved a disqualified director who continued to control companies despite being banned from acting as a director. According to the Insolvency Service, more than £3 million was transferred from the sale proceeds of a commercial property while the company was facing winding-up pressure from HMRC and other creditors. The director was jailed for four years and given a further 10-year director disqualification order.
For directors, the case is a clear reminder that decisions taken when a company is under creditor pressure can have long-term consequences. It is not only the company that may be scrutinised. The conduct of those controlling the company, the movement of funds and the treatment of creditors can all become central issues.
What happened in the £3m insolvency fraud case?
The Insolvency Service confirmed that a disqualified director was sentenced following an investigation into insolvency fraud and money laundering.
The case concerned a company that owned a commercial property in Salford. HM Revenue & Customs had applied to wind up the company after unpaid tax had built up. Around three months later, the property was sold for just under £5.1 million.
- After mortgages and legal fees were paid, almost £3.1 million was moved within nine days of the sale.
- The funds were transferred to a food and drinks company controlled by another individual and then moved through a network of accounts and companies.
- The Insolvency Service said that money was ultimately returned to the disqualified director or connected interests.
The director admitted charges of fraudulently removing assets in anticipation of winding up and acting as a company director while disqualified. The second individual pleaded guilty to money laundering under the Proceeds of Crime Act 2002.
At Manchester Crown Court, the disqualified director was jailed for four years and banned from acting as a company director for a further 10 years. The other individual received a suspended sentence and was ordered to carry out unpaid work. The Insolvency Service has also started confiscation investigations to recover funds. The official GOV.UK release was published on 12 June 2026.
Why does asset removal before winding up create serious risk?
When a company is insolvent or close to insolvency, directors must be particularly careful about how company assets are dealt with.
The key issue is not simply whether a transaction has taken place. It is whether the transaction prejudices creditors, removes value from the company or places assets beyond the reach of those owed money.
In this case, the Insolvency Service said that the company was already under HMRC winding-up pressure when the property sale completed. That timing mattered. Where a company is facing a winding-up petition, attempts to move substantial assets away from the company can attract close scrutiny from liquidators, HMRC, the Insolvency Service and, in serious cases, criminal prosecutors.
Directors should also remember that company money is not personal money. Even where a director has built the business or has an economic interest in the company, company assets must be handled properly, particularly where creditors are unpaid.
What happens if a disqualified director continues to control a company?
A director disqualification order or undertaking prevents an individual from forming, managing or promoting a company without court permission.
- The risk is not limited to someone being formally registered at Companies House as a director. A disqualified person may still breach the restrictions if they continue to exercise actual control over the company or act as if they are managing its affairs.
- That was a central feature of this case. The Insolvency Service said that although other individuals were formally appointed as directors, the disqualified director retained actual control of the companies.
This is a practical warning for companies, nominee directors and professional advisers. A person who is not listed as a director may still be treated as controlling the company if the evidence shows that they are making decisions, directing transactions or managing the business behind the scenes.
How can insolvency fraud lead to money laundering and confiscation proceedings?
Insolvency fraud often overlaps with wider financial crime where funds are moved through companies, accounts or connected parties to conceal their origin or destination.
In this case, the second individual pleaded guilty to money laundering under the Proceeds of Crime Act 2002. The Insolvency Service said the funds were laundered through a network of accounts and companies before being returned to the disqualified director or connected interests.
The important point for directors is that the movement of money after a transaction can be just as important as the transaction itself. Where there is no clear commercial explanation for transfers, or where funds pass through unrelated companies, investigators may treat those movements as evidence of concealment.
The Insolvency Service has also started confiscation investigations. Confiscation proceedings can seek to recover the financial benefit obtained from criminal conduct. This means the consequences may continue after sentencing.
What should directors do if a company is facing HMRC pressure or winding up action?
Directors should take early advice if a company is under pressure from HMRC, has received a winding-up petition or is considering selling assets while creditors remain unpaid.
- The priority is to preserve control, keep clear records and avoid decisions that could later be criticised as creditor prejudice.
- Directors should be able to explain why a transaction was entered into, how the price was reached, where the money went and how creditors were treated.
Where HMRC is involved, the risks can escalate quickly. A tax debt may begin as a payment issue but can develop into a winding-up petition, liquidator investigation, director disqualification proceedings or, in more serious cases, criminal enforcement.
Directors should not assume that resigning, appointing someone else or stepping away from the formal Companies House record will remove risk. The question is often who controlled the company in practice and who made the relevant decisions.
What lessons should directors take from this insolvency fraud case?
This case shows the importance of dealing carefully with company assets when creditors are unpaid or winding-up proceedings are threatened.
Not every distressed company situation involves wrongdoing. Many directors face difficult trading conditions, tax pressure and creditor demands through no fault of their own. However, where funds are moved away from a company at the point creditors are seeking payment, the decision-making process is likely to be examined closely.
For directors, the safest course is to take advice before assets are sold, funds are transferred or creditor claims are deferred. Clear records, proper valuation evidence and a defensible commercial rationale can make a significant difference if the company later enters liquidation.
If you are concerned about director disqualification, HMRC pressure, creditor claims or the sale of company assets before insolvency, Francis Wilks & Jones can advise on the options available and the steps needed to protect your position.
