The Insolvency Service has imposed a five-year director disqualification following an investigation into a company which distributed false and misleading investment material before being wound up in the public interest.
Signature Works Gold Limited sold desk space in Liverpool properties as an investment opportunity. The Insolvency Service found that promotional material stated or implied that investors would acquire a legal interest registered at the Land Registry, even though the company itself held no registered freehold or leasehold interest in the properties.
Investors ultimately suffered losses of more than £4.8 million. The company’s sole director subsequently gave a five-year disqualification undertaking. Importantly, the Insolvency Service expressly stated that the director was not accused of direct fraud.
The case demonstrates an important point for directors in England and Wales. Director disqualification is not limited to allegations of fraud or deliberate personal dishonesty. How a director supervises a company’s governance, controls information issued to customers or investors and responds when problems become apparent can also become relevant to an assessment of whether their conduct makes them unfit to manage a company.
What happened at Signature Works Gold Limited?
Signature Works Gold Limited was incorporated in 2017 and sold desk space to investors across three Liverpool properties.
- The intended model was that the workspace would be rented to members of the public, with rental income funding returns to investors. Those returns stopped being paid after September 2019.
- The Insolvency Service found that marketing material stated or implied that investors would obtain a legal interest in the property in which they acquired desk space, registered at the Land Registry.
- In reality, Signature Works Gold Limited did not own a registered freehold or leasehold interest in any of the three buildings. They were owned by separate companies.
- The Insolvency Service also found that the marketing referred to Signature Works Gold Limited as being part of a wider group, even though it did not form part of a formal legal group structure.
The company was eventually wound up in the public interest in December 2022 following an Insolvency Service investigation into concerns about investors being misled.
At the time of the winding up, the company had assets of less than £100,000 and liabilities of £4,848,654. The Insolvency Service subsequently found that investors had suffered losses exceeding £4.8 million.
The director gave a five-year disqualification undertaking shortly before a disqualification trial was due to take place.
When can misleading investment material lead to director disqualification?
Director disqualification proceedings are concerned with whether a person’s conduct makes them unfit to be involved in company management.
The Insolvency Service may investigate directors following company insolvency or where complaints or other information raise concerns about their conduct. If it considers that a director has not met the standards required, it can begin the disqualification process.
Misleading customers or investors can potentially form part of that assessment, but the circumstances matter.
- The Signature Works Gold case is particularly useful because the Insolvency Service focused on the director’s failure to ensure adequate stewardship and corporate governance.
- It found that the company had been allowed to distribute false and misleading promotional information which resulted in significant investor losses.
This demonstrates why directors cannot necessarily distance themselves from inaccurate company material simply because they did not personally prepare every document.
The degree of responsibility will depend on the particular company, the director’s role, what they knew, what systems were in place and the conduct relied upon by the Secretary of State.
An inaccurate statement will not automatically lead to director disqualification. Equally, an Insolvency Service investigation does not mean that a director will inevitably be banned. The alleged conduct must be considered individually and a director who disputes the allegations can respond to them and, where proceedings are issued, defend the claim.
Our director disqualification guide explains how the investigation and disqualification process works and the issues directors should consider when they receive correspondence from the Insolvency Service.
Does a director have to commit fraud to be disqualified?
No, a director does not have to commit fraud to be disqualified.
One of the most important features of the Signature Works Gold announcement is the Insolvency Service’s express statement that the director was not accused of direct fraud.
Director disqualification is wider than fraud.
Government guidance gives examples of potentially unfit conduct including
- allowing a company to continue trading when it cannot pay its debts,
- failing to maintain accounting records,
- failing to comply with tax obligations; and
- using company money or assets for personal benefit.
The relevant question is whether the conduct relied upon demonstrates unfitness to be concerned in the management of a company.
The Signature Works Gold case adds another useful illustration. A director’s stewardship of a business and oversight of material issued to investors can become relevant even where the case is not based on an allegation that the director personally committed fraud.
That distinction matters for directors responding to an investigation.
It is important first to identify precisely what conduct the Insolvency Service alleges. The response to an accusation of dishonesty will be different from a case alleging inadequate oversight, poor record keeping, failure to supervise company activities or allowing misleading information to be distributed.
Directors should therefore avoid assuming either that an investigation proves wrongdoing or that the absence of an allegation of fraud means disqualification cannot follow.
The focus should be on the actual conduct alleged, the evidence available and whether there is a proper basis to challenge the Secretary of State’s case.
What is the difference between a disqualification undertaking and a court order?
A disqualification undertaking allows a director to accept disqualification without the court having to determine the Secretary of State’s application at trial.
An undertaking is the administrative equivalent of a disqualification order. Once accepted by the Secretary of State, it has the same effect as an order made by the court.
Giving an undertaking does not therefore mean that the restrictions are less significant.
In the Signature Works Gold case, a five-year undertaking was given shortly before the director was due to face a disqualification trial. The undertaking brought those proceedings to an end.
Whether a director should offer an undertaking is a significant decision.
The fact that an undertaking can avoid a contested trial does not mean it should automatically be accepted. Directors should consider the allegations, evidence, proposed length of disqualification and commercial consequences before deciding how to respond.
Where allegations are disputed, there may be grounds to defend the proceedings or seek a different outcome through representations and negotiation.
FWJ’s guide to the Company Directors Disqualification Act 1986 explains the distinction between orders and undertakings, as well as the restrictions which follow once disqualification takes effect.
What happens after a director is disqualified?
A disqualification order or undertaking prevents a person from acting as a company director or becoming directly or indirectly involved in the promotion, formation or management of a company during the disqualification period unless the court grants permission.
The consequences can therefore extend considerably beyond losing a formal directorship.
- A disqualified person cannot simply resign as a registered director and continue controlling the company behind the scenes. Government guidance confirms that the restrictions include indirect involvement in management and using other people to manage a company under the disqualified person’s instructions.
- Breaching a disqualification can lead to criminal consequences and potential personal liability for company debts incurred during the contravention.
In some circumstances, however, a disqualified director may apply to the court under section 17 of the Company Directors Disqualification Act 1986 for permission to act in relation to a specified company. Permission is not automatic and the court will consider the need for the application and whether adequate safeguards exist to protect the public.
For directors facing an Insolvency Service investigation, the practical lesson from Signature Works Gold is therefore not simply that misleading investment material can have serious consequences.
Early decisions about governance, supervision and the accuracy of information issued by a company can affect what happens much later if that company fails or becomes subject to regulatory scrutiny.
Directors who receive an Insolvency Service letter should establish the specific allegations, preserve the relevant documents and consider their response before making admissions or offering an undertaking. The fact that a company has failed or that investors have suffered losses does not, by itself, establish that an individual director should be disqualified.
