DIRECTORS of more than half the companies that went bust in the last two years may have been guilty of unfit conduct.
The shocking statistic is based on an investigation by a leading firm of chartered accountants which suggests wrong doing may be occurring on a massive scale in Scotland's boardrooms.
Matt Henderson, head of restructuring at Johnston Carmichael chartered accountants, said such directors are posing huge problems for insolvency experts in their efforts to deal with companies that get into difficulty.
Mr Henderson said in 55 per cent of 84 cases within the last two years examined by Johnston Carmichael some form of unfit conduct was detected. Examples included wrongful trading, failure to file statutory accounts and re-use of a prohibited name.
The problems faced by insolvency staff have been compounded in many cases by directors failing to co-operate in the insolvency process.
Mr Henderson said in too many cases there is complete lack of co-operation from the directors to the extent that important documents, such as a Statement of Affairs of the company setting out details of assets and liabilities, are not returned. Directors often do not make themselves available for interview and the insolvency practitioner has no access to company books, records and financial history.
Mr Henderson said the consequences of such action could be especially damaging in Scotland. He noted that in England the Official Receiver will pursue cases involving companies that enter liquidation and which do not have any assets.
However, in Scotland insolvent companies only go into liquidation if there are sufficient assets within the company to meet the costs of the liquidation process, or if a creditor underwrites that cost. This means that directors of Scottish companies with no assets are more likely to avoid insolvent liquidation. It is therefore less likely that an insolvency practitioner will be appointed to scrutinise the directors' conduct.
Mr Henderson said: "It means if you are a rogue director it's going to be much easier to get away with unfit conduct if you happen to be a director in Scotland."
He believes much more needs to be done to clamp down on directors who do not cooperate in the insolvency process.
"The failure of directors to co-operate can be extremely prejudicial in insolvency situations and needs to be taken more seriously than it is at the moment," said Mr Henderson.
"It's not possible to quantify the seriousness of any offences if a director does not co-operate with an insolvency practitioner and there are no funds left to fund a formal examination of a director's conduct. A company director could be hiding gross unfit conduct behind what is perceived as a minor compliance failure."
Mr Henderson said in cases where companies have to be wound up the onus should be on directors to prove the steps they had taken to try to ensure the position of creditors did not worsen after the firm got into difficulty.
He added: "If they fail to do so through a lack of co-operation and disregard for the insolvency process, I believe an automatic disqualification preventing them from acting as a director in the UK for a period of three years should follow.
"In these times of ever-increasing calls for transparency and accountability, it would demonstrate to all those involved in the insolvency process that errant directors cannot escape sanction for their actions simply by not co-operating."
Insolvency practitioners are appointed to companies that are placed in administration or go into liquidation , possibly following action by creditors.
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