Director disqualification in the context of VAT fraud (SoS v Rosenblatt)

Director disqualification in the context of VAT fraud (SoS v Rosenblatt)

Joshua Shields, barrister at Exchange Chambers, considers the recent case of the Secretary of State for Business, Energy and Industrial Strategy v Rosenblatt which dealt with the issue of director disqualification in the context of VAT fraud and examines the implications for insolvency practitioners.

Original news

The Secretary of State for Business, Energy and Industrial Strategy v Rosenblatt [2016] EWHC 2821, [2016] All ER (D) 81 (Nov)

The Chancery Division held that the defendant would be disqualified from acting as a company director for 13 years, on account of his connections with a number of transactions that had involved the fraudulent evasion of VAT. At the very least, the defendant had willfully shut his eyes to the fact that all 43 of the transactions on which the claimant Secretary of State for Business, Innovation and Skills relied had been connected to the fraudulent evasion of VAT.

What practical lessons can those advising take away from this case?

Where a company has taken part in trading connected with fraud, there are generally features of the transactions that do not stand up to scrutiny. A director against whom a disqualification order is sought in those circumstances needs to approach the evidence objectively and to consider how the court will view the transactions. Given the possibility of giving an undertaking not to act as a director, it is essential to take a realistic view early on.

What was the background to the application, briefly?

The defendant had been running a company Brand Management Limited (Brand), which became insolvent. Following investigation, the Secretary of State brought these proceedings under section 6 of the Company Directors Disqualification Act 1986 (CDDA 1986) seeking an order that the defendant be disqualified from acting as a director. The grounds for the claim were that the defendant caused or allowed Brand to enter into wholesale transactions of alcohol that were connected with the fraudulent evasion of VAT, and that the defendant knew or should have known of

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About the author:

Stephen qualified as a solicitor in 2005 and joined the Restructuring and Insolvency team at Lexis®PSL in September 2014 from Shoosmiths LLP, where he was a senior associate in the restructuring and insolvency team.

Primarily focused on contentious and advisory corporate and personal insolvency work, Stephen’s experience includes acting for office-holders on a wide range of issues, including appointments, investigations and the recovery and realisation of assets (including antecedent transaction claims), and for creditors in respect of the impact on them of the insolvency of debtors and counterparties.