Director ordered to contribute to insolvent company's assets

After allegations of fraudulent losses involving mobile phone deals, the High Court holds director liable in fraudulent losses case and ordered to contribute £2.7 million to insolvent company's assets. The case is a crucial reminder for directors to fulfil their obligations and uphold legal compliance to avoid personal liability for company debts.

A director has been ordered to contribute to the assets of an insolvent company following allegations about fraudulent losses. The case involved a company that imported, purchased, and sold mobile phones. In 2006, HMRC denied the company's claims for input tax in relation to 57 deals over a four-month period. It said that the company knew or ought to have known of connections to fraudulent losses in relation to its export deals on mobile phones. The cumulative input tax in dispute was around £2.7 million. In 2014, the First-tier Tribunal dismissed the company's appeal, upholding HMRC's decision. The company was wound up in 2015, and the liquidator subsequently applied for a declaration under the Insolvency Act that the sole director was liable to make a contribution to the company's assets. 

The High Court granted the declaration. It held that despite not being parties to the earlier litigation, the liquidator and the director were bound by the findings of the First-tier Tribunal. It was held that it would be an abuse of process if the matter had to be relitigated. The director had been given every opportunity to give evidence and prepare the company's defence before the tribunal, and it would be unfair for him to be allowed two bites of the cherry. The court held that the business of the company had been carried on with the intent to defraud HMRC, and the director, as the sole director and controlling mind of the company, was liable to make a contribution. The decision highlights the importance of directors being aware of their obligations and ensuring that their companies comply with the law. As in this case, they can be held personally liable for their company's debts.

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