VAT Missing Traders

There are a growing number of cases where the Insolvency Service are bringing Director Disqualification cases for people that have allegedly been involved in VAT Missing Trader (“MTIC”) companies.

HM Revenue & Customs have spent considerable resources over the last several years in dealing with the problem of large scale and organised VAT fraud mostly involving certain commodities such as mobile telephones, computer components and carbon credits.

The way in which they dealt with this systemic problem was to deny claims for VAT repayments on the export of commodities. This method directly lead to the liquidation of hundreds if not thousands of companies.

In the intervening period the Insolvency Service were tasked with investigating the causes of company failure and would invariably recommend the disqualification of Directors whose liquidated companies were involved in this type of trading.

How then to get an effective solution going forward?

The allegations would typically be that the former Director either knew or had the means to know their conduct was connected with VAT MTIC fraud.  This means that the Director either ACTUALLY KNEW the conduct was fraudulent or SHOULD HAVE KNOWN if only he had been a more attentive Director.

The Insolvency Service would rarely chose to elect which of the grounds the court ought to find.  A court finding of ACTUAL KNOWLEDGE wold attract a far higher term of disqualification than a finding of SHOULD HAVE KNOWN.

However, the Insolvency Service is increasingly susceptible to pressure in the form of an early offer of settlement (in the form of a Part 36 Offer) which can have really significant costs consequences for the Insolvency Service.  The Part 36 Offer normally would say:  we offer a term of disqualification of X years and if at trial you (the Insolvency Service) fail to obtain a higher term of disqualification or a more serious basis for disqualification then you ought to pay our legal costs from the time of the offer.  This approach works.

It can dramatically shorten the period of disqualification, significantly reduce legal spend and provide a basis for an application to court, pursuant to section 17 of the Directors Disqualification Act 1986 to obtain leave to continue acting as a Director.