Wrongdoing in insolvency: part 3

Last week we looked at sections 206 and 207 under chapter X of the Insolvency Act 1986. This week we continue with other specified offences within that chapter

Section 208 of the Act is a section which deals with misconduct in the course of winding up. It applies to past or present officers of the company being wound up. Officers are governed in the same way as under the sections referred to last week. Section 251 incorporates the definition of officer under section 1173 of the Companies Act 2006, under which officer "includes a director, manager or secretary" (this being the formal position of company secretary as officer rather than any secretary who happens to work for the company). Shadow directors are expressly included as covered by the section (for the definition of what constitutes a shadow director see Office holders Powers part 13).

Section 208 (2) includes a deeming provision, the nature of which is described in Wrongdoing in insolvency: part 1. It is an offence after the commencement of the winding up for an officer to attempt to account for any part of the company's property by fictitious losses or expenses. If the officer attempted to account for any part of the company's property by fictitious losses or expenses at any meeting of the company's creditors within the 12 months immediately preceding the commencement of the winding up the officer is deemed to have committed this offence.

Various offences are created by section 208 (1). Again these apply to past or present officers of the relevant company (including shadow directors). The first under section 208 (1) (a) applies where such person does not to the best of such person's knowledge and belief fully and truly discover to the liquidator all the company's property and how and to whom and for what consideration and when (except for disposal in the ordinary way the company's business) such company property or part thereof was disposed of. Essentially what this requires is for the officers to be entirely clear with the liquidator what the company has and (unless it was part of ordinary trading) where its property and assets have gone. Linked to this is the provision under section 208 (1) (b) that an offence is committed if such officer does not deliver up to the liquidator (or as the liquidator directs) all such part of the company's property as is in the officer's custody or under the officer's control and which such officer is required by law to deliver up. In other words company property has to be either given to the liquidator or transferred as the liquidator directs. The same applies under section 208 (1) (c) to the books and papers of the company in the officer's custody or under the officer's control.

In respect of each of the offences referred to in the previous paragraph, it is a defence for the officer to prove that the officer had no intent to defraud.

Under section 208 (1) (d) if the officer knows or believes that a false debt has been proved by any person in the winding up it is an offence for such officer not to inform the liquidator of this as soon as practicable. This is important because a liquidator will often not have the necessary knowledge to know whether to dispute a debt and if so on what grounds. If the officers can with impunity say nothing about debts they know to be false this would be very detrimental to creditors generally.

Under section 208 (1) (e) if the officer after commencement of the winding up prevents the production of any book or paper effecting or relating to the company's property or affairs an offence is committed. It is a defence to this charge that the officer had no intent to conceal the state of affairs of the company or to defeat the law.

The penalties under this offence are the same as under section 206, for which see Wrongdoing in insolvency: part 2