The directors behind Avacade have each received six-year directorship disqualifications after the Insolvency Service found they had paid themselves £1.4m during a tax investigation.
Craig Lummis and his son, Lee Lummis, were banned by Judge Halliwell in Manchester’s High Court on August 27, due to the fact they repaid themselves £1.37m despite their company being under investigation by the tax authorities and slipping into insolvency.
Avacade entered into liquidation back in November 2015, but had ceased trading on August 1, 2014 when it was clear that it was, or soon would be, insolvent, according to the court.
Investigators discovered that between August 2014 and May 2015, Avacade collected commissions worth more than £1.6m.
Of this the directors received £647,000 each (£1.3m) to reduce their director’s loan accounts.
They had also sold Avacade’s client database to a connected company for more than £150,000 of which £75,000 was used to pay down their loan accounts.
The Insolvency Service said during these transactions both directors “were aware” of an investigation by tax authorities, which was looking into a tax planning scheme Avacade’s directors “caused the company to enter into”.
“It’s clear that directors must treat all creditors fairly when they know their company is insolvent,” said Rob Clarke, chief investigator of the Insolvency Service.
“Craig and Lee Lummis totally disregarded their duties by ignoring the ongoing investigation into the tax planning scheme and ensuring they benefitted personally from Avacade’s only assets.
“This failing led to them each being banned from acting as a director for a significant period of time and should serve as a warning to other directors who follow a similar path.”
Incorporated in January 2010, Avacade provided unregulated investment brokering services, including free pension reviews and advice on which Sipps to invest in.
It was one of two firms found to have unlawfully advised investors to transfer £91.8m of pension money into self-invested personal pensions and then into alternative investments, in a case brought by the Financial Conduct Authority, which concluded last month.
One of the investments it offered unregulated advice on was in Costa Rican forestry plantations through a company called Ethical Forestry, whose directors were also banned for six years back in March 2019 after withdrawing millions using a tax planning scheme.
Avacade ceased trading in August 2014. Manchester’s high court ruled that at this point, it was clear the company “was, or soon would be, insolvent”.
“Craig and Lee had a duty to act in the interests of Avacade’s creditors but their conduct fell below the standards expected,” the Insolvency Service said in a statement.
The Lummises said in a statement: “We are seeking permission to appeal this judgment. Contrary to the impression conveyed by the Insolvency Service, no creditors were left out of pocket, and the judgement makes this clear.
"We ourselves were amongst Avacade’s creditors, hence the payments to us. The only party for provision was not made was HMRC. But HMRC was and still is only a contingent creditor.
"The tax schemes that HMRC is challenging have not been proven to be ineffective. The judgment also makes clear that our decisions were taken under guidance from professional accountants and tax advisers.”
ruby.hinchliffe@ft.com
