A father and son who were banned for six years each as directors after paying themselves £1.37mn during a tax investigation have been granted permission to appeal their disqualifications.
The former directors of the now liquidated investment broker Avacade, Craig and Lee Lummis, were granted the right to appeal by Lord Justice Snowden in the High Court on February 21.
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 £91.8mn of pension money into self-invested personal pensions and then into alternative investments, in a case brought by the Financial Conduct Authority.
Snowden granted the appeal application against the disqualifications on two grounds. One was that it was “not a breach” of their duty as directors to pay themselves and their creditors where the Secretary of State for Business, Energy and Industrial Strategy did not allege Avacade was insolvent.
The other hinged on the uncertainty regarding whether the company was insolvent at the time of the transactions.
“It is arguable with a realistic prospect of success that in circumstances in which the Secretary of State did not allege that the company was insolvent, it was not a breach of duty for the directors to cause the company to pay its known creditors (including themselves) rather than set aside a reserve for an unknown contingent liability to HMRC,” said Snowden.
On the question of whether the company was either insolvent according to its balance sheet August 1, 2014, or likely to become so, Snowden said: “It appears not to have been part of the Secretary of State’s case – at least in opening - that the company was insolvent at the time of the transactions.
“It is realistically arguable that the judge erred in deciding that the directors breached their duties as directors by failing to make a reserve or take other steps to mitigate the risk to HMRC in such a situation.”
Back in August in Manchester’s High Court, Judge Halliwell issued both Craig and Lee Lummis six-year directorship disqualifications.
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 £1.6mn. Of this the directors received £647,000 each (£1.3mn) 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.
ruby.hinchliffe@ft.com
