In January 2020, in a landmark case for the Insolvency Service, the High Court ordered a disqualified director to repay £559,584 to company creditors. It was the first ever Compensation Order application against a disqualified director.
The disqualified director, Kevin Eagling, was a wine broker who operated an investment scheme which traded in valuable wines on behalf of investors. Instead of fulfilling customer orders with monies received up-front, or returning money he received on behalf of investors from the sale of their wine, he transferred this money to a second company, of which he was the sole director and shareholder.
The first company, Noble Vintners entered into a Creditors Voluntary Liquidation in June 2017 with an estimated deficit of £1.6 million. A liquidator was then appointed to wind-up the company.
Following an investigation by the Insolvency Service, Mr. Eagling could not explain the basis of the £559,584 transfer to the second company and this resulted in the Compensation Order application. In May 2019, Mr. Eagling was also disqualified from acting as a director, for the maximum 15-year period.
David Brooks, Chief Investigator for the Insolvency Service, said: “Kevin Eagling, abused his clients and creditors, denying them of hundreds of thousands of pounds”. He also added that “this case illustrates that compensation orders can be a valuable tool for the Secretary of State in seeking recompense for creditors”.
What is a Compensation Order?
Compensation Orders were introduced under the Small Business, Enterprise and Employment Act 2015. The legislation was introduced, inter-alia, to give the Insolvency Service additional powers to seek compensation from a disqualified director of an insolvent company.
To use this power, the misconduct by the director had to have taken place after the introduction of the legislation and after the company entered into insolvency proceedings. The purpose of this piece of legislation is to provide redress to creditors who have lost a clearly identifiable amount of money.
The difference between a Confiscation Order and a Compensation Order
A confiscation order is an option available to the Insolvency Service under the Proceeds of Crime Act (POCA). In the event of a breach of their restrictions by directors of a limited company, the Insolvency Service can take a criminal prosecution case against the directors and, in addition, the proceeds of any criminal conduct can also be confiscated.
Compensation Orders enable the Insolvency Service to seek redress from the disqualified directors of an insolvent company to compensate a specific creditor or class of creditors where the misconduct of the director(s) has caused the loss.
The Insolvency Service
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