Gateley wins landmark ruling against insolvency practitioner

A CORPORATE recovery partner at Birmingham law firm Gateley has won a landmark case which has seen an insolvency practitioner being disqualified by the High Court.

In the first reported case of its kind, Gateley partner Louise Bell acted for the claimants Nicholas Wood and James Earp (both partners at accountancy firm Grant Thornton) against Kirankumar Mistry. 

The insolvency practitioner was found to have diverted funds out of companies where he was acting as the liquidator and then to have paid the bulk of those funds to a Mauritian company which he beneficially owned. 

Wood and Earp were appointed as joint liquidators over 44 companies in place of Mistry in 2006. This followed their appointment as joint administrators of Safe Solutions Accounting Limited and Safe Solutions Accounting Services Limited in September 2005.

The individuals behind the Safe Solutions companies had masterminded a tax fraud which had deprived HM Revenue & Customs of approximately £41m in unpaid tax. The Safe Solutions companies had appointed Mistry to act as liquidator of the 44 companies which all owed unpaid taxes to HMRC. 

When reviewing Mistry’s files for the liquidations, Wood and Earp identified various payments made to a company called Independent Insolvency Advisory Services where no services appeared to have been provided. 

IIAS was owned by Derek Williamson, an employee of Goddards accountants.  When interviewed, Williamson confirmed that he had done no work to justify these payments but on the direction of Mistry had paid the monies on to a company called Dreamcast Limited incorporated in Mauritius. 

During the course of the proceedings, Mistry admitted that Dreamcast was a company beneficially owned and controlled by him.

Gateley commenced proceedings against Mistry under section 4 of the Company Directors’ Disqualification Act 1986 (“CDDA”) for an order declaring that Mistry be disqualified from acting both as an insolvency practitioner and as a director.

The Honourable Mr Justice Newey found that Mistry had dishonestly caused sums to be paid for his benefit over an extended period from the liquidation estates of the companies whilst he was acting as their liquidator and that his conduct as an insolvency practitioner had been “grossly improper”.

Leicester-based Mistry’s conduct was found to be so serious that it merited a period of disqualification in the top bracket which is reserved for particularly serious cases.  The Judge found that it was in the public interest that the practitioner be disqualified from acting both as an insolvency practitioner and as a director for a period of 12 years commencing from July 31. 

Louise Bell said: “This is an important decision and one that should send a clear warning signal to anyone else in the profession who is engaged in conduct similar to that of Mr Mistry.

“Increasingly, successor practitioners are examining the conduct of their predecessors and it is now clear that very serious consequences can result if there is evidence of practitioners acting improperly.”