Textile boss given seven years of bankruptcy restrictions after abusing company funds

Textiles company director who diverted half a million pounds of company funds for his own benefit has been given seven years of additional bankruptcy restrictions following an Insolvency Service intervention

The former director’s misconduct

Rostum Nagra, was previously a director of two companies involved in textiles production, Fashionup Ltd and Rocco Fashion Ltd.

Between November 2014 and July 2015, Mr Nagra abused his position when he accessed more than £565,000 from Fashionup before diverting the funds to the second textiles company, Rocco Fashion Limited, of which he was the sole director.

Mr Nagra then attempted to wind-up Fashionup, claiming that the company was no longer profitable. However, he didn’t fully disclose his intentions to shareholders and transferred all on-going business to Rocco Fashion Limited.

The main shareholder discovered the above and after examining the company’s records, realised Mr Nagra had transferred assets his company Rocco Fashion. The shareholder brought proceedings against Mr Nagra to rescue the funds and in April 2018, the High Court in Birmingham found Mr Nagra to have breached his duties as director of the first company. At a further hearing in June 2018, Mr Nagra was ordered by the courts to compensate shareholders to the value of £565,860 including legal costs.

Mr Nagra’s Bankruptcy

Mr Nagra failed to pay the money owed to the shareholders and this led to the main shareholder presenting a bankruptcy petition against Mr Nagra on 20 June 2018 , which Bankruptcy Order was granted on 6 July 2018.

To prevent Mr Nagra from posing any further financial risks to his existing and future creditors, the Insolvency Service applied for additional years of bankruptcy restrictions to be placed upon him.

The Official Receiver stated “not only did Rostum Nagra take a substantial amount of money from the company he was a director of but his actions were deliberately planned and sustained over a number of months, demonstrating that he had scant regard for his main shareholder.”

Effective from 2 April 2019, Rostum Nagra has voluntarily prohibited himself from several activities, including acting as a director of a company without permission from the court and attempting to borrow more than £500 without declaring restrictions he is subject to.

What is a Bankruptcy Restriction Order?

Bankruptcy Restriction Order (BRO) is a court order, which extends the period of time for which you have to follow certain restrictions. This can last up to 15 years and can restrict your financial affairs.

The following is a list of things you cannot do if you are subject to a BRO:

  • Get credit of £500 or more without telling the lender that you have a BRO;
  • Act as a director or get involved with setting up, promoting or operating a company without permission from the court;
  • Carry out a business in a different name from the one under which you were made bankrupt, without telling everyone you do business with the name in which you were made bankrupt;
  • Be an MP, local councillor, school governor or hold certain other positions in associations, governing bodies or professions.

Failure to comply with bankruptcy restrictions

If you break any of the restrictions when a BRO is made against you, you’ll be committing a criminal offence. You could be fined or sent to prison.

We refer you to further information on bankruptcy restrictions.

Comment

We regularly advise directors and shareholders in company disputes and bankruptcy or winding up petitions. This case serves as (i) a reminder to directors about their responsibilities and duties under the Companies Act 2006 for example to act in a manner that is most likely to promote the success of the company; and (ii) a warning about the consequences for abuse of these responsibilities and breach of such duties e.g. a claim for restitution of profits and/or damages.

As a director, you may be personally liable for the company’s debts and could face legal action from shareholders or creditors of the company i.e. a bankruptcy petition or even disqualification. Shareholders who aim to take legal action against a director who has committed misconduct must negotiate the complex rules relating to derivative claims. Our commercial solicitors have experience with these claims and we can provide expert advice and representation to shareholders concerned about a director’s conduct or to directors in defending such action.

If you are facing a bankruptcy petition, our expert Bankruptcy Solicitors & Barristers provide professional and specialist legal advice to guide you to the best legal outcome. Our team of London lawyers are based in Middle Temple adjacent to the Royal Courts of Justice. For your case assessment and for more information about our legal services get in touch using our online form, ☎ 02071830529 or email us on bankruptcy@lexlaw.co.uk.

LEGAL CASE ASSESSMENT

If you’re facing a bankruptcy petition, our expert London Bankruptcy Solicitors & Barristers can help. To get your case checked ☎ 02071830529 or click:

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