The Secretary of State for Business, Energy and Industrial Strategy v Shafique Uddin (aka Sofiq Uddin)

The Secretary of State sought a disqualification order under section 6 of the Company Directors Disqualification Act 1986 arising from the director's conduct at Kazitula Limited between April 2010 and January 2017. The court considered whether the director "caused or allowed" significant under-declaration of non-card (largely cash) sales in VAT returns, relying on HMRC's merchant acquirer data, three unannounced visits and a best-judgment assessment under section 73(1) of the Value Added Tax Act 1994 and a Schedule 36 notice under the Finance Act 2008.

The judge found that sales were understated over an extended period, that the defendant as sole director was responsible for preparation or approval of the returns (including by providing weekly summaries to the company accountant), and that the evidence supported a conclusion of causation or, at least, culpable allowing by failing to exercise reasonable care, skill and diligence. The defendant also failed to produce coherent contemporaneous records to HMRC or the liquidator and did not call key witnesses or produce rebuttal evidence sufficient to displace the prima facie case.

Applying the CDDA 1986 factors and relevant authorities on "causing or allowing" and admissibility of investigatory material, the court concluded the director was unfit to be concerned in company management and imposed an eight year disqualification.

This was a first instance trial on the Secretary of State's application under section 6 of the Company Directors Disqualification Act 1986 for a disqualification order against Mr Shafique Uddin, sole director of Kazitula Limited (a restaurant business), following liquidation and substantial HMRC assessments for under-declared VAT and corporation tax.

• Nature of the claim/application: application for a disqualification order under section 6 CDDA 1986 based on alleged filing of inaccurate VAT and corporation tax returns (cash suppression) and related personal liability notices; the VAT assessment was issued under the VAT Act 1994 s73 on HMRC's best judgment after non-production of records and use of merchant acquirer data.
• Procedural posture: the claim was first instance in the High Court Chancery Division (Insolvency & Companies List). The defendant had attempted to stay the proceedings pending tax-tribunal appeals; multiple stay applications were refused and the tribunal appeals largely lacked permission to proceed out of time at the date of trial. Extensive disclosure and service orders governed the voluminous underlying documents; the defendant relied upon a spreadsheet prepared by his son and a BDO review, but did not adduce the BDO author or the son to give evidence.
• Issues framed by the court:
  1. whether the company understated non-card (effectively cash) sales in VAT returns between 2010 and 2017;
  2. whether the defendant "caused or allowed" such under-declaration (including the scope of "caused or allowed" and the relevance of reliance on an accountant);
  3. admissibility and weight of HMRC investigatory material (merchant acquirer data, unannounced visits, and HMRC's findings) in disqualification proceedings; and
  4. appropriate period of disqualification if unfitness was made out.
• Court's reasoning and findings:
  • The court applied established CDDA principles and the amended Schedule 1 factors where applicable and considered authorities on the meaning of "caused or allowed" (including that knowledge plus failure to act can amount to causing, and allowing may cover culpable inaction).
  • HMRC evidence (merchant acquirer card data and the three unannounced visits) showed a materially higher proportion of non-card sales on the nights observed than was reflected in the returns; HMRC issued a VAT assessment using best judgment under s73 VAT Act 1994 after the company failed to comply with a Schedule 36 notice (Finance Act 2008).
  • The defendant did not produce contemporaneous records to HMRC or the liquidator despite specific requests and repeated correspondence; he relied on a spreadsheet prepared by his son and a BDO review, but crucial witnesses (the son, the BDO reviewer and the company accountant) did not give evidence and inconsistencies were identified between the spreadsheet and bank/service charge records.
  • The court accepted that investigatory findings and opinions of HMRC are admissible as prima facie evidence in CDDA proceedings (subject to challenge), and the defendant had ample opportunity to rebut them but failed to do so sufficiently.
  • On the balance of probabilities the court was satisfied that sales were understated over the assessed period and that the defendant, as sole director, either caused or allowed the filing of inaccurate returns by providing or approving the weekly summaries used to prepare returns or by failing to check returns; the misconduct was sufficiently serious to render him unfit.
  • In assessing period of disqualification, the court categorised the case as serious and imposed an eight year disqualification, taking account of the deliberate nature of the conduct, the multi-year duration, direct link to insolvency, and some mitigation for age and residual uncertainty as to precise understatement levels.

The court made a disqualification order against Mr Shafique Uddin under section 6 of the Company Directors Disqualification Act 1986 for a period of eight years. The judge concluded on the balance of probabilities that the company's VAT and related corporation tax returns materially understated non-card (largely cash) takings over a prolonged period, that the director caused or, at least, culpably allowed that understatement by providing or approving the records used for returns and failing to ensure their accuracy, and that the misconduct rendered him unfit to be concerned in the management of a company.