Novtej Singh Dhillon and his former wife, Sarina Thiara Dhillon, directors of a number of hotel companies, have been disqualified from acting as directors for 11 years and four-and-a-half years*respectively.

An Insolvency Service investigation found that Mr Dhillon caused, and Ms Dhillon allowed, the companies to operate in manner which lacked probity, as a result of which a bank suffered a loss totalling ?31.767m.

Mr and Ms Dhillon were directors of Dhillon hotels Limited, Liongate Hotel Limited, Crown Hotel (Amersham) Limited, which entered administration on 20 September 2012 and PHB Realisations 2013 Limited (formerly Paragon Hotel (Birmingham) Limited) and Paragon Birmingham Limited which entered administration on 21 September 2012. The companies had operated the following hotels:

The Olde Bell Coaching Inn, High Street, Hurley-on-Thames
The Lionsgate Hotel, Hampton Court Road, Kingston-upon-Thames
The Crown Inn, High Street, Amersham
The Paragon Hotel, Alcester Road, Birmingham
with Paragon Hotel (Birmingham) Limited being a holding company

Mr and Ms Dhillon operated a group of hotels, all of which were subject to the same bank lending facility and cross guarantees. The investigation found the Dhillon?s utilised the various companies for personal expenditures which were attributed by the group accounting department to director loans, these directors being Mr and Ms Dhillon.

The lending facility was subject to strict covenants regarding the ratio of turnover to lending/interest. The bank was provided with regular management accounts which showed that the covenants were being met. These were inaccurate constructions solely for that purpose. Accounts were then filed at Companies House which were consistent with management accounts presented to the bank (in the form of year-end adjustments within the accounting system). These adjustments had the effect of obscuring personal expenditure and inflating the value of assets, thereby inverting and obscuring the true position.

In tandem with these erroneous adjustments, a large property (Paragon Hotel in Birmingham) was presented, from 2009, as being about to be sold to an unconnected third party. This sale was asserted to be subject to delays, during which time nearly ?13m more was loaned against the security it was purported to provide. The truth was the supposed purchaser had entered Administration in 2009. The property was ultimately sold for ?3m by the office holders in 2013.

The Insolvency Service investigation also found, and Mr and Ms Dhillon accepted, that:

the bank was knowingly provided with management accounts which presented an inaccurate picture of the true financial and trading position of each company and the Companies together
the accounting system used by the companies was knowingly manipulated through the use of year end adjustments to have the appearance of consistency with management accounts presented to the Bank in relation to each company and the Companies together
the bank was falsely informed that Paragon Birmingham Limited was continuing the process of selling the Paragon Hotel at a price of circa ?18m when the proposed purchaser had entered Administration on 7 December 2009 and no such sale was possible, probable or likely
the overdraft increased from ?5.5m on 24 March 2009 to ?18.29m on 8 May 2012
the bank continued to provide moneys to the Companies by way of extended overdraft facilities on the basis of the proposed sale of The Paragon Hotel
the accounting records maintained on behalf each company were not accurate and complete
the financial statements lodged at Companies House therefore could not be accurate

At Administration the bank was owed ?48.304m with secured assets being realised/valued at ?16,537m, resulting in an estimated shortfall of ?31.767m
Commenting on the disqualification, Cheryl Lambert, Chief Investigator at the Insolvency Service, said:

Directors have a duty to ensure that the procedures they construct and oversee comply with the law. Directors who do not comply with this basic obligation can expect to be investigated by the Insolvency Service and enforcement action taken to remove them from the market place.

In this case, Mr Dhillon was responsible for the construction of a long term and complex web of lies, by manipulating the internal financial systems of a group of companies. Additionally, the sale of a very large asset was claimed to be occurring resulting in almost ?13m of further lending being made, which were then used within their empire of companies and which allowed the Dhillons to continue to benefit from their continued operation.

In court proceedings relating to Mr Dhillon?s business affairs a judge branded him as a man who ?regards truth as a merely optional extra when doing business.? Following the Insolvency Service?s investigation I can only agree with that conclusion.

Ms Dhillon took no action to prevent the long term implementation of that deceit, whilst benefiting from the continued operation of the companies and the increased funds overdraft extensions.

This activity goes to the very core and basis of the economic system, with Mr Dhillon knowingly creating a scheme to obscure his activities and the real position in relation to the company?s trading and solvency.

Taking action against Ms Dhillon is a warning to all directors to seriously consider, and ensure they perform their duties and obligations and not hide behind the corporate veil or claim ignorance of acts, whilst accepting the rewards and benefits of corporate trading.