Two print companies in Cardiff, part of a group of 19 businesses controlled by the same directors, were wound-up by the High Court in Manchester in the public interest for dissolving the companies without following proper procedures.
Ambeck Corporation Ltd (Ambeck) and Masterclass Associates Ltd (Masterclass), which were wound up on 20 September 2013 following an investigation by the Insolvency Service, also took money from customers but failed to deliver services.
At trial, the companies were not represented and neither they, nor the shareholders, appointed directors, or those in control of the companies made any representations to the court.
Insolvency procedures for companies enable insolvency practitioners or the Insolvency Service to determine the cause of the insolvency and determine whether the directors should be investigated for misconduct. Voluntary dissolution procedures allow a company to be dissolved without formal insolvency as long as the statutory regulations are followed.
Investigators found that Masterclass ceased trading in late 2011 and was subsequently dissolved by the owners on 26 June 2012. Ambeck started to trade around November 2011 and ceased to trade around June 2012, when its directors began proceedings to dissolve it.
Following investigations into Ambeck, the Insolvency Service applied to have Masterclass, restored to the Companies Register when it became apparent that it had been under the same management as Ambeck and had followed a similar pattern.
The investigation found that Masterclass, Ambeck and two other companies linked to them, Dragon Press Ltd Trade and Print Europe Ltd, were either dissolved by those in control or attempts were made to dissolve them. (Ambeck owed 92,748, Masterclass owed 158,131 and Dragon Press Ltd had debts of 91,321).
A further 15 companies were found to be linked to the four companies and had either been dissolved or were in liquidation. Ten of these were dissolved voluntarily by those in control of them.
The investigation discovered that both Ambeck and Masterclass operated within the print industry and had a very similar business model. They marketed printed materials from Eastern European suppliers to the UK market, acted as agents on behalf of the suppliers and charged a commission on top of the printing costs.
However, the investigation discovered that:
Both companies were placed into voluntary dissolution prior to the submission of their annual accounts.
Ambeck took orders and deposits, but failed to protect the deposits. It placed them into a general bank account from which its overheads, costs of sale, wages and director remuneration were paid, which left customers out of pocket when the company had cash flow problems.
Based on figures provided, Ambeck was operating on a loss-making basis during its seven months of trade.
Ambeck also failed to maintain adequate records to enable the investigators to establish the true financial status of the company - whether the company was insolvent and if so when that happened.
Company records failed to show the true creditor position, what the purposes of various transactions were, whether there were any tax liabilities due, what happened to the company assets, and the viability of the remuneration received by those in control of the company.
By continuing a pattern of dissolving companies, those in control of Ambeck and Masterclass failed to appoint a liquidator who could:
Realise assets on behalf of creditors and consider any claims against the directors.
Undertake investigations into the affairs of the companies and verify the reasons for their failures.
Undertake investigations into the conduct of the directors and file a report on their conduct to the Secretary of State.
Commenting on the case, Scott Crighton, Investigation Supervisor said:
Both these companies operated with a flawed business model and ultimately failed, leaving significant numbers of customers out of pocket.
However, those in control of the two companies were free to move on and start trading again in exactly the same manner as before due to their improper use of the voluntary dissolution process, thus avoiding both scrutiny and sanction.
These proceedings and the result make clear that the Insolvency Service will take a firm stance against those who attempt to undermine the insolvency regime.