Michael Bell and Gavin Kipling were the directors of Digital Spark Ltd (DSL), which was set up in March 2010 to design, develop and implement digital and mobile healthcare software.

The company went into administration in July 2014, with total unsecured liabilities of £752,780, largely owing to HMRC and public health bodies, including NHS trusts.

The investigation found loans totalling £600,000 were obtained from specialist local funds for software development, which were paid into the company’s bank account in October 2012. Subsequently £161,600 of the loan money was transferred from the company’s bank account to the directors’ personal accounts, which the Insolvency Service said was not allowable under the terms of the funding.

When a third party conducted due diligence with a view to acquiring DSL in April 2014, it became clear that the company was insolvent. The secured lender then reviewed its position. The company was placed into administration and sold shortly thereafter as part of a pre pack administration.

The purchasing company, upon reviewing the financial records of DSL, noted significant discrepancies between the bank statements supplied by the company and those supplied by the bank.

Further analysis showed the transactions recorded within the company’s Sage accounting system did not show the payments made to the directors following receipt of the loan funding nor reflect the true financial position of the company.

The company had employed a financial controller who maintained the records but was never given access to the bank accounts or statements, and instead relied on the edited information supplied by the directors to update Sage records.

Numerous transactions were recorded in Sage records for the period after 1 April 2013 for which there are no corresponding entries in the original, unedited bank records, including funds received from HMRC of £105,896, net payments to trade debtors of £238,560, payments received from the directors of £41,000; receipts of net salaries of £297,126, net payments by bank transfer of £28,064; and the receipt and repayment of short term loans.

The applications for these short term loans were supported by amended bank statements showing a balance of funds in the account of £173,392 when the true bank balance was £33,364; and balance overstatements at various points of between £212,000 and £312,000,when the true bank account was overdrawn by more than £18,000 on each of these dates.

The Insolvency Service found that the pair did not maintain accurate accounting records, changing electronic data to obscure or hide payments to themselves, and created entries that inflated the company income, and that they filed inaccurate financial statements at Companies House.

Bell has been disqualified as a director for 11 years and Kipling for nine years.

Cheryl Lambert, chief investigator at the Insolvency Service, said: ‘These are very significant bans reflecting the severity with which the Insolvency Service considers the conduct of the directors. The concealment of the withdrawal of funds by the directors, and the provision of false financial information, shows a woeful disregard for creditors’ interests with intent to deceive.

‘This was an active scheme that required great planning and control, and took place over a long period.

‘The motivation of the directors was, primarily, to maintain their business. This is no excuse or defence, especially given the extent of the manipulation of data and depth of the deception. In essence they lied to get money, including to their own employee whose job it was to maintain accurate accounts.’

HMRC background note:

Most businesses pay their taxes, but when a business goes under, the public purse may be left with large irrecoverable tax debts. HMRC, like any other creditor, has a duty to work with insolvency practitioners to work out whether the directors acted correctly at all times.

From 6 April 2012, HMRC can require employers to pay a security where there is serious risk, based on past behaviour that they will not pay their PAYE or Class 1 NICs.