Two men disqualified for 20 years for falsifying accounts and manipulating bank data
Michael Bell and Gavin Kipling have been disqualified from acting as directors for 20 years following an Insolvency Service investigation.
Michael Joseph Bell and Gavin Rupert Kipling, directors of Digital Spark Limited, a designer, developer and implementer of digital and mobile healthcare software company have been disqualified for 20 years for falsifying accounts and manipulating bank data.
An investigation by the Insolvency Service found the two men diverted company funds to their personal bank accounts and failed to maintain accurate accounting records.
The investigation revealed that Michael Joseph Bell and Gavin Rupert Kipling, while directors of Digital Spark Limited:
- misapplied funds obtained by way of secured loans by diverting £161,800 to their personal bank accounts outside the terms and expressed purpose of those loans;
- didn’t maintain accurate accounting records, changing electronic data to obscure or hide payments to themselves, and created entries that inflated the company income
- filed inaccurate financial statements at Companies House which showed it to be solvent when it was insolvent
- obtained £109,000 from short term lenders after providing them with bank statements which had been changed to show hundreds of thousands of pounds more were held in the bank account than were in reality
The Secretary of State accepted an undertaking from Mr Bell on 25 April 2016, not to act as a director of a limited company for 11 years from 16 May 2016; whilst Mr Kipling also provided an undertaking on 13 April 2016 to not act as a director of a limited company for 9 years from 14 May 2016.
Commenting on the disqualification, 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. Major losers in this failure include NHS Trusts, as well as the general taxpayer.
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.
Both Mr Bell and Mr Kipling’s conduct of Digital Sparks’ affairs fell exceedingly short of the standards of honesty expected and to preserve the integrity of the economic system, the Insolvency Service will use its powers to protect the business world, and the public purse, when director’s act in this way.
The investigation found that the company started developing a cancer care product (being an IT based diagnostic programme). Having spent an estimated £500,000 on the project it was only 80% complete and there was no confirmed market for it. The directors took out loans in order to help with cash flow.
Loans totalling £600,000 were obtained from specialist local funds, which were paid into the company’s bank account on 10 October 2012 and 11 October 2012. Between 11 October 2012 and 26 November 2012 £161,600 was transferred from the company’s bank account to the directors’ personal accounts, being £80,800.00 to each director. The moneys the directors paid to themselves, which they took on the basis of money they believe was owed to them, were outside the scope of the funding agreement and absolutely not allowable under the terms of the funding.
In April 2014, the company was approach by a 3rd party interested in a merger. Whilst conducting their due diligence 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 Digital Spark, noted significant discrepancies between the bank statements supplied by the company and those supplied by the bank. The statements provided by the company did not reflect its true financial position.
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 and that the company was in fact insolvent.
The company had employed a Financial Controller who maintained the records but they were never given access to the bank accounts or statements, relying on the edited information supplied by the directors to update SAGE records. The directors were in control of the source data at all times.
Between May 2013 and May 2014, the Company had taken out a number of loans from payday loan type companies totalling nearly £300,000, which were personally guaranteed by both directors. The company performed weekly downloads of the transactions through the online banking facility and the entries relating to these receipts and repayments made by the Company in respect of these loans were removed. Further investigation into these loans show that the directors submitted bank statements in support of the loan applications, where relevant information regarding transaction to other similar loan companies were edited out to reflect a more positive higher account balance.
Amongst the specific examples of falsified/altered or fictitious transactions are:
- The filed year end financial statements showed the company was balance sheet solvent with net assets of £78,963 including a balance of cash at bank and in hand of £125,357 at 31 March 2013. At 31 March 2013, it actually had an overdrawn bank balance of £12,907 such that the filed accounts overstated cash at bank by £138,244 and it was insolvent with net liabilities of £18,789;
- net payments totalling of £163,100 made via bank transfers the directors were deleted from DSL’s bank statements and not recorded in its Sage records;
- Bank transfers totalling £170,000 from Digital Spark’s deposit account to its current account, which did not in reality occur were added to the bank statements, and were recorded in the company’s it’s Sage records;
- numerous transactions were recorded in SAGE records for the period after 01 April 2013 for which there are no corresponding entries in the original, unedited bank records, including funds received from HM Revenue & Customs 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.
Amongst the applications for short term loans, resulting in £109,000 being advanced included amended bank statements showing:
- a balance of funds in the account of £173,392 when the true bank balance was £33,364;
- balance of funds held in the bank at 7 December 2013, 7 January 2014 and 7 February 2014 being overstated by £211,902, £277,323 and £311,990 respectively, when the true bank account was overdrawn by more than £18,000 on each of these dates
Digital Spark Limited was incorporated on 9 March 2010 and started trading on 10 March 2010 in the design, development and implementation of digital and mobile healthcare software. Digital Spark entered Administration on 10 July 2014. The assets realisable during the Administration, totalling £356,201, were secured resulting in total unsecured liabilities of £752,780. The major unsecured losers were HMRC and public health bodies, including NHS trusts.
Notes to editors
Digital Spark Ltd (CRO 07183436) was incorporated on 09 March 2010. It traded as a designer, developer and implementer of digital and mobile healthcare software from The Toffee Factory, Lower Steenbergs Yard, Ouseburn, Quayside, Newcastle upon Tyne NE1 2DF, which was also its registered office.
Digital Spark Ltd was placed into Liquidation on 10 July 2014.
Michael Joseph Bell lives in Chester-Le-Street.
Gavin Rupert Kipling lives in Darlington.
The Secretary of State accepted an undertaking from Michael Joseph Bell on 25 April 2016. The disqualification commences on 16 May 2016.
The Secretary of State accepted an undertaking from Gavin Rupert Kipling on 13 April 2016. The disqualification commences on 4 May 2016.
A disqualification order has the effect that without specific permission of a court, a person with a disqualification cannot:
- act as a director of a company
- take part, directly or indirectly, in the promotion, formation or management of a company or limited liability partnership
- be a receiver of a company’s property
In addition that person cannot act as an insolvency practitioner and there are many other restrictions are placed on disqualified directors by other regulations.
Disqualification undertakings are the administrative equivalent of a disqualification order but do not involve court proceedings.
Further information on director disqualifications and restrictions can be found here.
The Insolvency Service administers the insolvency regime, investigating all compulsory liquidations and individual insolvencies (bankruptcies) through the Official Receiver to establish why they became insolvent. It may also use powers under the Companies Act 1985 to conduct confidential fact-finding investigations into the activities of live limited companies in the UK. In addition, the agency authorises and regulates the insolvency profession, deals with disqualification of directors in corporate failures, assesses and pays statutory entitlement to redundancy payments when an employer cannot or will not pay employees, provides banking and investment services for bankruptcy and liquidation estate funds and advises ministers and other government departments on insolvency law and practice.
Further information about the work of the Insolvency Service, and how to complain about financial misconduct, is available.
All public enquiries concerning the affairs of the company should be made to: Cheryl Lambert, Head of Outsourced Investigations, Investigations and Enforcement Services, The Insolvency Service, 3rd Floor, Abbey Orchard Street, London SW1P 2HT. Tel: 0207 596 6117. Email: Cheryl.Lambert@insolvency.gsi.gov.uk
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Published: 28 July 2016
From: The Insolvency Service