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United Kingdom : Maximum ban for man in Turkey who removed Au2.7m from British company.

Hakan Cemal, and Sureyya Sitki Bektas, directors of Hey Trends Limited, have been banned for 15 years - the maximum possible and 11 years, respectively, from acting as directors for what Registrar Briggs referred to as the misappropriation of an entire business .The bans, from 5 November, follow a hearing at the High Court on 14 October after an investigation into the company by the Insolvency Service.

The misappropriation referred to by the registrar was the selling of the business of Hey Trends Limited and diverting the proceeds to a connected company, dissipating moneys received in error a year after it had ceased trading, and failure to keep or delivery up accounting records.Hey Trends Limited was part of a group under the Hey trading style based in Turkey which traded between 2003 and November 2011 in design, manufacture and export of clothing. Hakan Cemal was director throughout and Mr Cemal s father-in-law, Sureyya Sitki Bektas was a director throughout, except between July 2005 to May 2006.

The investigation by the Insolvency Service found that on 30 November 2011 Hey Trends and an associated Turkish Company sold their respective businesses to a third party. Hey Trends immediately ceased operating. The terms of the Sale Agreement provided that the net sale proceeds of 10,540,000 were to be split 70/30 between the Turkish Company ( 7,378,000) and Hey Trends ( 3,162,000, which equated to Au2,708,345).

Hey Trends did not receive its share of the net sale proceeds, these were held in the Turkish Company of which Mr Cemal and his wife held all the shares. Mr Cemal claimed it was a loan, although no security was sought or given. In short, there was no mechanism for recovery of these moneys other than Mr Cemal deciding to repay.

On 16 November 2012, almost exactly a year after Hey Trends had stopped trading and during which time virtually no transacting had occurred within the company s bank account, Au79,521 was paid into Hey Trend s bank account in error by a third party who had no connection or trade whatsoever with it. Between 20 and 26 November 2012 those moneys were removed on instructions from Mr Cemal.The Liquidator of Hey Trends received claims from creditors totalling Au1,990,011, which means that the money extracted by Mr Cemal would have enabled all known creditors to have been repaid.

Additionally, the accounting records delivered up were so incomplete that the recipients and reasons for expenditure totalling Au655,553 could not be verified. Furthermore, it was not possible to find out whether Au189,081 received was for bona fide business purposes, nor was it possible to establish the true position of the company s assets and liabilities

The current position as notified by Hey Trends Liquidator is assets of Au114,452 and liabilities of Au1,990,011At the uncontested hearing, Registrar Briggs commented in relation to Mr Cemal:The misappropriation of the entire business of the company is a very serious breach of duty and it is hard to think of anything of graver concern to creditors and the court.

And in relation to Mr Bektas:I initially thought that, given that he was not a recipient and nor did he have any hands on dealing, the court should be more lenient in respect of him. However, he was a director and therefore liable in law although not a recipient of the sale proceeds. Therefore the period should also be in the top bracket, given the nature of the conduct.

Commenting on the disqualification, Cheryl Lambert, Chief Investigator at the Insolvency Service, said:In this case the directors have diverted millions of pounds from a UK business to Turkey, through a sham transaction, leaving a trail of creditors. Taken with the opportunistic diversion of money knowingly received in error, this is tantamount to fraudulent activity.The bans handed out by the court show that such abuse of the privileges of limited liability trading is regarded as at the most serious end of mischief and misconduct. Most particularly, directors need to be aware that inactivity does not absolve them of their responsibilities.The investigation and outcome show that escaping to a jurisdiction outside the UK, and EU, is no barrier to the Secretary of State seeking out miscreants and obtaining sanctions against them to protect the business community.At the date of Liquidation Hey Trends did not have any assets and liabilities of Au126,178; HMRC are owed Au74,903.

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Publication:Mena Report
Date:Nov 18, 2015
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