As admired as he is, ex-England footballer John Barnes is not an example company directors should follow

At odds with his glistening professional football career in which he received no yellow or red card disqualifications, former Liverpool left-winger and England midfielder John Barnes has been disqualified as a limited company director, writes Gareth Wilcox, partner at Opus Business Advisory Group.

What happened to John Barnes?

It was announced by The Insolvency Service that John Barnes has been disqualified from acting as a director of a limited company for a period of three-and-a-half years.

This followed the winding-up in 2023 of his company, John Barnes Media Limited, which went into liquidation owing substantial sums of VAT and Corporation Tax to HM Revenue & Customs. And by substantial, I mean a reported £190,000!

What powers are these again?

As regular ContractorUK readers will know, the Company Directors Disqualification Act 1986 empowers the Insolvency Service to bring proceedings on behalf of the Secretary of State, seeking to disqualify individuals from acting as directors where there has been alleged unfit conduct by a director.

The objective is to protect the public, and to prevent those who are deemed unfit, from using the protection of trading through a limited liability company.

These powers historically arose only when a company had gone into liquidation, but the powers were extended in 2021 to cover dissolved companies as well.

What has John Barnes done?

In common with IT contractors, and even many other of his fellow broadcasters, it appears that John Barnes offered his services through a limited company, or Personal Service Company (PSC) instead of being employed directly. These services are described on Companies House as “media representation”.

The information which is publicly available on John Barnes Media Ltd (company number 08201455), indicates his company only had one employee (presumably John himself), and that at the end of the last reported accounting year, to October 31st 2020, he owed the company a sum of over £288,000 on a director’s loan account.

While the extraction of funds by way of director loans is a relatively common practice, the filed accounts also show that the company owed tax of over £281,000 at that time. 

The only asset other than the loan account was cash of under £500.

So as at October 31st 2020, payment of the HMRC tax liability would only have been possible if the director’s loan was repaid. 

While there is no detailed financial information available after the filed accounts, clearly the company has ended up being placed into liquidation, following the presentation of a winding-up petition by HMRC. The Insolvency Service announcement on John Barnes Media Ltd following the ban, states that the company paid no tax between November 2018 and October 2020, despite receiving earnings of well over £400,000.  

What is the implication?

As you might expect, the implication is that for the period of his ban, John Barnes can no longer be director of a company without leave of the court (i.e. by obtaining a court order giving him permission to do so). 

The slightly more long-winded answer is that he also cannot act as receiver of a company’s property or in any way, whether directly or indirectly, be concerned or take part in the promotion, formation or management of a company without leave of the court. 

This longer definition is designed to prevent someone taking control of a company without formally being appointed as a director.

A disqualification may also have implications on accepting certain appointments (e.g. as Trustee of a Charity).

But the only other thing Mr Barnes is specifically precluded by law from doing due to the ban is acting as an insolvency practitioner -- if for whatever reason he was thinking of joining me in my slightly less glamorous profession!

What if John Barnes breaches the company director ban?

Acting in contravention of a disqualification order is a criminal offence for which Mr Barnes could be fined and/or sent to prison for up to two years. 

The 60-year-old could also be held personally liable for debts of any company where he is found to be acting in contravention of the order.

There are similar consequences for any person who knowingly acts on the instructions of a disqualified director, to avoid it being possible for a person to contravene an order by installing a ‘patsy’ director to do their bidding.

Is this a deterrent?

Clearly it would be if Mr Barnes is intending to operate through a limited company. 

If, however he has no intention of doing so, the director-ban would appear to be of little consequence. 

As an Insolvency Practitioner, I have seen a great many differing circumstances for clients, some of whom have no intention of ever being a director again following a business failure. Others however, regard disqualification as an utter disaster.

Often, the decision of whether to trade through a PSC is driven by tax considerations (with only limited liability being marginally more popular), so the answer as to whether the ban is a deterrent is likely to lie in whether Mr Barnes wishes to continue his broadcast/media career.

And if he does, would ‘Ltd’ remain the best vehicle for him to provide his services?  If he can be an employee instead – and indeed some IR35 cases involving TV presenters and sport pundits might suggest such a position could be safer, arguably the ban could have little impact.

Is this the whole story?

Since John Barnes Media Ltd is now in compulsory liquidation, there is limited publicly available information, since (unlike in a creditors voluntary liquidation) there is no statement of affairs published on Companies House. 

That being said, assuming that there remains a director’s loan outstanding, the appointed liquidators would be required to take steps to seek recovery of it.

The disqualification may therefore be the ‘thin end of the wedge’ compared to the financial implication (depending on his circumstances) of receiving a demand to repay the amount drawn as a director’s loan. So the idea that Mr Barnes can simply take the ban (not the ball) ‘on the chin’ (not ‘on his head’) and walk away, is likely to be wishful thinking.

What are you seeing on the ground with company ban and companies in distress?

As I have outlined previously to ContractorUK, abuse of COVID-19 financial support schemes was associated with 51% of director disqualifications in 2022-23. 

Previous to that, the most common ground for director disqualification I have seen was unfair treatment of the crown -- i.e. failure to pay HMRC, which is why the former England skipper is in the sin bin.

Ostensibly, this puts contractors at a proportionately higher risk than other businesses, since they often have limited supplier/creditor bases, with HMRC often representing a majority (or sole) creditor in the event of failure. 

Playing devil’s advocate, however, this is commensurate with the fact that (without an adequate deterrent) PSCs, with sole directorships (therefore fewer checks and balances) and ordinarily having been formed with tax planning in mind, could otherwise be open to abuse. It is, of course, far easier to avoid paying tax through a PSC, compared to being an employee with tax being deducted by an employer at source.

How can limited company contractors avoid ‘doing a John Barnes’?

The simple answer is to ensure that enough money is available in your company to cover its taxes -- and pay them to HMRC when they are due. 

Before drawing dividends, speak to your accountant and ensure provision has been made for liabilities that are (or will become) due.

It is also critical to ensure that personal funds are kept separate from company monies. A loan account will arise whenever company funds are applied to personal expenditure (e.g. mortgage payments), and all too often, I see companies where there has been no demarcation between personal and business funds – particularly in the case of PSCs. Just because the money is available to spend, doesn’t mean you should.

Conclusion

I previously said that the government was seeking to come down hard on delinquent directors, and this news of John Barnes’ company director disqualification would appear to support that conclusion.

If any director is concerned that their PSC is in a similar position to John Barnes Media Ltd was in 2020, i.e. that they have a loan account outstanding and a tax liability, they would be well-served to take advice rather than awaiting the inevitable winding-up petition from HMRC, and compulsory liquidation thereafter.