Rolls-Royce, Versace and a £3m Insolvency Fraud

A director who strips assets out of a company once a winding-up petition is on the horizon is not being clever. He is committing a criminal offence. The recent jailing of disqualified director Tariq Sarwar, who diverted more than £3 million from a property sale to fund a lifestyle of Rolls-Royce cars and designer goods while creditors went unpaid, is a stark reminder of how seriously the courts treat the removal of company assets in anticipation of insolvency.

What Happened in the Tariq Sarwar Insolvency Fraud Case?

Tariq Sarwar knew his company was in serious financial difficulty and faced a realistic prospect of being shut down when HMRC applied to have it wound up over an unpaid tax bill of £130,000. Rather than meeting those obligations, he sold the company’s only substantial asset, a Salford business park, for just under £5.1 million and then arranged for more than £3 million of the proceeds to be diverted away from the reach of creditors. This is precisely the conduct that the law on winding up petitions is designed to prevent, and it is why directors facing an HMRC enforcement application must take immediate legal advice rather than act unilaterally.

The diverted funds were funnelled through a food and drinks company and a network of other accounts before finding their way back to Sarwar and his family, leaving creditors owed more than £500,000. He was jailed for four years and banned as a director for ten, having committed much of this conduct while already disqualified from acting as a director at all. Cases like this demonstrate why anyone served with a petition should immediately consult a specialist winding up solicitor and why directors in financial distress should never assume that moving money out of a company is a lawful way to protect it, a point our litigation team advises on regularly.

Why Is Removing Assets Before a Winding-Up Petition a Criminal Offence?

Once a company is insolvent or facing insolvency, its assets cease to belong solely to the directors to deal with as they please. They are held for the benefit of the company’s creditors, and the law imposes strict duties to preserve them. Removing, concealing or transferring company property in anticipation of a winding up is a criminal offence, and it sits alongside the civil powers a liquidator has to reverse transactions, which is why a director facing a winding up petition must understand that the moment of insolvency changes everything about what they are lawfully permitted to do with company funds and why early insolvency advice is essential.

The offence is aggravated enormously where the director is already disqualified, as Sarwar was, because acting as a director while subject to a disqualification order is itself a separate criminal offence carrying the risk of imprisonment. Directors who are unsure whether their conduct during a period of financial difficulty crosses the line should treat that uncertainty as a reason to seek urgent legal guidance, particularly where HMRC is the petitioning creditor, as HMRC frequently works hand in hand with the Insolvency Service in pursuing the most serious cases, a pattern we examine in detail across our tax investigation resources.

How Do HMRC and the Insolvency Service Trace Diverted Funds?

One of the most important lessons of the Sarwar case is that complex layering of transactions does not defeat investigation. The Insolvency Service traced £645,000 to a company run by members of Sarwar’s own family and followed a further £748,980 through a chain of companies back to his personal business account, demonstrating that a web of corporate structures offers no real protection once investigators begin to follow the money, which is why directors who believe an HMRC investigation is underway should never attempt to obscure their affairs and should instead seek specialist representation immediately.

Investigators also draw adverse inferences from explanations that cannot be evidenced. Sarwar’s co-conspirator claimed that more than £700,000 was a deposit on five penthouses, a transaction he could not name, document or credibly explain, and he had earlier claimed that a stolen and burnt out car had conveniently destroyed all his business records. Implausible accounts of this kind tend to harden the case against a director rather than assist it, and they underline why a measured, properly advised response to a winding up petition is always preferable to improvisation, especially where the petition originates from an unpaid HMRC liability.

What Should a Director Do When Facing a Winding Up Petition?

The correct response to a winding up petition is to act quickly and lawfully, not to move assets. Where the underlying debt is genuinely disputed on substantial grounds, it is often possible to apply to restrain or dismiss the petition before it is advertised, protecting the company’s banking relationships and reputation, and this is a remedy that a specialist winding up team can pursue at speed, frequently in parallel with a challenge to the underlying tax assessment where HMRC is the petitioner.

Where the debt is not disputed but the company has a viable future, options including a Company Voluntary Arrangement or a negotiated settlement may allow the business to survive without dissipating its assets unlawfully. Taking advice at the earliest possible moment gives a director the widest range of lawful options and the best chance of avoiding the catastrophic outcome seen in the Sarwar case, which is why we encourage any director under threat to contact our winding up petition solicitors without delay and to draw on the combined tax and insolvency expertise of the wider LEXLAW team.

How LEXLAW Can Help You Respond to a Winding Up Petition

Our dual qualified solicitors and barristers act for directors and companies at every stage of the winding up process, from the first threat of a petition through to contested hearings in the Companies Court, and we are experienced in the urgent applications needed to protect a company before a petition is advertised, as set out across our winding up petition guidance and supported by the broader litigation capability of LEXLAW Solicitors and Barristers.

Where HMRC is the petitioning creditor, our integrated approach allows us to challenge both the petition and the underlying tax position together, giving clients a single coordinated defence rather than two disconnected ones, an approach informed by our specialist HMRC dispute practice. If you are facing financial difficulty, a disqualification concern, or a petition of any kind, contact us today through our enquiry team for confidential and immediate advice.