DMB Solutions: Liquidation
The issue that I should like to raise tonight has arisen in my constituency in recent weeks, but it has national implications. I am also sure that it will be familiar to many Members of this House: namely, the sudden collapse of a private sector business—in this case, a building services company. That collapse has left my constituents out of pocket and in some cases literally out of their home. Understandably, they are angry and frustrated by the response, or more accurately, the lack of it from the relevant state bodies.
DMB Solutions, a Brighton-based building and design company, went into voluntary liquidation over the new year. It had operated in my constituency since about 2009 and, to a slightly lesser extent, in the neighbouring constituencies of the hon. Member for Hove (Peter Kyle), who I am delighted to see in his place, and the hon. Member for Brighton, Kemptown (Lloyd Russell-Moyle). The fallout from the collapse of the company has gained national media attention, owing to both the number of people affected and the scale of the financial losses they suffered. More than 400 local people have joined a victim support group on Facebook set up more than a year before the company collapsed—a point to which I will return—while a significant number have lost in excess of £50,000. This was money saved up over years and paid to DMB for work that will now never be completed, or at least not by DMB Solutions.
It has been shocking and heart-breaking to meet my constituents and hear at first hand the devastating situations in which many have been left by the demise of the company. For example, Norma Smith, who is 84 years old, employed DMB Solutions last summer to build a wet room with a toilet in the downstairs of her house in anticipation of one day being unable to use the stairs. In common with many others who have complained to me about DMB Solutions, Norma paid in full before work commenced. She reports that the contract time of three to four weeks for completion stretched into months and months, during which she was confined to living in her bedroom.
Norma eventually cancelled part of the project in a bid to save costs, but that money was never returned to her. Moreover, a leaking pipe caused flooding in her home and damage to floorboards that she had to pay a carpenter to repair. The project was never fully completed by DMB Solutions, and Norma has since had to employ another building company to create a shower space instead of the wet room originally envisaged. She says:
“As the weeks went by with very little work being carried out, downstairs a building site, I become very exhausted. In the end, I had to ask my son-in-law to take on all communication with the company, and with Trading Standards. I do hope that the company will be fully investigated, as the damage, not only in financial terms but also the emotional toll, has been huge.”
The psychological impact of such cases—the stress and anxiety caused, as well as the financial problems—cannot be overestimated.
The hon. Lady is making a powerful point. To add to her catalogue of constituents, I can speak of those who have turned to me, such as Alison, who gave £30,000 to this company six days before it went bust. It knew it would not fulfil the order, yet it took £30,000 from somebody—in the full knowledge that it would not complete the work. Does the hon. Lady not think that in such cases the authorities should investigate fully to ensure that the full force of the law is on the side of people such as Alison, not of the directors, who were clearly ripping her off?
I thank the hon. Gentleman for his intervention, and I agree entirely. It is a point to which I will return shortly. As he says, the company must have known six days before it chose to go into liquidation that it was about to do that. I would have thought that to seek tens of thousands of pounds just days before would have been criminal—I would have thought it was fraud—but we are having great difficulty prosecuting the case.
I want to share one last story from a constituent who told me:
“My partner and I started a project with DMB Solutions in May last year. The project – to rearrange rooms in the loft extension, and create an extension housing a large open plan family room downstairs – was intended to take four weeks and cost about £95,000. We did some research on the company and were unable to find anything concerning. We had seen several boards outside houses and were impressed by the website and by the promises of the design consultant. However, in early January this year, we found ourselves in the position of having an upstairs with no heating, water or Building Control approval, and a downstairs with holes in the ceilings, unattached electrical cables hanging through ceilings, damage to rooms which were outside the scope of works, and a water system which does not provide enough hot water for a bath. We had paid all the money in accordance with the staged payment plan we had signed, so we are £60,000 out of pocket, and our lovely home has been ruined. These events have rocked me to the core and I still cannot quite believe this awful thing has happened to us. In my opinion, DMB Solutions have acted incompetently, immorally and illegally. What I find so distressing is that various bodies and organisations that exist partly to protect the public in these situations seem to have been ineffectual, enabling the company and Directors to continue to operate.”
Today it is DMB Solutions and Brighton Pavilion; tomorrow it will be another company in Edinburgh, Cardiff or Belfast—this is a problem across the whole United Kingdom. Does the hon. Lady agree that it is essential that subcontractors be able to continue with and be paid for work that has been started and that this be a priority for the liquidators, because sometimes small contractors are able to finish the job for a small price?
The hon. Gentleman has drawn attention to a very important issue. It is not just individual householders who are suffering; many companies are also suffering, and the smaller ones may face bankruptcy as a result of not being paid by the other companies. The ripple effect of these actions extends very far, and of course it is by no means limited to one part of the country. This is happening in all the nations of the United Kingdom.
My constituent went on to say:
“I understand that Trading Standards and the Federation of Master Builders had been aware of complaints about this company for more than a year. I also understand that DMB Solutions owed…half a million pounds in taxes.
How can it be that they were still allowed to be operating, and taking money from new customers for work that it was likely they had no intention of completing satisfactorily? I am sure that had I personally owed a proportional amount of money in taxes, someone in authority would have been having a stern conversation with me about it.”
I think that my constituent was entirely right.
One of the striking features of the many cases brought to my attention is the fact that—as we heard from the hon. Member for Hove—the office of DMB Solutions was sending out invoices to customers for work yet to be undertaken, right up until a few days before the directors of the company called in the liquidators on 29 December. For example, Mandy Stewart, a teacher, contracted with DMB Solutions last summer to do a loft conversion at her home. Her partner’s daughter and granddaughter were moving in with them, and work began in mid-October. The project was never completed. Mandy was left with a partially finished and uninhabitable loft conversion, damage to her neighbour’s roof, and damage to her ceilings and light fittings because a tarpaulin had been badly fitted by DMB’s workers during wet and windy weather.
Having paid some £41,000 to DMB Solutions, Mandy is now faced with finding further funds to have the work completed. She also needs to pay for inspection by a structural surveyor to ensure that what has been done so far is safe, to engage building control representatives to sign off the work, and to have scaffolding re-erected because the previous company took theirs down when they had not been paid by DMB Solutions.
Furthermore, on 21 December Mandy received an invoice for almost £10,000 for the next stage of the project. It was not actually due until January, but the covering e-mail from DMB Solutions stated that it was being sent early because the DMB offices would be closed during the Christmas break. As by then Mandy had serious concerns about the work that had been done, she did not pay, but, as she says,
“it is extremely hard to believe that the DMB directors did not know that the company was insolvent on 21 December 2017, barely four working days before they called in the administrators.”
From the accounts that I have been given, it is clear that Mandy is far from alone in having been invoiced by DMB Solutions for a large sum of money, by email on or about 21 December, when the directors must have known that the company faced imminent insolvency. In fact, it is clear that the company was signing up new customers as late as mid-December. Charlotte Preston paid £11,000 to DMB Solutions for an extension to her home on 15 December, but no work was ever started. Even more disturbingly, it is clear that disgruntled customers of DMB Solutions were reporting serious concerns about the company to Trading Standards as far back as early 2016.
According to accounts filed with Companies House on 11 December, by the time the company went into liquidation on 2 January this year, it owed no less than £542,000 to HMRC in unpaid VAT. Indeed, it seems that it may have been trading unlawfully for a considerable time before its collapse. One member of the Facebook victim support group, Andrew Painton, first raised concerns with Trading Standards that DMB Solutions was trading fraudulently, rather than just incompetently, in March 2017, and has done so many times since then. In January this year, Andrew told me:
“To say that the performance of Trading Standards has been lamentable would, in my view, be over praising them. They could have done so much more to protect the customers who became victims of this company during the latter nine months of 2017.”
“In the Autumn of 2017, a fellow member of the Facebook victim support group submitted a Freedom of Information request to Trading Standards, and this revealed the escalating number of complaints in recent years about DMB Solutions. This did galvanise Trading Standards into action…but it was too little too late.”
I recognise, of course, that Ministers are not responsible for the collapse of private sector businesses, but I hope that the Minister will be able to help this evening by providing clarity about what my constituents can do. Specifically, they want to know how to try to obtain financial recompense, and how to ensure that the directors of DMB Solutions cannot simply walk away from their debts—both to their unfortunate customers and to the taxpayer—and start all over again by forming a new company. I can find no adequate government guidance on either of those points. If it is the case that there is no comfort under existing legal frameworks, perhaps the Minister can point me to the changes that would be required to company law, or any other laws, that would allow my constituents to be recompensed for their suffering.
Since December, the local trading standards office has been collecting evidence from those affected by the collapse of DMB Solutions. It has also advised them to make a complaint to the Action Fraud line, which reports to the National Fraud Intelligence Bureau, based in the City of London Police service. Trading standards in Brighton also says that it plans to submit a report to the economic crime unit of Sussex Police. However, the Action Fraud line appears to focus on cyber-crime, rather than incompetently run or even unlawfully run building companies, and the House of Commons Library has been emphatic in advising me that there is nothing that trading standards will now be able to do for those of my constituents who have lost out as a result of the collapse of DMB Solutions. The Library tells me that the appropriate body, at least in terms of seeking to get the directors of DMB Solutions disqualified from acting as company directors in future—something my constituents are understandably keen to see happen—is the Insolvency Service.
My office has consulted a local lawyer specialising in consumer rights, who similarly suggested that the Insolvency Service, not trading standards, is the appropriate body for my constituents to complain to about DMB Solutions. However, the Insolvency Service phone line no longer exists, and its website has a small amount of hard-to-find information on it, stating that it can carry out a confidential investigation or pass complaints on to another public body if they are serious enough, and that if it finds anything wrong and has enough evidence it might ask a court to close a company down or disqualify the company’s directors. It might also carry out a criminal investigation if it finds the company has committed an offence.
However, Andrew Painton of the Facebook victim support group tells me that he has twice complained to the Insolvency Service about DMB Solutions, but on each occasion received only a standard response saying that the service was not considering an investigation against the company. Moreover, the Insolvency Service advises that if a company has already gone into administration, into receivership or is being liquidated, complaints need to be directed to the official receiver or insolvency practitioner. I have emailed them myself, but to date have not had a response.
Trading standards—which appears to have done nothing when it had the chance to do so—is now acting as if it is responsible. It is doing so in concert with Action Fraud and the National Fraud Intelligence Bureau, which does not appear to me to have any obvious role in a situation such as this. My constituents are confused and they need clarity about who is responsible for ensuring enforcement of the law against the directors of DMB Solutions. In short, it is all about as clear as mud.
While I do not, of course, expect the Minister to accept any responsibility for the collapse of DMB Solutions, I do hope he will be able to set out, clearly and authoritatively, which public body or bodies are now responsible for gathering evidence from my constituents and considering what action needs to be taken against the directors of the company. I would also like to know whether the Minister agrees that the Department should do more to ensure that members of the public have access to reliable, accurate information when problems such as this arise. People need to know which body to turn to, and what they can expect that body to do, firstly when they experience such shockingly poor service by a private sector business—as numerous customers of DMB Solutions clearly did for at least a year before the company collapsed—and, secondly, when, as in this case, a business goes into liquidation and the directors apparently disappear.
More particularly, on behalf of my constituents I would like the Minister to answer the following questions. If the Insolvency Service is responsible, is it good enough to have a few sparse paragraphs of so-called “guidance” for members of the public hidden away on a corner of its website? I do not think it is. Could there not be a single, well signposted and advertised point of contact—a one-stop shop—for members of the public who fall victim to the poor business practices and eventual collapse of a limited company like DMB Solutions? Is there perhaps a role for the Citizens Advice consumer helpline here? Currently, the helpline appears to refer only to trading standards, but what if trading standards is not the appropriate enforcement body, as we have been told it is not in this case? Could the appropriate enforcement body, whichever it is, be facilitated and resourced to take a more proactive approach to ensuring that, in a situation such as this, directors of a failed company are disqualified from acting as directors in future if there are grounds for such disqualification?
I appreciate that there are a number of questions, but I greatly look forward to hearing the Minister’s response, not least because many families and individuals in my constituency are depending on it.
I call the Under-Secretary of State for Business, Energy and Industrial Strategy, the hon. Member for Watford (Richard Harrington) to respond to the debate.
Thank you, Mr Speaker, for such a lengthy and erudite introduction. I expected nothing less, and I was not disappointed.
The hon. Member for Brighton, Pavilion (Caroline Lucas) has brought a serious matter to the House, and I thank her for raising this important issue. I am also grateful for the interventions and contributions from the hon. Members for Hove (Peter Kyle) and for Strangford (Jim Shannon). We have heard terrible stories about their constituents. I have to say that I was not surprised, however. I had heard such stories before, being an occasional reader of the Brighton Argus, and I know that the hon. Lady is not just describing a one-off here. It is the job of the Insolvency Service, the Department for Business, Energy and Industrial Strategy and the entire trading standards system to do what they can to provide recompense for her constituents.
I am pleased to hear that the Minister reads the Brighton and Hove Argus. He has mentioned several of the agencies that people can turn to in these situations, but is it not the case that the landscape of regulation is very complicated? The constituents that we have been describing today simply do not think that any one agency has a grip on situations such as these.
I thank the hon. Gentleman for his intervention. I hope that I will be able to partly satisfy him with the comments that I am going to make. If not, I will be happy to meet him and the hon. Lady, representing the greater Brighton constituencies, to take up any further points.
The insolvency regime is an important part of the framework of business, even though it has to deal with the unintended consequences of it. To put this into perspective, levels of insolvency are low, but when it does happen—particularly in consumer-facing companies such as this building company—it can have a significant impact on customers, employees and suppliers. It is an unfortunate fact of life that companies sometimes have to cease trading without paying their debts, and that when they do, creditors can often suffer, with little or no chance of receiving their money back. This is exacerbated in circumstances such as these when customers have paid for work in advance, because those people have often saved for some considerable time to have improvements made to their house, for example.
In many cases, insolvency proceedings such as liquidation will follow. These allow an expert in insolvency, who is authorised and bonded, to be appointed to oversee an orderly winding-up of the company’s affairs, to sell its assets and to make dividend payments to creditors from the funds available. It is an important principle of the insolvency regime that unsecured creditors rank equally when it comes to receiving such payments. Only certain creditors, such as employees, are paid in priority.
Hon. Members will appreciate that I cannot comment specifically on the liquidation of DMB at this early stage of the proceedings. The liquidators have an important task to carry out in winding up the company and making such reports to the creditors as are appropriate. I am aware that complaints have been made to trading standards—
Will the Minister give way?
I hope that the hon. Gentleman will bear with me. I do not want to run out of time without having tried properly to answer all the questions. If there is time left at the end, I will be delighted to give way to him.
I am aware that complaints have been made to trading standards, and we will have to wait for that authority to reach its conclusions. In the meantime, however, we are not sitting idly by. All traders are subject to consumer protection regulations which, for example, require them to provide clear and full information and allow consumers to unwind a contract if they have been the victim of a misleading commercial practice. It is right that any alleged breaches of those regulations should in the first instance be reported to trading standards.
I will set out how the regime impacts on creditors. The first thing to say is that directors who do not play by the rules can expect to be held accountable. It is a long-established principle of company law that directors must act in the best interests of their company, but once the company approaches insolvency, their first duty must be to the creditors. I note from the hon. Members’ comments that, in this case, some of the money was paid a few days before insolvency. Without speaking specifically about this firm, I can say that that is highly relevant to the possible actions open to the authorities. I will say more about that in a moment.
In the majority of company insolvencies, the law is obeyed. Once it has been established that the company cannot pay its debts, a responsible director should take steps to protect creditors, and if a solution to the problem cannot be found, the company may enter into formal insolvency proceedings.
However, not all directors are that diligent. Sometimes, they bury their heads in the sand and continue to run the company as if nothing has happened, or they try to use money owed to creditors as working capital, so that the company may continue to operate, and pay their own salaries. In those few cases, the position of creditors, such as customers who have paid for work in advance, may deteriorate, which would seem to be the case here given what we have been told. Such directors may be subject to disqualification proceedings, which if successful will prevent them from acting as a director of a company, whether formally appointed or not, for a period of between two and 15 years.
The Government are responsible for disqualification of unfit directors via the Insolvency Service, which assesses insolvent company cases to decide whether to investigate the conduct of the directors and, where appropriate, seek disqualification orders. A person who acts as a director while disqualified is committing a criminal offence and, further, they are personally liable for any debts of a company incurred while they were breaching the disqualification.
The people who have been affected have already contacted the Insolvency Service, which has said that it will not investigate, so where do they go now?
At this juncture, the hon. Lady and her constituents have to accept that this is the beginning of the proceedings.
An investigation may lead to evidence of criminal offences committed by directors, such as fraud. In those cases, directors may face prosecution as well as disqualification proceedings. All of that will usually start—this is the relevant point—with the receipt of a report on the conduct of the directors of an insolvent company, which must be submitted by the liquidator within three months of their appointment. Having said that, in deciding whether there should be an investigation, all sources of information will be considered, including information from creditors of the company, its customers, its records and other agencies. If the hon. Lady’s constituents have information about the conduct of the directors of DMB—it appears that they certainly do—that they feel would help to decide whether there should be further investigation, they may, and should, submit it to the Insolvency Service, which has a link on its website for precisely that purpose.
Rogue directors will also discover that they may be personally liable for a company’s debts if it traded while they knew, or ought to have known, that it was insolvent and creditors suffered as a result. While I cannot comment on this particular case, if the circumstances that the hon. Lady described are correct—I have every reason to believe that they are because they are based on what her constituents have told her—the firm was trading when the directors knew or ought to have known that the company was insolvent, and creditors have suffered. A court can order that they repay money to the company out of their own pockets if it can be shown that their actions, or inaction, have harmed creditors. In this situation, the directors would have breached their duty to the creditors of the company, which has the serious effect of preventing the directors from hiding behind the normal veil of incorporation that is a limited company.
Will the Minister give way on that point?
I am going to run out of time, so I will continue. I ought to emphasise again at this point that I cannot comment specifically on the case of DMB or indeed the conduct of its directors.
I mentioned earlier that the Government continue to look for ways to strengthen regulatory and enforcement systems, and disqualification is one area where there have been recent improvements. From 2015, the powers of the Insolvency Service to investigate have been expanded, and the system for liquidators reporting on the conduct of the directors has been modernised, allowing for quicker and more efficient investigations. In addition, there is a new process whereby if a director is disqualified, and it can be shown that their actions caused direct losses to creditors, the court can order that they make a payment from their own pocket to compensate creditors or the estate. These compensation orders were introduced in the Small Business, Enterprise and Employment Act 2015.
The insolvency of a construction company such as DMB may often result in some customers having paid for work that it was not possible to complete. It is not unusual to ask the customer for a proportion of the payment up front, such as in the circumstances described by hon. Members tonight. Those circumstances may be different from insolvencies that may happen when directors behave perfectly properly and get into financial difficulties, but I will not describe that as the “normal” way, because few companies do become insolvent. There are things that become a serious matter of misconduct on the part of directors and that lead to periods of disqualification, personal liability and possibly prosecution proceedings being sought.
Apparently we have a couple more minutes. The Minister says there is provision to get a court to order a pay-out from people’s own pockets. Does that still apply if it was a limited company?
I believe that is the case, but I do not want inadvertently to mislead the House, so I will write to the hon. Lady on that subject to answer specifically and properly.
I am genuinely sorry, as anybody would be, for the hon. Lady’s constituents following this business with DMB. It is a horrible situation, but I reassure her and other Members that there will be full consideration of whether there should be further investigation of the circumstances of this insolvency. [Interruption.] I have been given a piece of paper saying that the answer to her question is, “Yes, it does.” I will write to her anyway, because I promised that I would.
I have craved your indulgence enough, Mr Speaker—I think I have one minute left—and I hope I have been able to reassure the hon. Lady that the insolvency legislation is robust in dealing with directors who abuse the principle of limited liability. If she and her Brigtonian, Hovian and Portsladian colleague, the hon. Member for Hove, would like to meet me or the relevant officials, I am happy for them to do so.
Is it possible for protected creditors, such as Her Majesty’s Revenue and Customs in respect of VAT, to allow flexibility for those who are in most need? We are sometimes talking about the widow’s mite here.
That is not currently the situation. As the hon. Gentleman will know, some creditors are protected above others, such as banks with mortgages, and we have to be careful that companies can legitimately borrow money and pay their taxes.
The hon. Member for Hove (Peter Kyle) and I would be grateful for the meeting the Minister describes. We will follow up with his office.
I apologise for the fact that in some cases I may not have been able to answer as fully as I had hoped.
Question put and agreed to.
Motion made, and Question proposed, That this House do now adjourn.—(Rebecca Harris.)