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Re Britannia Homes Centres Ltd

Summary

Applications for directors' disqualification made by the Official Receiver fell under the Insolvent Companies (Disqualification of Unfit Directors) Proceedings Rules 1987 SI 1987/2023. An appeal from a decision of the county court to grant leave for a disqualified director to act for another company was to be heard by a single judge of the High Court. Although the company for which the applicant sought to act as a director was outside the jurisdiction of the court deciding the disqualification proceedings, that court did have jurisdiction to hear the application for leave to act because the application was part and parcel of the disqualification proceedings.

Facts

Appeal by the Official Receiver ('OR') from an order giving the respondent ('MC') leave to continue to act as a company director following disqualification. MC had been involved in a number of companies incorporated between the 1950's and early 1980's. All those companies ceased trading in November 1983. MC incorporated a subsequent company called Britannia Glass Ltd ('BGL') in March 1983, which continued to trade until June 1991. However, prior to the winding up of BGL in July 1991, MC incorporated Britannia Homes Centres Ltd ('BHCL'), which effectively carried on the same business. BHCL was struck off the companies register for failure to lodge appropriate documentation. There was a dispute as to when BHCL was reinstated to the register, but in all events BHCL either traded with no legal existence or plainly failed to comply with statutory documentation requirements. Three weeks prior to BHCL's winding-up in October 1997, MC incorporated Aidenvale Ltd, which effectively picked up the business of BHCL. Directors' disqualification proceedings were commenced against MC under the Company Directors Disqualification Act 1986. In November 1999, an order was made by a district judge at the Northampton County Court disqualifying MC from being a director or office holder of a company for six years. MC did not appeal that order, but applied for leave to continue to act as a director of Aidenvale Ltd. That application was heard by the district judge in March 2000 and leave was granted. The OR appealed from that decision on the basis that the district judge did not have jurisdiction to hear MC's application for leave to act. Although BHCL was in the jurisdiction of the Northampton County Court, Aidenvale was not. Further, the OR sought to show that upon the merits of the case, MC should not have been given leave to act for Aidenvale given the nature of his previous business dealings. There was also a more immediate issue before the court as to whether an appeal of the present nature was to be heard before the county court in which leave was granted or before the High Court.

Held

(1) (i) It was necessary for the court to consider whether the Insolvent Companies (Disqualification of Unfit Directors) Proceedings Rules 1987 SI 1987/2023 applied to this case. (ii) The words used in ss.16 and 17 of the Act made it clear that applications for leave were an integral part of the disqualification process. Disqualification proceedings had, within their regime, powers for the court to grant leave to act as a director once disqualified. The power was not therefore freestanding. Leave could only be given to a "disqualified" director. A deciding factor in reaching a decision was the actions of the applicant for leave that lead to his disqualification. (iii) MC's application for leave was issued within the proceedings brought by the OR under s.17(1) of the Act (r.1(3) of the 1987 Rules and the 1987 Rules therefore applied). (iv) Under r.2(4) of the 1987 Rules, an appeal from the grant of leave was to be made in accordance with r.7.47 Insolvency Rules 1986 SI 1986/1925, which made it clear that an appeal from a county court was to be heard by a single judge of the High Court. (2) (i) The applications for disqualification and leave to act in this case were made in the winding-up proceedings of BHCL. They were part and parcel of the same proceedings. (ii) Under s.17 of the Act, it was necessary for the court to have jurisdiction to entertain an application for leave to act as a director. However, s.17 referred to a situation where the application for leave was not part and parcel of the winding-up of a particular company. (iii) Application of s.17 only made sense if the application for leave to act was made subsequent to an order for disqualification and was freestanding from the disqualification proceedings. (iv) The Northampton County Court did therefore have jurisdiction to hear MC's application for leave. (3) (i) Whether MC was entitled to leave to act for Aidenvale was purely a decision based upon the merits of the case and principles established in Re Barings plc (No.3) (1999) 1 All ER 1017. (ii) MC had been a director of companies in the past in which he was the sole director and those companies had been wound-up with financial loses. In effect Aidenvale was a "phoenix company" and to grant MC leave to continue running it as a sole director effectively meant that the disqualification order had no effect. Only in extreme cases was it appropriate to grant such leave. (iii) It was inappropriate to grant MC leave to act as a director of Aidenvale.

Appeal allowed.

Chancery Division
Richard Mawrey QC
Judgment date
7 June 2000
References

[2001] 2 BCLC 63