Home Information Cases Stephen Cathie, Stephen Kellar v Secretary of State for Business, Innovation & Skills (2011)

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Stephen Cathie, Stephen Kellar v Secretary of State for Business, Innovation & Skills (2011)

Summary

When ordering the disqualification of two company directors a judge had legitimately made factual findings and had been correct to hold that the revenue commissioners had not been given an informed opportunity to consider whether to pursue payment for Crown debt, in light of errors and omissions that had been made by the directors in their communications with the commissioners.

Facts

The appellant directors (C and K) appealed against disqualification orders that had been granted at the instigation of the respondent secretary of state. C and K had been directors of a company (J) which had entered creditors' voluntary liquidation. The secretary of state, alleging that C and K had failed to ensure that J comply with its statutory obligation to remit pay-as-you-earn and national insurance contributions, was successful in obtaining disqualification orders. The trial judge found that in a letter to the revenue commissioners, drafted by K and signed by C, they had falsely claimed not to have received directors' salaries and had failed to mention payments to J from K totalling £11,000. He also held that they had not disclosed that J had won a large contract. The judge held that the letter's effect was that the commissioners were not given an informed opportunity as to whether to pursue payment, and that no progress was made thereafter to negotiate a time to pay agreement. Findings that J had discriminated against the commissioners by choosing not to pay them, had a policy of discrimination, and had free funds available from which to make some payment, were not challenged on appeal. The directors submitted that the judge had erred (1) in holding that they bore an evidential burden; (2) in making three particular factual findings with no or insufficient evidence; (3) in rejecting the directors' evidence and concluding that the commissioners were not given an informed opportunity whether to pursue payment; (4) in holding that exceptional circumstances had to be shown to avoid a determination of unfitness once findings of misconduct had been made; (5) in concluding that the directors were unfit to be involved in a company's management.

Held

(1) The judge had not misdirected himself on the burden of proof, but in any event his critical findings in relation to the letter and the non-disclosure of a contract did not depend in any way on the incidence of the burden of proof, but rather on the oral evidence of the directors and their demeanour (see paras 55-56 of judgment). (2) The judge's conclusions in relation to the three contested factual findings were entirely open for him to draw. In relation to lack of progress in negotiations, the commissioners' willingness to contemplate a time to pay agreement did not meet the main allegation against the directors, which was that they failed to provide all the information necessary for the commissioners to make a fully informed decision about making a time to pay agreement. In relation to whether C had informed the commissioners of the contract, C had had every opportunity to comment but only said he was unable to remember if he had; the judge's conclusion that it was highly unlikely that C had informed the commissioners was plainly open in those circumstances (paras 62, 64-65). (3) The judge was fully entitled to take the view that the errors and omissions in the letter were a serious matter and justified his conclusion that the commissioners had not been sufficiently informed. C's conduct in allowing the letter to go out under his signature, containing such an egregious error in relation to his own salary, was grossly negligent. As K had drafted the letter, the responsibility for the misleading impression he gave in failing to mention the payment had to be laid squarely at his door (paras 68-70). (4) If the judge had thought there was a separate test of "exceptional circumstances", that had been an unwarranted gloss on the simple "jury question" which Sevenoaks Stationers (Retail) Ltd, Re (1991) Ch 164 CA (Civ Div) required the court to answer, and there was nothing inOfficial Receiver v Barnes & ors (2001) BCC 578 Ch D (Bolton) that supported the existence of the test as a separate requirement in all cases, Sevenoaks and Barnes considered. However, even if the judge had erred in the manner contended, the directors had not suffered any prejudice (para.73). (5) The judge rightly recognised that the conclusion of unfitness did not necessarily follow from findings of misconduct, and that he had to review all the evidence, and any mitigating factors, before deciding whether the statutory test of unfitness was satisfied. The judge performed that task, and his conclusion was one that was properly open to him (para.75).

Appeal dismissed

Chancery Division
Henderson J
Judgment date
18 November 2011
References

​LTL 28/11/2011 : [2011] EWHC 3026 (Ch)

Practice areas

taxation,Taxation