Home Information Cases Stephen Cathie, Stephen Kellar v Secretary of State for Business, Innovation & Skills (2012)

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Stephen Cathie, Stephen Kellar v Secretary of State for Business, Innovation & Skills (2012)

Summary

Where the court had found misconduct by directors, who operated a policy of not paying debts due to Revenue and Customs for PAYE and national insurance contributions, it was entitled to find that they were unfit under the Company Directors Disqualification Act 1986 s.6, in the absence of extenuating circumstances.

Facts

The appellant directors (C) appealed against disqualification orders made on the application of the respondent secretary of state under theCompany Directors Disqualification Act 1986 s.6.

C were directors of a company which supplied used printing machinery and sought to become the United Kingdom sales agent for overseas manufacturers of printing equipment. The company was 15 months in arrears with its payments to HM Revenue and Customs for PAYE and national insurance liabilities when it ceased trading, and the arrears amounted to £193,000. It went into liquidation six weeks later. The secretary of state applied for C's disqualification on grounds of unfitness. C's case was that, although they had not paid the tax liabilities as they fell due, they had kept the Revenue appropriately informed with sufficient accurate information with a view to agreeing to defer payment. The district judge held that they had discriminated against the Revenue by failing to pay their tax debts when from time to time they had money to do so, and failed to keep the Revenue fully informed of the company's position and prospects. He found that there were no exceptional extenuating circumstances. The judge upheld that decision.

C submitted that the district judge had misdirected himself by introducing a test of exceptional circumstances when considering whether their misconduct led to a conclusion of unfitness; he had wrongly imposed a burden of proof on them to show that they had kept the Revenue fully informed; they were placed at a disadvantage because, through no fault of theirs, the company's files in relation to the Revenue were missing.

Held

The task of the fact finder was to consider the evidence as a whole, including extenuating circumstances, and decide whether the director had fallen below the standards of probity and competence appropriate for persons fit to be directors of companies, Grayan Building Services Ltd (In Liquidation), Re [1995] Ch. 241 followed. The district judge did not depart from that test, but the use of the expression "exceptional circumstances" was better avoided, Structural Concrete Ltd, Re [2001] B.C.C. 578 considered. He had found misconduct in the treatment of the Revenue, and he had set against that the points in C's favour. He reached his conclusion on the evidence as a whole and was justified in finding that unfitness was established. The burden of proving misconduct was clearly on the secretary of state. If C sought to defeat the inference which arose from prolonged non-payment of tax and national insurance by demonstrating informed acceptance, or even forbearance, by the Revenue, it was for them to provide the evidence to do so. To that extent the onus of proving that the Revenue were kept appropriately informed was on C. The district judge took into account and assessed the disadvantages under which C were labouring. He also made substantial criticisms of the secretary of state's conduct in the litigation. Those considerations did not disentitle him, on the evidence, from making the findings he did, Stakefields (Midlands) Ltd, Re [2010] EWHC 2518 (Ch), [2011] Bus. L.R. 457considered (see paras 46-63 of judgment).

Appeal dismissed

Court of Appeal
Pill LJ, Sullivan LJ, Kitchin LJ
Judgment date
1 June 2012
References

​LTL 1/6/2012 : [2012] EWCA Civ 739