In the Matter of Instant Access Properties Ltd v Maria Gifford (2011)
It was appropriate to grant the Secretary of State for Business, Innovation and Skills permission to apply for disqualification orders against four company directors, pursuant to the Company Directors Disqualification Act 1986 s.7(2), after the two-year period from the company's insolvency had expired. The case alleged against the directors that they had created a sham arrangement to avoid paying tax was reasonably strong, the delay in bringing proceedings was reasonably well explained and there was no specific prejudice to the directors such that the grant of permission was not appropriate.
The applicant secretary of state sought permission to apply for disqualification orders against the respondent company directors. The directors were three individuals (G, R and M) and one corporate director (L). Their company, which had been involved in sourcing residential property investment opportunities, was placed into administration in September 2008 and into liquidation in December 2008. It was common ground that the two-year period in which the secretary of state could apply for the directors' disqualification without the court's permission expired in September 2010. The directors were not sent notice of the fact that the secretary of state was still considering disqualification proceedings at that time, but in January 2011 they were informed that an investigation into the company was still proceeding, and that careful consideration was being given as to whether it was appropriate to ask for permission to commence proceedings. The investigation arose out of the secretary of state's allegation that between May 2003 and September 2008, the directors had each caused or allowed the company to structure its affairs in such a way that the tax authorities had received less money than was properly due to them by creating a sham arrangement which diverted income properly due to the company to a BVI company, and misrepresenting the true position to Revenue and Customs. Since the secretary of state's claim form seeking disqualification orders was issued seven months out of time in April 2011, the court's permission to bring disqualification proceedings was sought pursuant to the Company Directors Disqualification Act 1986 s.7(2). The secretary of state contended that given the directors' conduct, which was serious enough to merit disqualifications for 6 to 10 years, it was appropriate to grant permission.
(1) In deciding whether to grant permission under s.7(2), it was important to have in mind that the two-year period was not a limitation period, merely the period during which disqualification proceedings could be brought without permission. After that period expired, a director did not acquire immunity from suit. All that occurred was that the secretary of state needed to surmount the additional hurdle of showing that it was in the public interest to bring disqualification proceedings in order to protect the public from the conduct of persons unfit to be directors, Secretary of State for Trade and Industry v Davies (No1) (1996) 4 All ER 289 CA (Civ Div) followed. The factors to be taken into consideration in the exercise of the wide and unfettered discretion under s.7(2) included the length of and reasons for the delay, the strength of the case against the director, and the degree of prejudice caused to the director by the delay, Probe Data Systems Ltd (No3), Re (1992) BCC 110 CA (Civ Div) followed. The gravity of the charge and the prospects of success could together measure the public interest in allowing disqualification proceedings to continue (see paras 8-11, 15 of judgment). (2) The case advanced by the secretary of state against R and M was fairly arguable and there was a reasonably strong prospect of establishing a sham trading agreement. The critical question in L's case was whether it played a role in the conduct complained of sufficient to amount to "causing or allowing" it to occur. On the evidence, the case against L was also reasonably strong and there was no reason not to classify G's involvement in a significantly different way either (paras 28, 30-32). (3) The reason for a large part of the delay in issuing proceedings was the late start of the investigation into the company's affairs. Once the investigation was under way, it proceeded with reasonable diligence. Given the nature and complexity of the investigation, the period up to the commencement of the application for permission was reasonably well explained (para.39). (4) There was inherent prejudice to a defendant in any delay in bringing proceedings. To have proceedings of any kind hanging over one was productive of worry and stress, and the passing of time caused witnesses' memories to fade. Those factors were present in every case. However, L could not, as a corporate director, complain of any mental stress and there were was little evidence of specific prejudice on which G, R or M could rely. In all the circumstances, the balance of competing interests came down in favour of granting permission to bring the proceedings (paras 41, 44-50).