Secretary of State for Trade & Industry v Richard Richardson (1997)
Appeal against disqualification for seven years under s.6 Company Directors Disqualification Act 1986. Statutory preference, period of disqualification and de facto directorship considered.
Appeal by the first respondent against an order disqualifying him from being a director of a company for a period of seven years pursuant to s.6 Company Directors Disqualification Act 1986. The order was made by Registrar Rawson on the secretary of state's application by way of originating summons, which arose out of the appellant's conduct as director of three companies which had trade as wholesale butchers but were now insolvent. The charges which the registrar found proved against the appellant included; (a) that he had acted in breach of his fiduciary duty as director of the first company ('S Ltd') in authorising the transfer of #200,000 to the third company ('F & R Ltd'), that being a payment for which S Ltd received no consideration and had no reasonable prospect of recovering, and being a transaction at under value which rendered S Ltd insolvent; (b) that as a director of the second company ('RRM Ltd') he had caused RRM Ltd to extinguish its bank overdraft in preference to settling the claims of its trade creditors; (c) that as a director of F & R Ltd he had caused the company to continue trading after September 1989 when he knew or should have known that there was no reasonable prospect of the company meeting its creditors claims.
(1) The decision of the registrar is discretionary and could only be upset for error of law or if the court was satisfied that the registrar had wholly misconceived the matter or wholly failed to exercise a proper discretion. (2) The words of s.6 emphasised the need for the court to focus on a respondent's conduct as a director to decide whether he was unfit to be concerned in the management of a company. The appellant contended with regard to (a) that (inter alia) he was never a director of S Ltd, and that the payment to F & R was recoverable from the bank because it had been made otherwise than in accordance with S Ltd's bank mandate, so that the fact of transferral should not reflect adversely on him. With regard to (b) he contended that the registrar was wrong, having found against the proposition that the appellant had been guilty of a statutory preference, to entertain a more general case of preference. He also submitted that no valid criticism could be made of his conduct in any event because that he had not acted contrary to the prevailing commercial morality at the time and did not prejudice RRM Ltd's creditors as a class. With regard to (c) he contended that he was kept in the dark about F & R 's financial position. He also disputed the period of disqualification imposed. HELD: (1) As to (a) the Registrar's conclusion that the appellant was a de facto director of S Ltd was unassailable; his approach and his assessment of the witnesses he had seen and of the other evidence was correct. (2) The transfer of the money was in accordance with S Ltd's mandate. In any event whether S Ltd could recover from the bank was a different question from whether the appellant's conduct as director was reprehensible. The Registrar's finding that the appellant had authorised the transfer was not against but in accordance with the weight of the evidence. (3) As to (b), the registrar had found that s.615 of the Companies Act 1985 was in force at the relevant time, as opposed to s.101 of the Insolvency Act 1985, and the secretary of state's case failed on that point. However, it was apparent from the language of s.6 of the 1986 Act that the court was required to focus on conduct generally, and it would therefore be surprising if the secretary of state was seen to have limited his case in the way suggested, and indeed he had not so limited his case. (4) The Registrar had concluded that the appellant, in extinguishing RRM Ltd's overdraft, was influenced by the fact that his personal exposure under guarantee would be eliminated. The action of a director in causing a company to make a payment which he knows will produce a personal advantage to himself, regardless of the interests of other creditors, would at the time have been regarded as morally reprehensible and indicative of a lack of commercial probity. (5) As to (c), the decision was based on findings of fact and could only be reversed if the court was satisfied such findings were wrong. With the exception of two errors as to exact figures (which did not vitiate the decision because it was the trend rather than the absolute figure which was important) the court was not so satisfied. There was ample evidence to justify the Registrar's conclusion and the decision would stand. (6) As to the period of disqualification, the appellant had suffered greater delay than he ought to have been subjected to. However he had been allowed to become a director of a different company upon the giving of undertakings, and so had suffered no de facto disqualification and no jeopardy, and the period of disqualification would therefore stand. (7) Thus all grounds of appeal failed and the appeal was dismissed.