Summary

A director who had given a disqualification undertaking and asked the court to exercise its discretion under the Company Directors Disqualification Act 1986 s.8A to reduce the agreed period, or to order that the undertaking should cease to have effect, had to demonstrate special circumstances. Failure to take legal advice when invited to do so and failure to appreciate the consequential effects of the undertaking were not special circumstances.

Facts

The claimant applied for the period of an undertaking not to be a company director to be reduced from 11 years to between two and five years.

The claimant was a qualified independent financial advisor regulated by the Financial Conduct Authority and had been the managing director of an asset management company set up by his father. The company went into insolvent liquidation and the Official Receiver investigated the reasons for the company's failure. The company was not regulated to hold client money and had entered into an arrangement with a company that was regulated, to hold funds for clients. That company ceased acting for the company after discovering that the company had invested client funds in a fund that was not on its list of permitted investments. That fund was run by the company and they had directors in common including the claimant and another director (S). The Official Receiver gave notice of his intention to apply for director disqualification orders in respect of the claimant and S. The case against the claimant was that he had caused or allowed the company to misappropriate client funds by making inappropriate investments without authorisation, and failed to keep books and records. He was invited to take independent legal advice. The claimant and S blamed each other. Without taking advice, the claimant gave an undertaking not to act as a director for 11 years. The undertaking was given on the basis of a schedule of undisputed facts to the effect that he had caused or allowed the misappropriation of client funds by transferring them into high-risk investments without authorisation and had failed to keep accounting records. S also gave an undertaking not to act as a director for 11 years. When the claimant found that the undertaking was likely to prevent him working as a financial adviser, he applied for the period to be reduced under the Company Directors Disqualification Act 1986 s.8A.

The claimant argued that there were special circumstances because he had not realised the consequences of the undertaking for his employment; alternatively he argued that he only gave the undertaking because he could not afford legal advice and assistance at the relevant time.

Held

(1) The undertaking contained an agreement not to dispute the schedule. A party could only resile from the agreement not to dispute the matters set out in the schedule to the undertaking if some ground was shown which would be sufficient to discharge a contract or if there was some public interest ground which outweighed the importance of holding the parties to the undertaking. Such circumstances would enable the court to look behind the agreement not to dispute the schedule, and find that it was not binding, Sharland v Sharland [2015] UKSC 60 considered and Secretary of State for Trade and Industry v Jonkler [2006] EWHC 135 (Ch) applied (see paras 28-30 of judgment).

(2) The discretion provided by s.8A to reduce the undertaking period, or order that the undertaking should cease to have effect, could be exercised only where "special circumstances" existed, Jonkler applied and Di Placito v Slater [2003] EWCA Civ 1863 considered. Failure to take legal advice when invited to do so and failure to understand the consequential effect of the undertaking were not special circumstances. The effect on the claimant's professional life ought to have been foreseen when the undertaking was given; it would have become apparent if inquiry had been made, Makins v Secretary of State for Business, Innovation and Skills unreporteddoubted. The claimant knew or should have been aware of the effect of the undertaking on his work in the highly regulated financial services sector. There were no special circumstances (paras 31-45, 57, 60).

(3) There was evidence that S had instigated the unauthorised trades, but the claimant remained responsible as managing director for failure to exercise proper or sufficient control. He was the compliance officer. Even if the claimant had not caused the misappropriations or transfers into inappropriate investments, he had allowed them. The undertaking was properly framed in the alternative. He had failed to maintain the company's books and records. The claimant's was not a rare case in which the combination of circumstances was enough to trigger the discretion. There was a long list of failures for which he was responsible as managing director, Secretary of State for Trade and Industry v Baker [1999] 1 B.C.L.C 433 applied. (paras 65-76).