Summary

In determining the question of unfitness to be concerned in the management of a company under the Company Directors Disqualification Act 1986 s.6 it was not enough just to look at what happened in the company and say that all the directors were to blame and must therefore be found unfit. It was essential to consider the directors' individual roles and responsibilities.

Facts

The secretary of state applied for disqualification orders to be made against the defendant directors (X, Y and Z) pursuant to the Company Directors Disqualification Act 1986 s.6. X was the managing director of a company (M) which had gone into administration. He was responsible for the day-to-day control of M, which included the development and implementation of its trading activities, the monitoring of cheques and payments to and by M, dealing with M's bankers and accountants. Z had a limited role in M which consisted of attendance at meetings, investment of monies and the provision of limited sales assistance. Likewise Y had invested monies in M and attended meetings. However Y had been fairly actively involved in the financial side of M during the early stages and it was apparent that he had become more heavily involved in the latter stages of M's financial crisis. X received remuneration from M, but none was paid to Y or Z. The secretary of state alleged that X, Y and Z had (1) allowed M to trade at the risk, and to the detriment of, creditors from April 2000 onwards; (2) caused M to misuse its bank account by issuing large numbers of cheques which were dishonoured by its bankers; (3) failed to file accounts and annual returns; (4) Z should have taken greater steps than he did to inform himself of M's affairs and that his failure to do so constituted an abrogation of his personal duties as a director.

Held

(1) M had failed to pay old debts, tax, national insurance payments and the minimum break-even turnover figure had never been achieved, nor was there any likelihood that it would be achieved. It was clear that M was insolvent from April 2000 and that, whilst there was a prospect of monies coming in, that could never have been enough to justify a belief that the creditors' claims could be settled, Secretary of State for Trade and Industry v Creegan (2001) EWCA Civ 1742 , (2004) BCC 835 applied. In the circumstances X, Y and Z had allowed M to trade at the risk, and to the detriment of, its creditors. (2) The primary cause of the acts of dishonour was the writing of cheques without sufficient funds to cover them. It was a serious allegation as a number of the incidents post-dated a letter from the bank warning X, Y and Z about that kind of behaviour. It was clear that Y and Z only signed cheques rarely and that the majority were issued by X. Therefore that allegation against Y and Z was not made out. However it was apparent that the number of incidents of dishonour as well as the amounts involved meant that the allegation against X was made out. (3) M had failed to file accounts and annual returns in accordance with its statutory obligations under the Companies Act 1985 s.244. Therefore that allegation against X, Y and Z was made out. (4) Z had abrogated his personal duties to inform himself about the company's affairs and to join with his co-directors in supervising them and controlling them, Secretary of State for Trade and Industry v Griffiths (1998) 2 All ER 124 considered. (5) Having regard to s.6 of the 1986 Act it was necessary to consider the question of unfitness in relation to the allegations made out. The test was whether a person's conduct as a director had made him unfit to be concerned in the management of the company, Sevenoaks Stationers (Retail) Ltd, Re (1990) 3 All ER 578 applied. It was not enough to just look at what happened in the company and say that all the directors were to blame and must therefore be found unfit. It was essential to consider the director's individual roles and responsibilities, Re CS Holidays Ltd (1997) BCC 172 considered. The assumption of the office of director carried within it obligations which could not be avoided simply by subcontracting them to others, particularly as in the instant case where the company was small. (6) It was clear that the allegations made out against X rendered him unfit by reason of serious incompetence and a serious want of commercial probity. There was no real prospect of trading M out of its troubles and any view to the contrary could not be excused as mere commercial misjudgement. In relation to that allegation Y and Z were unfit. Furthermore, Z had shirked his responsibilities by failing to take any meaningful interest in the financial affairs of M and in failing to make any proper inquiries as to those matters. Therefore in relation to that allegation Z was unfit. Varying periods of disqualification were ordered against X, Y and Z.

Applications granted.