Secretary Of State For Trade and Industry v Newstead & Ors

A criminal-court disqualification under section 2 of the Company Directors Disqualification Act 1986 does not ordinarily make later civil disqualification proceedings under section 6 an abuse of process. The two provisions serve related but distinct functions. Section 2 follows proved or admitted criminality, whereas section 6 requires an independent assessment of unfit conduct and the appropriate period of disqualification. Overlapping facts are insufficient to establish abuse where the factors considered by the criminal court and the basis of its order are unclear. The civil court may investigate matters that could have been litigated in the criminal proceedings and must determine unfitness and the appropriate period for itself.

The Secretary of State commenced proceedings under section 7 of the Company Directors Disqualification Act 1986 against four respondents following the liquidation of companies connected with the applicants, Paul Murfitt and Kenneth Rayna. The proceedings alleged unfit conduct, including trading while insolvent or under-capitalised, withholding PAYE and national insurance payments, misapplication of company funds, misuse of bank accounts, and inadequate records.

The civil proceedings had been stayed while the applicants faced criminal charges. After they pleaded guilty and received concurrent prison sentences, the Crown Court made two-year disqualification orders under section 2 of the Act. The High Court lifted the stay and directed that the section 6 proceedings continue. The applicants sought permission to appeal, alleging abuse of process and breach of the principle of former recovery.

1. Application refused. The proposed appeal had no real prospect of success. The applicable permission test was whether the appeal had any real prospect of success where the decision below was not itself an appellate decision.
2. The High Court had correctly analysed the principles governing a stay on abuse-of-process grounds. Although the criminal and civil proceedings involved the same individuals, companies and general conduct, the material did not show what factors the Crown Court had taken into account when imposing the two-year section 2 disqualification. The applicants had invited that order without opposition, and it was therefore impossible to treat it as disposing of the civil proceedings.
3. The statutory schemes were distinct. Section 2 applies following conviction of an indictable offence connected with a company or its property, involving proved or admitted criminality. Section 6 addresses whether conduct as a director makes the person unfit to be concerned in company management. That conduct may or may not involve criminality.
4. The section 6 court was required to examine the allegations in the Secretary of State’s evidence independently. It could consider matters capable of being the subject of a disputed criminal trial, but would ordinarily need to investigate substantially more before deciding unfitness and the appropriate period of disqualification. The principles governing that period were those explained in In re Westmid Packing Services [1998] 2 BCLC 646.
5. The doctrine of former recovery had no meaningful role on these facts. Lord Justice Chadwick also noted a possible concern that defendants might seek section 2 orders to avoid rigorous section 6 scrutiny, but no issue requiring guidance arose. Mr Justice Rougier agreed, stressing that public protection made a full investigation of the conduct relevant to unfitness desirable.

• High Court, Chancery Division: Mr Anthony Mann QC, sitting as a Deputy Judge, lifted the stay in the section 6 proceedings and directed that they proceed against the applicants.
• Court of Appeal (Civil Division): permission to appeal was refused because the proposed appeal had no real prospect of success.