Walker & Ors v Secretary of State for Trade & Industry

On a disqualification appeal, the appellate court should not disturb primary factual findings, particularly findings based on oral evidence. It may nevertheless form its own judgment on whether the established conduct demonstrates unfitness.

Where unfitness is alleged solely through incompetence, the Secretary of State bears a heavy burden. The conduct must demonstrate incompetence of a high degree. The court must assess the conduct in its overall context and avoid hindsight, especially where directors acted under pressure and in the interests of the company and creditors.

The appellants were directors of Pineland Facilities Management Ltd. The Registrar found them unfit under Company Directors Disqualification Act 1986, section 6, because they had allowed the company to trade while insolvent between 15 and 29 December 1998. He imposed disqualification periods of two, two and a half, and three years. He dismissed a separate allegation concerning a transaction involving another group company.

The directors appealed against the first finding. The Secretary of State cross-appealed against dismissal of the second allegation. The central questions were whether the asset disposals demonstrated the requisite high degree of incompetence and whether the inter-company transaction was proved to have occurred after the directors knew of insolvency.

1. Appeal against the first finding allowed. The Registrar’s primary factual findings were not disturbed. The appellate court was, however, entitled to form its own judgment on fitness where the facts were established, following Hitco 2000 Ltd.
2. The statutory question was whether the conduct made the directors unfit to be concerned in the management of a company, rather than whether it merely deserved criticism. Where the allegation rested solely on incompetence, the Secretary of State had to establish incompetence of a high degree. That heavy burden guarded against hindsight in assessing commercial decisions made under pressure: re Cubelock Ltd, Barings Plc No. 5 and re Bradcrown Ltd.
3. The directors had sold equipment during the period before the receivership and had failed to obtain specific advice about the VAT consequences. The sales obtained the best available prices, were not shown to have been motivated by personal interests or a desire to benefit the bank, and were disclosed to a proposed administrative receiver who did not object. The directors could not reasonably be expected to know the technical effect identified in In Re John Willment (Ashford) Ltd. Viewed in the totality of the circumstances, their conduct did not demonstrate incompetence of the required degree. The Registrar’s conclusion involved the mismatch identified in re Grayan Building Services Ltd.
4. Cross-appeal dismissed. The Registrar was entitled to conclude that the evidence did not prove when the inter-company transaction occurred. If it pre-dated knowledge of insolvency it was unobjectionable; if later, it would have been challengeable. The evidential uncertainty justified a conclusion of “not proven”, consistent with Rhesa Shipping Co. v. Edmonds. The transaction allegation was therefore not made out.

The judgment records an appeal from orders made by Mr Registrar Baister on 31 May 2002 under section 6 of the Company Directors Disqualification Act 1986. The High Court allowed the directors’ appeal against the first finding of unfitness and dismissed the Secretary of State’s cross-appeal concerning the second allegation.