Secretary of State for Trade and Industry v Swan

Disqualification proceedings are civil proceedings with potentially grave consequences, and the Secretary of State must present the case against a director fairly. The supporting affidavit or affirmation should identify the essential facts, distinguish direct evidence from inference, avoid overstatement, and address material explanations already given. Serious allegations require clear and particularised supporting evidence.

The statutory notice period under section 16(1) of the Company Directors’ Disqualification Act 1986 is important. Failure to give the full 10 days does not automatically render proceedings a nullity, but the shortness of notice, prejudice, the explanation for non-compliance and other circumstances may make proceedings abusive or invalid. Appropriate relief may include striking out offending evidence or seeking particulars. The court refused the application to strike out the whole affirmation because the allegations were understood and an arguable case remained.

The Secretary of State commenced disqualification proceedings under section 6 of the Company Directors’ Disqualification Act 1986 against five directors of Finelist Limited and AEW Limited after the companies entered receivership.

Christopher Paul McKinley Swan sought an order striking out the supporting affirmation and staying the proceedings. He alleged that the evidence was irrelevant, oppressive and inadequately supported, that material said to be expert evidence failed to comply with CPR Part 35, and that the Secretary of State had acted unfairly by giving only one day’s notice and by not obtaining his explanations before commencing proceedings.

The issues were whether the evidence and pre-issue procedure were unfair, what consequences followed from the short notice, and whether the requested relief was appropriate.

1. Nature of the proceedings. Disqualification is not a criminal conviction, but it is a serious interference with personal and professional freedom and exists to protect the public.

2. Supporting evidence. Under rule 3 of the Insolvent Companies (Disqualification of Unfit Directors) Proceedings Rules 1987, evidence must state the facts relied on and the matters said to establish unfitness. The Secretary of State must identify essential facts, distinguish direct evidence from inference, present a balanced account and avoid overstatement. Serious allegations require particular clarity.

3. Pre-issue fairness. Section 16(1) requires at least 10 days’ notice. Fairness and the CPR also support giving the director a proper opportunity to respond before proceedings are issued, save in special circumstances. One clear day’s notice, without explanation and without interviewing Mr Swan, was unfair.

4. Effect of defective notice. Re Cedac Ltd establishes that a minor failure to comply with section 16(1) does not automatically make proceedings a nullity. The court must consider the extent of the failure, prejudice, any explanation and the circumstances. Serious non-compliance may contribute to an abuse of process or justify striking out.

5. Relief. The affirmation contained irrelevant and overstated material. However, Mr Swan understood the allegations, accepted that an arguable case existed and did not seek to strike out the proceedings themselves. The appropriate remedy would have been to strike out particular passages, seek particulars or both. The application was therefore refused. Baker Tilly’s data was not expert evidence requiring CPR Part 35 permission.

First-instance decision. No prior appellate decision is stated in the judgment.