Secretary of State for Trade and Industry v Goldberg & Anor

In determining whether a director is unfit, the court must make a broad value judgment under section 6 of the Company Directors Disqualification Act 1986. The statutory matters in Schedule 1 must receive particular weight, but they do not exhaust the relevant conduct. Unfitness may arise from serious incompetence, breaches of duty, failures of statutory discipline, or conduct falling below the required standards, and does not require dishonesty or proof of a breach of duty in every case.

The court must assess conduct in the director’s capacity as a director, avoid hindsight, consider the cumulative effect of proved allegations, and apply the civil standard of proof. Conduct concerning collateral companies may be considered together with conduct concerning the lead insolvent company. Directors must respect each company’s separate personality, exercise independent judgment, and ensure that information material to board decisions is disclosed.

The Secretary of State applied for disqualification orders against Mark Goldberg and James Flannagan McAvoy under the Company Directors Disqualification Act 1986. The allegations concerned their conduct as directors of Crystal Palace FC (1986) Ltd, Allowclear Ltd, MG Investments Ltd and other companies.

During the hearing, Mr Goldberg gave a disqualification undertaking under section 1A, disposing of the case against him. The proceedings continued against Mr McAvoy. The central issues were whether his conduct involved serious incompetence, breaches of fiduciary or statutory duties, inadequate financial control, misuse of funds, failures concerning accounting records and filing obligations, and whether that conduct made him unfit to be concerned in the management of a company.

1. Applicable approach. The court treated unfitness as a broad value judgment, not a checklist confined to competence, discipline and honesty. Section 6 requires assessment of conduct as a director, with particular regard to the matters in Schedule 1. Breach of duty is neither necessary nor sufficient. Dishonesty is not the decisive test, although the court should be cautious before finding unfitness based on conduct that is neither dishonest nor a breach of duty.
2. Relevant conduct and evidence. Conduct includes acts and omissions in the director’s capacity. The court must avoid hindsight and assess what the director knew or ought to have known at the time. The civil standard applies, with more cogent evidence required for more serious allegations. The cumulative effect of proved matters is relevant.
3. Separate companies and board responsibility. Directors must respect the separate legal personality and interests of each company. They must disclose material information to the board, exercise independent judgment and cannot shelter behind delegated responsibility where they know of impropriety. Conduct concerning collateral companies may be considered together with conduct concerning the lead insolvent company.
4. Findings against Mr McAvoy. The court found that he failed to disclose the onerous termination terms of the Terry Venables contract; participated in surrendering £400,000 owed to CPFC for Mr Goldberg’s benefit; signed a minute recording a meeting which had not occurred; caused or permitted unauthorised and inadequately documented transfers from CPFC to MGI; permitted loans intended to benefit CPFC or fund a specified acquisition to be used for other purposes; failed to ensure adequate accounting records for Allowclear; and failed to ensure timely filing of accounts and returns for specified companies.
5. Those matters demonstrated disregard for separate corporate interests, conflicts of interest, corporate governance and statutory obligations. They amounted to unfitness. Mr McAvoy was therefore required to be disqualified for at least two years. The period of disqualification was reserved for a further hearing.