Secretary of State for Trade & Industry v Amiss & Ors

Under Company Directors Disqualification Act 1986, the test under section 8 is whether the person’s conduct in relation to the company makes him unfit to be concerned in the management of companies. The court retains a discretion not to disqualify, but its exercise will be unusual where serious misconduct is established.

Inflating premiums without the informed consent of the assured is dishonest and breaches the broker’s duties to the client. A director who knowingly participates in that practice may be unfit even if he receives no direct benefit and even if dishonesty is not separately proved. Earlier regulatory or civil findings do not prevent independent disqualification proceedings by the Secretary of State.

The Secretary of State applied under section 8 of the Company Directors Disqualification Act 1986 for a disqualification order against Jonathan Chapman, formerly a principal director and substantial shareholder of J A Chapman & Co Ltd, a Lloyd’s insurance broker.

The application concerned the undisclosed inflation of premiums, diversion of resulting sums to third parties, and inadequate corporate controls. Mr Chapman had admitted related misconduct in Lloyd’s disciplinary proceedings, and an earlier judgment of Timothy Walker J had found liability arising from similar transactions. He argued that those matters could not be relied upon, or that the proceedings should be stayed. The central issues were whether his conduct established unfitness and, if so, whether disqualification should be ordered and for what period.

1. The application under section 8 of the Company Directors Disqualification Act 1986 succeeded. The court found Mr Chapman unfit to be concerned in the management of a company and made a nine-year disqualification order.

2. The statutory test is expressed in ordinary words and is essentially a question of fact. The court must assess whether the person’s conduct in relation to the management of the company makes him unfit. Section 8 differs from section 6 because the order is discretionary, there is no minimum period, there is no insolvency requirement or limitation period, and only the Secretary of State may apply.

3. The practice of grossing up premiums without the informed consent of the assured was plainly dishonest. It breached the broker’s duties of utmost good faith and to place the client’s interests first. Mr Chapman’s participation also breached his fiduciary duties to the company, irrespective of whether he personally received the sums diverted to offshore companies.

4. The court rejected the explanations that the practice was widespread or commercially necessary. A director cannot obtain business by defrauding clients. The evidence, including the extreme disparity between premiums charged to clients and premiums agreed with underwriters, established knowing dishonesty. Even if dishonesty had not been proved, Mr Chapman’s participation as managing director, chief executive and substantial shareholder was sufficient to establish unfitness.

5. The Lloyd’s findings and the earlier civil judgment could properly be relied upon. Mr Chapman had admitted liability in the Lloyd’s proceedings and had chosen not to defend the civil claim. Re-litigation would be abusive and contrary to public policy. Those proceedings did not, however, prevent the Secretary of State from bringing separate statutory disqualification proceedings. The court independently assessed the evidence and was satisfied that the conduct rendered Mr Chapman unfit.

6. Having regard to the dishonesty, the sums involved, Mr Chapman’s senior role and his conduct during the proceedings, it was inappropriate to exercise the discretion against disqualification. A period of nine years was appropriate, towards the upper end of the middle bracket identified in re Sevenoaks Stationers (Retail) Ltd [1991] Ch 164.