Secretary of State for Trade & Industry v Carr & Ors

In disqualification proceedings, an acquittal on related criminal charges does not prevent the Secretary of State from pursuing allegations of unfitness. The proceedings have a different purpose, use the civil standard of proof and may involve different admissible evidence and allegations. A director of a listed company must disclose material claims, settlements and liabilities to the board, auditors and, where applicable, the market, advisers and lenders. Deliberately concealing material liabilities and presenting misleading accounting treatments constitutes serious unfit conduct. Payments made in settlement of a customer’s compensation claim cannot properly be capitalised as tooling assets where they acquire no asset and are not genuinely connected with tooling. Sustained dishonest conduct of this kind places the case in the top bracket for disqualification, subject to countervailing factors.

The Secretary of State applied under section 8 of the Company Directors Disqualification Act 1986 for a disqualification order against Richard Carr, formerly a director and chief executive of TransTec Plc. The application followed an inspectors’ report under section 437 of the Companies Act 1985.

Mr Carr did not resist the application but did not admit the allegations. He had been acquitted of criminal charges concerning the accounting treatment of the settlement of a claim by Ford. The court therefore considered whether the civil evidence established deliberate, dishonest, reckless or negligent conduct concerning the Ford claim and settlement, related accounting entries, disclosure failures and a separate payment to Rover.

1. The application was granted. A disqualification order was made against Mr Carr for nine and a half years.
2. Mr Carr’s acquittal did not bar the proceedings. The criminal and disqualification proceedings had different purposes, different evidential rules and different issues. The civil standard applied, although serious allegations required cogent evidence. The court referred to Re H [1996] FLR 80 in explaining that principle.
3. The court found that Mr Carr deliberately concealed the Ford claim and its settlement from the board, auditors, Stock Exchange and, during the company’s financial difficulties, its advisers and lenders. He authorised or permitted accounts and representation letters which materially misrepresented the company’s position and misled the auditors.
4. The court accepted that the Ford debit notes were liabilities arising from compensation for production failures, not payments for tooling. They could not properly be recorded as tooling assets. The court rejected the allegation that the full settlement amount necessarily had to be charged in the 1997 interim accounts because the settlement’s legal operation and payment mechanism had not been satisfactorily established. That did not affect the findings of deliberate non-disclosure and misleading accounting in other respects.
5. The separate Rover payment was an inducement forming part of the overall price-reduction arrangement. It did not relate to tooling and should not have been capitalised as a fixed asset. Mr Carr knowingly allowed its false treatment in the accounts.
6. The established conduct was deliberate, dishonest and sustained rather than isolated. It justified starting in the top ten-to-fifteen-year bracket. Allowance was made for the saving of time and expense, the absence of later significant management responsibility and other limited mitigating circumstances, resulting in a nine-and-a-half-year period.