Secretary of State for Trade & Industry v Grove & Anor

In deciding whether directors are unfit for company management, the court assesses their conduct by reference to the role they actually undertook and the responsibilities attached to it. Every director has a personal and continuing duty to understand the company’s business sufficiently to discharge those responsibilities. A director may rely on information and advice where there is no reason for suspicion, but that reliance does not excuse failure to inform himself or to exercise judgment. Deliberate blindness, reckless indifference or gross negligence may establish unfitness. The maximum disqualification period may be imposed where the conduct demonstrates such unfitness.

The Secretary of State applied for disqualification orders against Robin Nicholas Grove and Richard Frederick Gunter under section 6 of the Company Directors Disqualification Act 1986. The condition that each defendant had been a director of a company which became insolvent was admitted.

The defendants had been joint managing directors of Vintage Hallmark plc. The company had acquired the business and liabilities of a partnership in which they had been partners, and later entered creditors’ voluntary liquidation. The central issues were whether their conduct as directors made them unfit to be concerned in the management of a company, including their involvement in the acquisition, valuation, investor representations and proposed returns.

1. Applicable principles. The court assessed each defendant by reference to the role actually undertaken and the duties and responsibilities attached to it. Directors have personal responsibilities to inform themselves about the company’s affairs and to participate in its supervision and control. They have a continuing duty to acquire and maintain sufficient knowledge and understanding of the company’s business.
2. A director may rely on the judgment, information and advice of a chairman, general manager or professional adviser where there is no reason to suspect a lack of integrity, skill or competence. That principle does not permit a director to disregard matters requiring personal attention or to remain deliberately uninformed.
3. The defendants were executive joint managing directors, not non-executives. They had been equal partners in the underlying business and had access to the relevant figures. The court found that they were recklessly indifferent and grossly negligent in relation to the acquisition of the partnership business, the value of its inventory and goodwill, and the liabilities assumed by Vintage.
4. The court also found that each defendant had actual knowledge of, or deliberately turned a blind eye to, the business model involving unrealistic buy-back arrangements and promised returns. Their conduct made each of them unfit to be concerned in the management of a company.
5. Each defendant was made subject to a disqualification order under section 1 of the Company Directors Disqualification Act 1986 for fifteen years, the maximum permitted period.