Kluk v Secretary of State for Business, Enterprise and Regulatory Reform

Applications for leave to act as a director despite a disqualification undertaking require a balance between the applicant’s need and the statutory purposes of protecting the public, deterring misconduct and maintaining proper standards of integrity. Strong evidence that a company needs the applicant’s services is not decisive. The seriousness of the misconduct, the risk of further misconduct and the deterrent effect of granting leave are material considerations. On appeal, the court should interfere with the first-instance discretionary decision only where it falls outside the generous ambit within which reasonable disagreement is possible, or where a material misdirection or failure to consider relevant matters is shown. Facts accepted in a disqualification undertaking cannot be reopened on the subsequent leave application.

The appellant had given the Secretary of State a 10-year disqualification undertaking under the Company Directors Disqualification Act 1986 after accepting that, having discovered frauds connected with Morija plc, he failed to disclose them to the relevant bank. He subsequently applied under section 17 for leave to remain a director of Sundernote Ltd and Isaac Green Ltd.

The Registrar accepted that there was a strong business need for the appellant’s continued involvement but refused leave, principally because of the seriousness of the misconduct, the risk to the public and the deterrent purpose of disqualification. The appellant appealed, arguing that the Registrar had wrongly relied on affidavit evidence which sought to reopen when he had discovered one of the frauds. The issue was whether the Registrar’s discretionary decision should be disturbed.

1. Nature of the jurisdiction. The words “unless he has the leave of the court” in section 1A confer a discretion. The same principles apply to leave applications following a disqualification order under section 1 and a disqualification undertaking under section 1A.
2. Relevant considerations. Disqualification is intended to protect the public, deter other directors from misconduct and maintain standards of integrity; it is not punitive. The court must balance the applicant’s need, and the need of the relevant company for his services, against those purposes. Serious misconduct is relevant because it increases the risk of recurrence and may weaken the deterrent effect if leave is granted. A strong case of need is therefore insufficient by itself.
3. Accepted facts. The appellant could not dispute on the leave application the fact, accepted in his undertaking, that he discovered the letters of credit fraud on or around 14 January 2003. The Registrar was right to decide that issue could not be reopened. However, the appellant’s attempt to reopen it should not itself have materially affected the assessment of risk or his appreciation of the seriousness of his misconduct.
4. Appellate restraint. Although the Registrar gave the affidavit issue more weight than it warranted, his judgment, read as a whole, showed that the refusal rested on wider considerations: the appellant’s complicity in serious fraud, the 10-year period of disqualification, the public risk and the adverse deterrent message that permission to manage a similar company would convey. The decision remained within the generous ambit within which reasonable disagreement was possible.
5. The appeal was dismissed. The court therefore did not need to conduct the balancing exercise afresh.

• High Court (Chancery Division): Sir Andrew Park dismissed the appeal from Registrar Jaques’s refusal of leave under section 17 of the Company Directors Disqualification Act 1986.