Secretary of State for Trade and Industry v Gee & Anor

Under section 6 of the Company Directors Disqualification Act 1986, directors may be disqualified where their knowledge, participation or acquiescence makes them unfit to be concerned in company management. A substantial and repeated fraud involving false notifications, falsified records and misuse of a financing facility constitutes serious misconduct. Deliberately preferring trade creditors while allowing substantial Crown tax liabilities to accumulate may also establish unfitness. The court should assess the period of disqualification by reference to the seriousness and persistence of the conduct. A director who knowingly approves or turns a blind eye to fraudulent conduct may be treated as seriously as the director who orchestrates it.

The Secretary of State applied under the Company Directors Disqualification Act 1986 to disqualify David Neasham Gee and Kevin Smedley, directors of companies in the City Truck Group. The case concerned alleged fraud against GE Commercial Finance Ltd through excessive and duplicate notifications under a debt-financing facility, falsified aged-debt reports and management accounts, cross-firing of cheques, and manipulation of accounting records. It also concerned substantial unpaid PAYE, National Insurance contributions and VAT.

The defendants did not give evidence or materially challenge the Secretary of State’s evidence. The central issues were whether the misconduct occurred, whether each defendant knew of or participated in it, whether the non-payment of Crown debts was deliberate, and whether those matters made them unfit to manage companies.

1. Findings of misconduct. The court found that Logistics, Trucks and Rental repeatedly notified GE of fictitious or duplicate debts in order to obtain or preserve credit. The conduct was concealed through falsified sales ledgers, aged-debt reports, management accounts and audit information. Mr Smedley orchestrated the scheme, including the cross-firing of Services’ cheques into GE accounts. He also deliberately procured the non-payment of substantial PAYE, National Insurance contributions and VAT liabilities.
2. Responsibility of Mr Gee. Although Mr Gee did not organise the transactions, the evidence established that he knew of and approved the fraud, or at least deliberately turned a blind eye to it. His conduct therefore made him unfit, as did his knowledge of, or culpable failure to ascertain, the deliberate accumulation of Crown arrears.
3. Statutory consequence. Those findings established unfitness to be concerned in the management of a company within section 6 of the Company Directors Disqualification Act 1986. The earlier findings in the GE litigation did not bind the parties, and the present case had to be proved by evidence. The court nevertheless accepted that defending the present proceedings was not an abuse of process: Secretary of State for Trade & Industry v Bairstow [2003] 1 BCLC 696.
4. Length of disqualification. Applying the three-band approach in In re Sevenoaks Stationers Ltd [1991] Ch 161, the fraud’s scale, repetition, concealment and abuse of commercial trust placed the case in the top band. Both defendants were disqualified for 12 years.

First-instance decision. No appellate history is stated in the judgment.