Secretary of State for Business Enterprise and Regulatory Reform v Sullman & Anor

Under the Company Directors Disqualification Act 1986, unfitness is determined by applying the ordinary meaning of the statutory words to the facts. The inquiry is broad, but it may require detailed examination of documents and evidence. “Conduct in relation to” a company includes the way its business is run and conduct affecting customers, funders, shareholders or other commercial counterparties; the company need not be the victim. A finding of culpable conduct does not require proof of breach of an independently identified statutory, contractual or common-law duty. Commercial probity requires directors not to mislead those dealing with the company and not to secure personal advantages at their expense. Reliance on professional advice is relevant but is not a complete answer to a director’s separate responsibility.

The Secretary of State applied under section 8 of the Company Directors Disqualification Act 1986 for the disqualification of Anthony Frederick Sullman, a director of Claims Incorporated PLC and Claims Direct PLC. The allegations concerned misleading customers, underwriters and investors, artificial arrangements involving payments to solicitors, nondisclosure of commercial risks and personal benefits, post-flotation market statements, and the purchase of a co-director’s business interest.

The central issue was whether Mr Sullman’s conduct, considered individually and cumulatively, made him unfit to be concerned in the management of a company.

1. Applicable approach. The statutory question was a factual one, to be approached broadly by reference to ordinary language. That did not permit a superficial inquiry. Where the allegations were fact-sensitive, the court had to examine the relevant evidence and documents in detail. The purpose of disqualification was protection of the public and deterrence.
2. Scope of relevant conduct. “Conduct in relation to” a company included conduct as a director affecting the company’s business or affairs. It could include conduct prejudicing customers, funders, shareholders or other commercial counterparties, even where the company itself was not the immediate victim. An independent breach of duty was not a prerequisite to culpable conduct under the Act. Conduct falling below acceptable standards of commercial probity could suffice.
3. Findings. Mr Sullman was culpable for misrepresenting the likelihood of recovering premiums paid before 1 April 2000; misrepresenting the scheme’s failure rate; adopting an artificial invoicing arrangement to evade a professional regulatory restriction; failing to disclose material risks concerning insurance premiums and self-funded customer loans; failing to make truthful post-flotation disclosure of insurance arrangements; and authorising an objectively unjustified payment for a co-director’s business. Other allegations, including the £395 fee, the training fee, several prospectus allegations and the alleged champerty risk, were not shown to establish unfitness.
4. Disclosure and professional advice. Literal truth could amount to a substantial misrepresentation of commercial reality. Advice from competent professionals was a significant factor but did not discharge the director’s separate responsibility, particularly where the director possessed material information not provided to the advisers. The relevant inquiry was unfitness under the Act, not merely breach of the statutory disclosure provision or of another legal duty.
5. Disposition. The established conduct warranted disqualification. The judge’s provisional view was that seven years was appropriate, but the period, costs and any permission to appeal were adjourned for further submissions.