Secretary of State for Trade and Industry v Woolf

For disqualification under section 6 of the Company Directors Disqualification Act 1986, the court must apply the statutory test and decide as a question of fact whether the director’s conduct makes him unfit to be concerned in company management.

The specified conduct must be assessed cumulatively, including any extenuating circumstances. Conduct may fall below the required standard through incompetence or failure to perform proper duties, as well as through deliberate wrongdoing. The civil standard applies, but allegations involving substantial interference with personal freedom require cogent evidence. Individual acts may be considered separately when assessing whether disqualification is warranted and its appropriate duration.

The Secretary of State applied for a disqualification order against David Woolf under section 6 of the Company Directors Disqualification Act 1986. The application concerned his conduct as director of Brampton Manor (Leisure) Limited.

The principal allegations were that he caused the company to grant a long lease of its premises without the debenture-holder’s consent, thereby prejudicing its security, and that he failed to co-operate with the company’s administrative receivers. Mr Woolf argued, among other things, that the lease was invalid and that his conduct had caused no loss.

The central issues were whether the conduct made him unfit to participate in company management and, if so, the appropriate period of disqualification.

1. Statutory test. The application succeeded. Under section 6 of the Company Directors Disqualification Act 1986, the court had to be satisfied that Mr Woolf was or had been a director of an insolvent company and that his conduct made him unfit to be concerned in the management of a company. Section 9 required regard to the matters in Schedule 1, including the alleged failure to co-operate under section 235 of the Insolvency Act 1986.
2. Approach to unfitness. The statutory words had to be applied rather than judicial paraphrases. The question was one of fact. The specified conduct had to be assessed cumulatively, with any extenuating circumstances. The court was required to disqualify a director whose conduct fell below the standards of probity and competence appropriate for a fit director. Lack of knowledge or incompetence could be as serious as positive wrongdoing.
3. The Secretary of State bore the civil burden of proof. Because disqualification substantially interfered with personal freedom, more serious allegations required more cogent evidence, and the court had to guard against hindsight. Individual acts could nevertheless be examined separately, particularly when determining the appropriate period of disqualification.
4. The lease. Granting the 51-year lease without Clydesdale Bank’s consent fell below the required standards. The premises were the principal security for lending exceeding £800,000, and the lease, if valid, substantially reduced the value of that security. The fact that the lease was not binding against the bank did not excuse entering into it without consent. Mr Woolf’s later reliance on the lease aggravated the conduct because it obstructed the receivers and caused substantial wasted time and costs.
5. Co-operation. The failures to provide access, documents and information, together with the refusal to substantiate alleged offers to purchase the business, constituted further unco-operative conduct. Standing alone, those matters were probably insufficient for disqualification. Viewed cumulatively with the lease conduct, they materially strengthened the case.
6. The overall conduct fell around the top of the bottom bracket or the bottom of the middle bracket in Re Sevenoaks. A disqualification order was made for five years.