Kotonou v Secretary of State for Business, Enterprise & Regulatory Reform

An appellate court should be slow to interfere with a trial judge’s assessment of whether a director is fit or unfit, particularly where the decision depends on oral evidence and the evaluation of multiple factors. It may intervene where the primary facts are substantially undisputed and the trial judge was wrong. A director cannot justify using one company’s assets for another group company unless that use is in the first company’s interests and benefits its members and creditors. Taking professional advice is not a complete defence where the impugned conduct occurred before the advice and the advice did not sanction it. An appellate court may alter a disqualification period only for an error of law or where the period is manifestly outside the range of reasonable decisions.

The Secretary of State brought director-disqualification proceedings against Mr Kotonou under the CDDA 1986, arising from the liquidation of companies in the Olympic group. The Registrar found him unfit to be a director and imposed an eight-year disqualification.

Mr Kotonou appealed against the findings of unfitness and against the length of the disqualification. Permission was granted on certain surviving grounds, including challenges concerning reasons, the treatment of group-company arrangements, advice received, fiduciary duties and the sentence. The central issues were whether the Registrar had misapprehended the evidence or law, and whether the period of disqualification was legally or plainly wrong.

1. Disposition. Permission was granted on the surviving grounds, but the appeal against the findings of unfitness and the appeal against the eight-year disqualification were dismissed.
2. Appellate approach. Following the guidance of Re: Grayan Building Services Limited [1995] Ch 241 at 254, the assessment of a director’s fitness is a mixed question of fact and law. An appellate court should be very slow to interfere where the assessment has been assisted by oral evidence and the weighing of several factors. Where the primary facts are substantially undisputed, however, the appellate court must decide for itself whether the conclusion was wrong.
3. Reasons. The Registrar’s reasons were terse but intelligible. The duty to give reasons does not require a tribunal to explain every evidential factor. It must identify the issues vital to the conclusion and explain how they were resolved, consistently with Flannery v Halifax Estate Agencies Limited [2000] 1 All ER 373, English v Emery Reimbold & Strick Limited [2002] 3 All ER 385 and Hemeng v Home Office [2007] EWCA Civ 640. That requirement was satisfied.
4. Company-group arrangements and fiduciary duties. The legal identity and interests of each group company remained decisive. Olympic’s admitted liability to HMRC could not be displaced by reliance on a recharge matrix or alleged group reality. Olympic’s payment of Netsiren’s expenses without a repayment agreement, and its expenditure on Holdings’ property without formal arrangements for recovery, were capable of constituting breaches of fiduciary duty because Olympic and its creditors did not receive the benefit. A director cannot use company A’s assets in company B’s business unless doing so is in company A’s interests and benefits its members and creditors, whether or not the companies belong to the same group.
5. Advice and disqualification period. Advice received after the unlawful use of HMRC deductions could not establish fit conduct. The Registrar was entitled to treat the repeated failures to file accounts and returns as serious. Applying Re: Sevenoaks Stationers (Retail) Limited [1991] Ch 164 at 174E–G, the period could be altered only for an error of law, failure to take a relevant matter into account, or a period manifestly outside the range of reasonable decisions. No such error was shown.

• High Court (Chancery Division): Mr Justice Norris granted permission on the surviving grounds and dismissed both the appeal against the findings of unfitness and the appeal against the eight-year disqualification.
• Registrar’s decision: Mr Registrar Jaques found Mr Kotonou unfit to be a director on 20 May 2008 and imposed an eight-year disqualification.
• Permission stage: Mr Justice Briggs granted permission to appeal against the length of the disqualification on 13 February 2009, but refused permission on the other grounds. Further permission was granted by Mr Justice Norris on 16 October 2009 in relation to specified surviving challenges.