Secretary of State for Business, Innovation and Skills v Gifford & Ors

Permission to bring company director disqualification proceedings after the statutory two-year period is not governed by a limitation rule. Expiry removes the automatic right to proceed without permission, but does not confer immunity from suit.

The court has a wide discretion under section 7(2) of the Company Directors Disqualification Act 1986. It should consider the length and reasons for delay, the apparent gravity and prospects of the case, and prejudice to the proposed defendants. The explanation for delay is not a free-standing threshold requirement. If the evidence discloses a fairly arguable case, the court balances the public interest in investigating serious allegations against the prejudice caused by delay.

The Secretary of State sought permission under section 7(2) of the Company Directors Disqualification Act 1986 to commence disqualification proceedings against four alleged directors of Instant Access Properties Ltd after the two-year period had expired.

The allegations concerned a sham arrangement diverting income to a British Virgin Islands company and misleading HMRC, thereby reducing the company’s corporation tax liability. The company entered administration on 19 September 2008 and liquidation in December 2008. The claim form was issued approximately seven months out of time.

The court had to determine whether the evidence disclosed a fairly arguable and sufficiently serious case, whether the delay was adequately explained, and what prejudice would result if permission were granted.

1. Permission granted. The claimant was permitted to commence disqualification proceedings against the defendants.
2. Section 7(2) of the Company Directors Disqualification Act 1986 does not create a limitation period or an accrued immunity from suit. After two years, permission is an additional procedural requirement.
3. The discretion under section 7(2) is wide and unfettered, subject to judicial exercise. Relevant considerations include the length of delay, its reasons, the strength of the case, and prejudice: Re Probe Data Systems Ltd (No 3), Secretary of State for Trade and Industry v Desai [1992] BCLC 405.
4. The explanation for delay is not a free-standing threshold test. The court must consider it with the other circumstances: Re Blackspur Group plc, Secretary of State for Trade and Industry v Davies [1996] 4 All ER 289. However, the evidence must at least disclose a fairly arguable case; otherwise permission serves no useful purpose: In Re Tasbian (No 3) [1993] BCLC 297.
5. At the permission stage the court makes only a provisional assessment. Gravity and prospects of success are inter-related measures of the public interest. A serious allegation may justify proceedings where the evidence gives a reasonably strong and coherent case, even though the final merits cannot be determined without full evidence and cross-examination.
6. The investigation delay was substantially explained by the late triggering of the investigation and its complexity. The defendants suffered inherent prejudice from delay, but their specific prejudice was limited. The allegations were serious and the case against each defendant was fairly arguable and provisionally reasonably strong. The balance therefore favoured permission.