Wood & Anor v Mistry

Under section 4 of the Company Directors Disqualification Act 1986, a liquidator may be disqualified for serious misconduct, including several breaches of duty which collectively warrant disqualification. Liquidators expressly fall within the class of persons who may apply under section 16(2), and need not show a personal financial interest. The court retains a discretion to refuse an application brought for an improper purpose or which substantially prejudices creditors. A liquidator’s investigative duties include examining anomalous transactions and pursuing recoveries suggested by the company’s circumstances. Dishonestly diverting liquidation funds for personal benefit, combined with persistent investigative failures, justified a 12-year disqualification order.

The claimants, joint liquidators of companies connected with the Safe Solutions group, sought a disqualification order against Mr Mistry under section 4 of the Company Directors Disqualification Act 1986. Mr Mistry had acted as liquidator or administrator of numerous personal service companies but had never been a director.

The claim alleged that he caused payments to be made from company liquidation estates to Independent Insolvency Advisory Service Limited, which passed funds to an offshore company controlled by him, and that he failed to investigate and recover sums allegedly retained by the Safe Solutions companies. The issues included the claimants’ standing, the seriousness required under section 4, the alleged misconduct, and the appropriate period of disqualification.

1. Standing. The claimants were entitled to apply. Section 16(2) of the Company Directors Disqualification Act 1986 expressly identifies liquidators as potential applicants. A liquidator need not establish a personal financial interest, particularly since disqualification serves the public interest. The court may nevertheless restrain applications brought for an improper ulterior purpose, involving substantial prejudice to creditors, or contrary to the Secretary of State’s view of the public interest.
2. Serious misconduct. Although section 4(1)(b) refers to any breach of duty, the discretion to disqualify a liquidator would not ordinarily be exercised without serious misconduct. Individual minor breaches may be relevant when accompanying a serious breach, and several minor breaches may collectively amount to sufficiently serious conduct.
3. Misconduct proved. Mr Mistry dishonestly approved £750 payments per company to IIAS despite knowing that the stated additional work had not been done. The payments were made from the PSCs’ liquidation estates and were passed to Dreamcast for his benefit. In total, £27,000 was paid in respect of companies of which he was liquidator. The allegations of dishonest diversion, concealment through a third-party conduit, and payment against false invoices were proved, but the alleged purpose of securing Mr Williamson’s co-operation was not established.
4. Investigative failures. SIP 2 required investigation of the company’s property, liabilities, reasons for failure, possible recoveries, and material connected-party transactions. The circumstances made the PSCs’ alleged debts to SSAS obviously anomalous. Mr Mistry failed to challenge those claims or pursue recovery of sums retained by the Safe Solutions companies for tax liabilities. Expert evidence was not necessary to determine the standard expected of him.
5. Order. The totality of the misconduct was sufficiently serious. Applying the brackets in In re Sevenoaks Stationers (Retail) Ltd [1991] Ch 164, the case fell within the top bracket for particularly serious cases. A 12-year disqualification order was made.

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