The Secretary of State for Business Innovation And Skills v Cork

For director disqualification based on incompetence, insolvency alone is insufficient. It must also be shown that the director knew, or ought to have known, that there was no reasonable prospect of meeting creditors’ claims. A director may delegate functions, but retains a personal responsibility to understand the company’s affairs and scrutinise proposed rescue funding. Continuing to trade on the basis of an unverified and increasingly inadequate funding hope may constitute unfitness, even without dishonesty or personal benefit. The court must distinguish commercial misjudgment from incompetence of sufficient seriousness to justify disqualification.

The Secretary of State sought the disqualification of Raymond Michael Cork under section 6 of the Company Directors Disqualification Act 1986 following the insolvency and administration of Landmark Publishing Limited. Mr Cork was a part-time accountant director, while his co-director managed the company’s daily operations. Mr Cork accepted that the company was insolvent but maintained that continued trading was justified by an anticipated £100,000 investment and cost reductions. The central issue was whether his failure to scrutinise the proposed investment and the company’s worsening financial position made him unfit to be concerned in the management of a company.

1. Statutory test. Under section 6 of the Company Directors Disqualification Act 1986, the court had to be satisfied both that Landmark had become insolvent and that Mr Cork’s conduct made him unfit to be concerned in the management of a company. Under section 9(1), the court had regard to the matters in Parts I and II of Schedule 1.
2. Applicable standard. Following Secretary of State for Trade and Industry v Creegan [2001] EWCA Civ 1742, insolvency and knowledge of insolvency were insufficient. It was also necessary to establish that Mr Cork knew, or ought to have known, that there was no reasonable prospect of meeting creditors’ claims. The high threshold for incompetence, and the distinction between commercial misjudgment and serious incompetence, were recognised.
3. Personal responsibility. The principles in Re Park House Properties Ltd [1997] 2 BCLC 530 and Re Westmid Packing Services Ltd [1998] 2 BCLC 646 required a director to inform himself about the company’s affairs. Delegation and reliance on a co-director were permissible only to a proper extent; they did not justify abandoning personal supervision.
4. Mr Cork acted reasonably until about August 2008 in pursuing the proposed capital injection. Thereafter, the promised investment was not made, the company’s position deteriorated, and the proposed £100,000 became increasingly inadequate. Mr Cork failed to make proper inquiries into the proposed loan, planning permission, its amount, its conditions, and the likely timescale. Attendance at one finance meeting followed by no meaningful monitoring was inadequate.
5. By February 2009 the only documented facility was for £60,000, subject to significant conditions and an imminent expiry date. Even the proposed £100,000 would have left a shortfall. The Secretary of State therefore established unfitness. The claim was upheld and Mr Cork was disqualified for three years. The court distinguished Bath Glass Ltd [1988] 4 BCC 130 because its countervailing circumstances did not arise.