Official Receiver v Wild

Under section 6 of the Company Directors Disqualification Act 1986, insolvency may be established where a company’s assets cannot meet its liabilities and winding-up expenses, including liabilities to customers which crystallise or become enforceable on liquidation. The unfitness question is a mixed question of law and fact. It requires a broad, commonsense value judgment, applying the objective standard of conduct expected of a reasonably diligent director while taking account of the director’s actual knowledge, skill and experience. Aggressive sales practices, misleading representations, failure to provide contracted services, misuse of another business’s intellectual property and continuation of business through successor companies may collectively establish unfitness. A nine-year disqualification fell within the upper part of the middle bracket for serious cases not warranting the top bracket.

The Official Receiver brought a director-disqualification claim against David James Wild, the sole director of three companies operating holiday-club businesses. Each company had been wound up on public-interest petitions, and the claimant alleged insolvency, aggressive sales methods, misleading use of the names and materials associated with Sunterra and Diamond Resorts, continuation of the business through successor companies, and failure to provide customers with the promised holidays.

The central issues were whether the companies were insolvent for the purposes of section 6 of the Company Directors Disqualification Act 1986, whether Mr Wild’s conduct made him unfit to participate in company management, and what period of disqualification was appropriate.

The claim succeeded and a disqualification order was made against Mr Wild for nine years.

1. Insolvency. The court was satisfied that each company was insolvent when it entered liquidation. Each had no assets, and those assets were insufficient to meet winding-up expenses. The liabilities also included potential customer claims. Liquidation meant that the companies could no longer perform their obligations to customers, thereby triggering or substantiating liabilities relevant to insolvency under section 6.
2. Unfitness. The question under section 6 was a mixed question of law and fact, requiring a broad-brush, commonsense value judgment. The applicable standard was principally objective, but included subjective elements derived from the standard of a reasonably diligent person with the general knowledge, skill and experience reasonably expected of the director and the knowledge, skill and experience which the director actually possessed.
3. The court found that Mr Wild had used the Sunterra and Diamond names and materials to make the companies appear larger and better connected, continued the business through Group and Group Europe after the intervention concerning Leisure & Marketing, used aggressive presentation techniques to pressure customers into immediate contracts, made misleading representations about holiday availability, refused or hindered cancellation, and failed to provide the contracted benefits. The conduct, viewed individually or collectively, made him unfit.
4. Period. Applying the guidance in Re Sevenoaks Stationers (Retail) Limited [1991] Ch 164, the court treated the case as serious and placed it at the top end of the six-to-ten-year middle bracket. It was not a top-bracket case because the unacceptable conduct arose after the loss of the companies’ distributorship and was not shown to have existed from the outset. The appropriate period was nine years.