Harris v Secretary of State for Business, Innovation and Skills

Leave under section 17 of the Company Directors Disqualification Act 1986 is protective and must not undermine the purpose of disqualification. The court must balance protection of the public, particularly creditors, against the applicant’s practical need to act and the interests of the company. All relevant circumstances must be considered, including the conduct giving rise to disqualification, the applicant’s honesty and financial competence, the company’s financial position and business, the risk of recurrence, and proposed safeguards. A strong case of practical need may justify accepting some slight risk, but convenience or the applicant’s wish to remain involved is insufficient. Leave may be granted subject to conditions where those conditions adequately reduce the risk to the public.

The claimant had given the Secretary of State a four-year disqualification undertaking under section 1A of the Company Directors Disqualification Act 1986. He applied under section 17 for leave to act as a director of Clenaware Systems Ltd, TIVG Ltd and Clenaware Leasing Ltd.

The application concerned whether the claimant’s involvement was practically necessary and whether the public, including creditors, would be adequately protected. The court considered the claimant’s previous financial management, the structure and solvency of each company, his proposed roles, and proposed safeguards.

1. The application was allowed in respect of Clenaware Systems Ltd, subject to stringent conditions, and dismissed in respect of TIVG Ltd and Clenaware Leasing Ltd.

2. Section 17 leave is protective rather than penal. The court must have regard to the objective of disqualification, namely protecting the public, particularly creditors, from abuse of limited liability, while also considering the interests of the applicant and the company. The court must review all relevant evidence and must not overlook omissions or the absence of relevant evidence. This approach was derived from Re Tech Textiles [1998] 1 BCLC 259 at 267–269.

3. The relevant assessment includes the conduct giving rise to unfitness, any dishonesty or breach of duty, the applicant’s honesty, reliability and willingness to accept advice, his previous career and subsequent conduct, the nature and financial position of the company, its directors, employees and creditors, the risks of its business, and the potential for recurrence. The court must also consider whether safeguards genuinely protect the public.

4. The degree of risk which may be accepted depends partly on the strength of the demonstrated need. As explained in Re Dawes & Henderson Agencies Ltd [1999] 2 BCLC 317 at 325, a strong and pressing need may justify accepting some slight risk. However, the grant of leave must not undermine the purpose of disqualification. The court applied the balancing approach stated in Re Barings plc (No. 3) [2000] 1 WLR 634.

5. For Clenaware Systems Ltd, the claimant’s central executive role could be permitted because the risk could be reduced by conditions. These included capitalisation of £393,470 of the funder’s loan, independent verification of historic stock valuation, annual independent reviews of current assets and liabilities, continuing financial oversight, restrictions on dividends and borrowing, and regular management accounts and board meetings.

6. For TIVG Ltd, the claimant’s need to use that company was outweighed by the risks. TIVG was financially precarious, did not trade on its own account, had treated a substantial liability to the claimant’s failed company as no longer payable, and had no adequate solvency guarantee. The claimant could continue the relevant work without the protection of limited liability.

7. For Clenaware Leasing Ltd, no sufficiently cogent need for the claimant to manage a credit-finance business was shown. His lack of experience in credit finance and the absence of evidence that customers could not obtain finance elsewhere weighed heavily against leave. Convenience and wish were not the same as need.