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

This is a disqualification case brought under section 6 of the Company Directors Disqualification Act 1986 concerning conduct while directors of Mumtaz Food Industries Limited (later Greentabs Limited). The court held that the directors caused or allowed a tax‑planning Employee Benefit Trust (EBT) scheme and related gold bullion transactions which, together with a major reorganisation, removed value from MFIL to other group entities and left a number of creditors exposed. The judge analysed whether, on the facts and by reference to the company’s contemporaneous financial position, the directors ought to have regarded the interests of creditors as paramount and whether their conduct was therefore unfit under s6 CDDA 1986.

The judge found (i) the EBT/bullion transactions were in substance a distribution that materially reduced assets available to the company; (ii) the directors’ loan waivers were not effective and could not be relied on to render the company solvent; (iii) several known creditor claims (including an Employment Tribunal judgment and supplier and landlord claims) were not properly taken into account; (iv) professional advice and contemporaneous records were sparse or absent; and (v) the three brothers and the two spouse directors failed in differing degrees to supervise, scrutinise or resist the transactions. Applying the statutory test and authorities on directors’ duties and creditors’ interests, the court concluded that all five directors were unfit and imposed disqualification periods (Dr Gul‑Nawaz 6 years; Mr Mumtaz and Mr Rab Nawaz 3 years each; Mrs Fameeda and Mrs Kauser 2 years each).

Background and parties:

• MFIL (Mumtaz Food Industries Limited, later Greentabs Limited) was a family company controlled by members of the Akbar family. The claim was brought by the Secretary of State under s6 CDDA 1986 seeking disqualification of five directors (three brothers and two spouses) for conduct in 2012.

Nature of the claim and procedural posture:

• The Secretary of State alleged that the directors caused or allowed MFIL to enter into an EBT/disguised remuneration scheme (involving purchases of gold bullion for the principal brother) which effected a distribution that prejudiced creditors, and that this conduct made them unfit under s6 CDDA 1986. The case came to the High Court after preliminary proceedings in the County Court and an appeal/transfer to Leeds.

Issues framed by the court:

• Whether each defendant’s conduct as a director made him or her "unfit" under s6 CDDA 1986, taking into account the company’s insolvency, the creditors’ position, directors’ duties (including the circumstances in which creditors’ interests intrude), and any professional advice; and
• If unfit, what period of disqualification should be imposed (s6 sets a 2 to 15 year range).

Findings of fact and subsidiary findings:

• The EBT/bullion arrangements were implemented in late 2012 under a marketed disguised remuneration tax scheme; in substance they effected a distribution and a reduction in inter‑company debt which benefited Dr Gul‑Nawaz.
• MFIL’s contemporaneous records (management accounts and a balance sheet to 16 December 2012) showed at least a parlous financial position and a balance‑sheet deficit; several material creditor claims (including an Employment Tribunal award to Mr Javed and other supplier and landlord claims) had not been adequately accounted for.
• Directors’ loan waivers were conditional on issue of shares of equivalent market value and were not effective in cancelling the loan liabilities; the waivers could not properly be relied on to establish solvency.
• Professional advice and contemporaneous documentation were sparse; the accounting and legal adviser evidence lacked corroborating documents and was not sufficient to demonstrate informed board consideration of creditors’ interests.
• The three brothers played different roles: Dr Gul‑Nawaz effectively ran MFIL and led the reorganisation and EBT transactions; Mr Mumtaz and Mr Rab Nawaz participated but delegated finance matters; Mrs Fameeda and Mrs Kauser were effectively passive family directors with virtually no involvement or understanding of company affairs.

Court’s reasoning:

• Applying the statutory test in s6 CDDA 1986 and established authorities on directors’ duties and the point at which creditors’ interests intrude, the judge concluded MFIL was at least on the brink of insolvency following the reorganisation and the EBT distributions; therefore directors should have had regard to creditors’ interests.
• The transactions removed value from MFIL and left known creditors likely to remain unpaid; the directors either caused or failed to prevent that outcome and failed to ensure proper advice and contemporaneous evaluation of financial consequences.
• The court made a fact‑specific value judgment as to personal responsibility, credibility of witnesses, and the cumulative effect of conduct and concluded that all five directors were unfit to be concerned in management of a company.

Remedy and wider observations:

• The court imposed disqualification periods reflecting differing degrees of responsibility (6, 3, 3, 2 and 2 years respectively). The judgment emphasised the mandatory nature of disqualification under s6 where unfitness is established and the statutory purpose of protecting those who deal with limited companies by raising standards of director conduct.

The claim succeeded. The court found that the conduct of each defendant as a director in relation to the 2012 reorganisation and the EBT/gold bullion transactions made them unfit within the meaning of section 6 of the Company Directors Disqualification Act 1986 because value was removed from MFIL, creditors’ interests were not properly considered when the company was on the brink of insolvency, loan waivers were ineffective and contemporaneous advice and records were inadequate. Disqualification periods were imposed: Dr Gul‑Nawaz 6 years; Mr Mumtaz and Mr Rab Nawaz 3 years each; Mrs Fameeda and Mrs Kauser 2 years each, reflecting their respective responsibilities and failings.

A trial began in the County Court at Bradford before District Judge Hickinbottom (trial starting 27 June 2016) and a strike‑out application was allowed at that stage. The Secretary of State obtained permission to appeal from His Honour Judge Behrens on 16 April 2016; His Honour Judge Raeside QC allowed the appeal on 16 November 2016 and transferred the proceedings to the Leeds District Registry for full trial in the High Court (Chancery Division). The High Court trial judgment is [2017] EWHC 2856 (Ch).