The Secretary of State for Business, Energy And Industrial Strategy v Gregson & Ors

Unfitness for director disqualification is assessed from the director’s conduct as a whole. Serious failures to perform the duties of office may establish unfitness without dishonesty, and a director cannot rely on having done his best.

In a regulated debt-management business, effective segregation of client money, adequate records and reconciliations are fundamental. Payments to the director or connected persons while ownership of funds is uncertain may constitute serious misconduct. Once unfitness is established, disqualification is mandatory, although its length remains a matter for the court.

The Secretary of State brought contested director-disqualification proceedings against Mr Gary John Gregson concerning his conduct as a director of Gregson and Brooke Financial Services Limited and One Tick Limited. The proceedings also concerned his conduct in relation to Gregson and Brooke Ltd, which had entered liquidation.

The allegations included failures to segregate client money, maintain records and reconciliations, comply with debt-management requirements, and prevent payments to the director and connected persons while the companies’ financial position was unresolved. The central issues were whether the proven conduct amounted to unfitness and, if so, the appropriate period of disqualification.

1. The court found proved serious failures concerning segregation of client money, records, accounts and reconciliations, payments from company accounts to Mr Gregson and connected persons, client-money arrangements with third parties, unsuitable transfers of clients to a new product, and misleading advertising.
2. The court applied Re Sevenoaks Stationers (Retail) Ltd [1991] Ch 164. Unfitness is a question of fact assessed by considering the allegations as a whole. It requires serious failures, whether deliberate or caused by incompetence, to perform the duties attaching to the privilege of trading with limited liability. Dishonesty is unnecessary, and lack of incompetence or an assertion that the director did his best is no defence.
3. The regulatory duties to segregate client money and maintain records capable of identifying and reconciling client funds were fundamental. Payments to the director or connected persons during that uncertainty were serious misconduct even if the director believed that he was entitled to receive the money.
4. Once unfitness was established, disqualification was mandatory. The court relied on Re Sevenoaks Stationers (Retail) Ltd [1991] Ch 164 for three broad brackets: over ten years for particularly serious cases, six to ten years for serious cases not in the top bracket, and two to five years for relatively less serious cases, subject to a maximum of 15 years.
5. Taking account of the seriousness of the misconduct and its consequences for clients, together with mitigating matters including the absence of dishonesty and some regulatory co-operation, the court ordered a ten-year disqualification.

First-instance director-disqualification proceedings. No prior appellate decision is stated.