The Secretary of State for Business, Energy and Industrial Strategy v Steven

Under section 6 of the Company Directors Disqualification Act 1986, unfitness is assessed teleologically and is not confined to the matters listed in Schedule 1. The court applies a two-stage process: the applicant must establish the factual allegations, then show that the conduct is sufficiently serious to warrant disqualification. Trading to the detriment of a particular creditor may be inferred from repeated choices to pay other creditors while leaving substantial Crown debt unpaid. Direct evidence of a discriminatory policy is unnecessary. A director may rely on genuinely extenuating circumstances, including a realistic prospect of recovery, but a prolonged period of creditor-specific detrimental trading requires very persuasive mitigation. The ultimate question is whether the conduct falls markedly short of the standards of probity or competence expected of a director.

The Secretary of State applied under section 6 of the Company Directors Disqualification Act 1986 for an order against Edward Steven. The application concerned his conduct as director of CQH1 Limited, RTD1 Limited and The Glassblowing House Limited, all of which entered liquidation after substantial liabilities to HMRC. The allegations were failure to file VAT returns and causing the companies to trade to the detriment of HMRC and, in RTD’s case, utility suppliers.

The court considered whether the alleged conduct established unfitness, whether detrimental treatment could be inferred without direct evidence of a deliberate policy, and whether the defendant’s belief that the businesses could recover or be sold as going concerns constituted extenuating circumstances.

1. Unfitness and statutory framework. The statutory conditions in section 6(1)(a) were satisfied. The relevant conduct was governed by the pre-2015 law. Section 6 does not define unfitness exhaustively, and the court may consider serious reprehensible conduct outside the specific matters formerly listed in Schedule 1: Re Sevenoaks Stationers (Retail) Limited [1991] Ch 164; Re Amaron [2001] 1 BCLC 562.
2. Two-stage inquiry. The Secretary of State had to prove the factual matters relied upon and then establish that the conduct was sufficiently serious to warrant disqualification: Re Finelist Ltd (No 2) [2005] EWHC 603 (Ch).
3. Detrimental trading. Substantial unpaid Crown debt, viewed alongside payments to other creditors, may support an inference that the director caused a creditor-specific detriment. The inference may arise from a series of informal or ad hoc choices and does not require proof of a consciously formulated policy or a positive intention to harm. The court found that Mr Steven decided the direction of cash flow, paid suppliers and other creditors, and allowed HMRC and RTD’s utility suppliers to remain substantially unpaid.
4. Evidence. The legal burden remained on the Secretary of State. An evidential burden could shift where the claimant’s evidence had sufficient weight, including on whether VAT returns had been filed. The court rejected Mr Steven’s account that paper VAT returns had been submitted and found that CQH and RTD failed to comply with their filing duties.
5. Extenuating circumstances. The court was entitled to consider a realistic prospect of recovery or a sale as a going concern as a possible mitigating circumstance. Such a circumstance could not undo established detrimental trading. Given the periods of 12 to 14 months, the absence of effective communication with HMRC, the failure to file returns, and the use of involuntary Crown funding, the asserted mitigation was not very persuasive and did not dispel unfitness.
6. Disposition. The conduct in relation to all three companies was serious and fell markedly short of the standards of probity and competence expected of a director. A disqualification order was therefore mandatory. The appropriate period was three years.