The Secretary of State for Business, Energy And Industrial Strategy v Eagling

The compensation-order regime under sections 15A and 15B of the Company Directors Disqualification Act 1986 is a free-standing regime. Liability depends on conduct connected with a disqualification order causing measurable monetary loss to a creditor of an insolvent company. The company need not be the company in respect of which the disqualification proceedings were brought, and the director need not have been in office when the misconduct occurred.

Causation requires more than mere “but for” causation but does not require the misconduct to be the predominant cause. The court applies hindsight and common sense, without considering foreseeability. The court has a broad discretion over whether to make an order, its amount and its beneficiaries, while avoiding double recovery and considering the interaction with insolvency proceedings.

The Secretary of State applied for a compensation order against a disqualified director following an uncontested disqualification order made on 14 May 2019. The underlying misconduct consisted of transferring company funds of £559,484, without legitimate business justification, to a company controlled by the defendant.

The company was in creditors’ voluntary liquidation and had substantial unpaid customer and creditor claims. The court had to determine whether the statutory conditions were met, how loss and causation should be assessed, and how any compensation should be distributed under sections 15A and 15B of the Company Directors Disqualification Act 1986.

1. Statutory character. Sections 15A and 15B of the Company Directors Disqualification Act 1986 establish a new, free-standing compensation regime. It is not confined to loss suffered directly by the company and may operate alongside insolvency remedies.
2. Conditions for liability. The relevant conduct is only the conduct which caused loss. A creditor may be owed a present, future, conditional or other monetary obligation. It is sufficient that the disqualified person has at any time been a director of an insolvent company; the company need not have been insolvent when the loss occurred, and need not be the company connected with the disqualification proceedings.
3. Causation. “Caused loss” does not require predominant causation, but mere “but for” causation is insufficient. The court must use hindsight and common sense, without considering foreseeability, to decide whether the misconduct caused the measurable monetary loss. Loss is assessed at the final hearing on the fullest available evidence. Any unfairness arising from concurrent causes may be addressed through the discretion under sections 15A and 15B.
4. Amount and distribution. Section 15B gives the court discretion as to whether to make an order, its amount and its beneficiaries. The court must have particular regard to the amount of loss, the nature of the misconduct and other financial contributions. It must also consider insolvency recoveries, remuneration of office-holders, competing claims and the public interest. Statutory interpretation should not impose double liability without clear words.
5. Application. The defendant’s misappropriation caused the company’s creditors loss of £559,484. The court ordered compensation in that sum. £460,067.37 was allocated pro rata to 28 directly affected creditors and £99,416.63 was payable as a contribution to the company’s assets. The Secretary of State was ordered to pay the compensation and received costs summarily assessed at £29,000.

The judgment followed an uncontested disqualification order made by the same court on 14 May 2019. The present proceedings determined the compensation order and its distribution; they were not an appeal.