The Secretary of State for Business Energy And Industrial Strategy v Murphy

Persistent non-payment of Crown debts is not enough by itself. The court must determine whether the director adopted an unfair policy of preferring other creditors. A realistic prospect of paying HMRC later may mitigate, but does not prevent such a policy being established. Speculative work in progress or an anticipated personal recovery does not justify withholding tax while continuing to trade. Payments after presentation of a winding-up petition may evidence serious misconduct, particularly where the director obtains personal benefit. Where unfitness is established, disqualification is mandatory within the statutory range.

The Secretary of State applied under section 6 of the Company Directors Disqualification Act 1986 to disqualify Raymond St John Murphy, sole director of St John Law Limited, following the company’s administration and creditors’ voluntary liquidation.

The allegations concerned prolonged non-payment of HMRC liabilities while other creditors were paid, and payments made after HMRC presented a winding-up petition. Mr Murphy relied on an anticipated costs payment, work in progress, proper payments and missing company records. The issues were whether the allegations established unfitness and, if so, the appropriate period of disqualification.

1. The court held that the missing Osprey records did not prevent a fair trial. Mr Murphy had been given an opportunity to explain the relevant payments and work in progress in further evidence.
2. The HMRC allegation was established. The company had systematically failed to pay substantial tax liabilities while continuing to trade and making substantial payments for Mr Murphy’s benefit and to other creditors. The court adopted the principles summarised in Secretary of State for Business, Energy and Industrial Strategy v Sahar Khan [2017] EWHC 288 (Ch).
3. A hoped-for future payment did not prevent unfair discrimination. The costs order was made in Mr Murphy’s favour personally and could not provide the company with a set-off against HMRC. The work in progress was speculative and dependent on success in conditional-fee cases. Neither defence answered the allegation.
4. The validation order authorised specified transactions and did not validate payments to Mr Murphy generally. The payments were not breaches of the order and were not void under section 127(1) of the Insolvency Act 1986, because the company ultimately entered administration and then a creditors’ voluntary liquidation. They nevertheless demonstrated serious disregard of creditors’ interests, especially the £24,400 paid to Mr Murphy.
5. Both allegations were made out. Disqualification was mandatory. Applying the statutory range and the guidance on seriousness and mitigation, the court imposed an eight-year disqualification.

This was a first-instance application. An earlier application to strike out the proceedings based on the missing company records had been dismissed by Deputy ICC Judge Baister on 15 June 2018.