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

This is a first instance application under section 6 of the Company Directors Disqualification Act 1986 for a disqualification order against Mr Raymond St John Murphy, sole director of St John Law Limited. The judge found that Mr Murphy caused the company to withhold payment of tax and VAT to HM Revenue and Customs over an extended period while continuing to pay other creditors and to withdraw monies for his own benefit, thereby operating a deliberate policy of unfair discrimination against the Crown. The court treated the company27s failure to keep or produce relevant electronic records (the Osprey records) and the prior refusal to strike out the claim, but concluded that a fair trial was possible and that absence of those records did not prevent the Secretary of State proving the allegations.

The court applied the tests in section 6 CDDA 1986 and section 9 and Schedule 1 (in particular Part I and Part II) and considered directors27 duties under the Companies Act 2006 (sections 172 and 174) and the effect of section 127 of the Insolvency Act 1986 in relation to the validation order. The judge found that Mr Murphy misled HMRC by asserting a personal Costs Order as if it created a company set-off, that the asserted work-in-progress was speculative (conditional fee work) and did not excuse non-payment of Crown debts, and that payments after presentation of the winding-up petition included significant personal benefit to Mr Murphy. The court therefore found Mr Murphy unfit and made a disqualification order for 8 years.

This was an application by the Secretary of State under section 6 of the Company Directors Disqualification Act 1986 seeking a disqualification order against Mr Raymond St John Murphy, sole director of St John Law Limited. The company traded from May 2012 and entered administration on 9 October 2014. Two principal allegations were pursued:

• HMRC Allegation: that Mr Murphy caused the company not to file and pay PAYE, National Insurance, Corporation Tax, Schedule D stamp duty and VAT as they fell due, resulting in substantial arrears to HM Revenue and Customs and discriminatory treatment of HMRC compared with other creditors and payments to Mr Murphy and associates.
• Validation Order Allegation: that after HMRC presented a winding-up petition and the company obtained a validation order under section 127 Insolvency Act 1986, Mr Murphy authorised or caused payments outside the schedule validated by the court, including personal payments, at a time when he knew the company was insolvent.

The court set out the applicable principles under the CDDA 1986, Schedule 1 (Parts I and II), the Companies Act 2006 duties (sections 172 and 174), and guidance on unfair discrimination of Crown creditors. Procedurally, Mr Murphy had applied to strike out the claim as unfair because key electronic practice records (the "Osprey Records") had been deleted; Deputy ICC Judge Baister refused that application and the trial judge agreed that a fair trial remained possible.

The issues the court addressed were:

• whether there was a deliberate policy of withholding payments to HMRC amounting to unfair discrimination and unfitness under section 6 CDDA 1986;
• whether representations about a Costs Order and asserted set-off or imminent payment were genuine or misleading;
• whether asserted work in progress and conditional fee recoveries could excuse non-payment of tax or show solvency;
• whether payments after presentation of the petition fell outside the validation order and caused detriment to creditors, including personal benefit to the director.

On the evidence the court found: the company owed HMRC in excess of (totaling ) and had paid only a small proportion; Mr Murphy repeatedly represented the existence of a Costs Order and imminent payment when there was no credible basis; work-in-progress was speculative conditional-fee work and did not provide a defence to deliberate non-payment; and payments out of the office account after the petition included personal payments to Mr Murphy and other company liabilities not validated by the order. The judge concluded these amounted to serious failures in the performance of director duties and justified disqualification.

The court therefore made a disqualification order. The judge fixed the period of disqualification at eight years, explaining that the misconduct was sufficiently serious to fall into the middle bracket (6-10 years): deliberate and prolonged discrimination against the Crown, misleading representations to HMRC and continued personal benefit after presentation of the petition. The court rejected reliance on the missing Osprey records as a bar to trial and treated their absence as a matter for the parties27 evidential positions.

The judgment also explains the protective and deterrent purposes of disqualification and notes mitigation (previous, long-ago disqualification) but found no significant mitigation otherwise.

This is a first instance judgment. The court made a disqualification order against Mr Raymond St John Murphy for a period of eight years. Rationale: the court was satisfied under section 6 of the Company Directors Disqualification Act 1986 that Mr Murphy27s conduct in causing the company to withhold payment of tax and VAT over a prolonged period, misleading HMRC about a supposed set-off and causing/authorising payments after presentation of HMRC27s winding-up petition (including personal receipts) amounted to serious failures rendering him unfit to be concerned in the management of a company.