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

The Secretary of State applied under section 6 of the Company Directors' Disqualification Act 1986 for disqualification orders against two directors of companies trading under the EcoHouse name. The court applied the established test for disqualification under s6(1) and the principles in the reported authorities that ordinary commercial misjudgement is insufficient but serious failures of probity or competence justify an order.

The judge found that Mr Anthony Armstrong-Emery caused or allowed the production and circulation of marketing and contractual material which misrepresented material facts to investors (notably ownership of land, government approval and the security of investor funds) and failed to preserve adequate accounting records. Those cumulative deliberate and serious failures made him unfit to be concerned in company management and a disqualification order was therefore mandatory under s6, for a period fixed at 14 years under s6(4).

The court found that Mr Xavier Wiggins, a part-time marketing director of the marketing vehicle, had reasonably relied on Mr Armstrong-Emery and third-party advisers, had undertaken some enquiries and site visits, and did not commit the serious failures required to establish unfitness. No disqualification order was made against him.

This was a first instance application by the Secretary of State for Business, Energy and Industrial Strategy for director disqualification orders under section 6 of the Company Directors' Disqualification Act 1986 in respect of two men connected to two companies (EcoHouse Developments Ltd and EcoHouse Group Developments Ltd) which entered insolvent liquidation.

Background and parties:

• EcoHouse Developments Ltd ("Developments") raised investor funds for Brazilian housing projects; EcoHouse Brazil Construcoes Ltda carried out construction in Brazil.
• Mr Anthony Armstrong-Emery (recorded as Mr Emery) was the dominant director and driving force behind the EcoHouse enterprises; Mr Xavier Wiggins joined as a director of the marketing company (Group) and acted as part-time marketing director.
• Developments went into insolvent liquidation with a deficiency in excess of £21 million; Group also entered liquidation with a smaller deficiency.

Nature of the claim: The Secretary of State sought disqualification of both defendants under s6 on the basis that (a) they had been directors of insolvent companies and (b) their conduct made them unfit. Allegations included false and misleading marketing and contractual representations (notably that Developments owned land, were an approved provider under the Brazilian social housing scheme, and that investor funds were secure), unauthorised use of ISO9001 and the Olympic logo, and (in respect of Developments) failure to keep adequate accounting records.

Issues framed by the court:

• Whether the s6(1)(a) and (b) requirements were satisfied.
• Whether the defendants caused or allowed misleading promotional and contractual material to be produced and whether accounting records were inadequately maintained.
• Whether any failures were sufficiently serious (deliberate or amounting to gross negligence) to warrant disqualification and, if so, for what period.

Court reasoning and findings:

• The court reviewed relevant authorities on unfitness, the standard required and approach to period-setting (including the Sevenoaks bands).
• On the evidence (and having given limited weight to Mr Emery's unsworn and untested material as he did not attend to give live evidence), the judge concluded Mr Emery knowingly caused or allowed misrepresentations about land ownership, government approval and security to be made, perpetuated inaccurate marketing and contractual documents, and failed to preserve adequate accounting records. As the controlling mind of the enterprises he was responsible for the conduct and his cumulative failures were deliberate and serious.
• Mr Wiggins had taken steps of enquiry, visited Brazil, relied on Mr Emery's explanations and on third-party advisers, and functioned primarily as a marketing director. The court accepted his evidence that he reasonably believed the representations to be true and that he did not commit the serious failures necessary to establish unfitness.
• Having found unfitness in the case of Mr Emery, the court held that a disqualification order was mandatory and selected a 14 year period, placing the conduct at the upper end of the most serious bracket given the scale of investor loss and the perpetuation of misrepresentations.

Relief granted: A disqualification order for 14 years against Mr Anthony Armstrong-Emery; no disqualification against Mr Xavier Wiggins.

At first instance the court made a disqualification order against Mr Anthony Armstrong-Emery for 14 years because his cumulative conduct (deliberate misleading marketing and contractual misrepresentations and failure to preserve adequate accounting records) rendered him unfit under section 6 of the Company Directors' Disqualification Act 1986. The claim against Mr Xavier Wiggins was dismissed: his enquiries, site visits and reliance on Mr Armstrong-Emery and advisers meant he did not commit the serious failures required to establish unfitness.