Official Receiver v Atkinson (Discontinued) & Ors

In disqualification proceedings, the Official Receiver is ordinarily confined to the allegations and essential facts set out in the report required by rule 3(3) of the Insolvent Companies (Disqualification of Unfit Directors) Proceedings Rules 1987. The court may permit additional or altered allegations only where this can occur without procedural injustice. Proper notice requires a fair opportunity to decide how to meet the case and to produce evidence. Allegations of dishonesty, want of probity, breach of fiduciary duty, or statutory breach may be qualitatively different from an allegation of incompetence. Section 9 of the Company Directors Disqualification Act 1986 does not require the court to investigate matters not properly before it. The court may refer to the section 174 test as relevant to unfitness, but cannot make a finding of breach where that allegation was not fairly and timely advanced.

The Official Receiver brought disqualification proceedings concerning the management of Kids Company. The report alleged that the defendants caused or allowed the company to operate an unsustainable business model. Shortly before the hearing, the Official Receiver sought to rely additionally on alleged voidable preferences under section 239 of the Insolvency Act 1986 and breaches of sections 172, 173 and 174 of the Companies Act 2006.

The defendants challenged those additions on procedural fairness grounds. The central issue was whether the Official Receiver could seek findings on allegations not set out in the report and not fairly identified during the earlier preparation of the case.

1. Additional allegations. The Official Receiver’s report must identify the matters by reference to which a respondent is alleged to be unfit and must set out the essential facts relied upon. Although the court has a discretion to permit further or altered allegations, it must exercise that discretion cautiously and only where the change can be made without injustice. The defendants must have proper notice and a genuine opportunity to decide their position and prepare evidence.
2. Scope of section 9. Section 9 of the Company Directors Disqualification Act 1986 requires the court to have regard to matters properly before it. It does not require the court independently to investigate or determine matters which the Official Receiver has not properly placed before the court.
3. Preferences. The report did not allege that the relevant repayments were voidable preferences under section 239 of the Insolvency Act 1986, nor did it address the statutory desire requirement in section 239(5), including the different position concerning connected persons under section 239(6). The defendants were not properly put on notice. It would therefore be unfair to permit the allegation to be raised at the hearing.
4. Statutory duties. A section 172 allegation could involve fiduciary duty, want of good faith, stigma and moral taint, and was materially different from the incompetence allegation originally advanced. The section 173 allegation was also not equivalent to the existing case that some defendants had deferred excessively to another individual. The court could be referred to the objective and subjective tests in section 174 because they might assist the assessment of unfitness, but a breach of section 174 was neither necessary nor sufficient to establish unfitness and could not itself be found where it had not been fairly alleged.
5. The Official Receiver was not permitted to seek findings of breaches of sections 172, 173 or 174 of the Companies Act 2006, or findings that there were preferences voidable under section 239 of the Insolvency Act 1986.