The Official Receiver v Duckett

A person may be a de facto director where, viewed objectively and in the round, he assumes responsibility for the company’s governance and performs functions properly falling within the role of a director. The inquiry is fact-sensitive and turns on the cumulative effect of the relevant activities, not on formal appointment, job title, subjective belief or the ability of a manager below board level to perform particular tasks.

Where a de facto director of an insolvent company fails to ensure that adequate accounting records are maintained and preserved, that conduct may establish unfitness under section 6 of the Company Directors Disqualification Act 1986. The disqualification period must reflect the conduct proved, without treating suspected fraud as an independent basis for the order.

The Official Receiver sought a disqualification order against Howard Duckett under section 6 of the Company Directors Disqualification Act 1986. The application concerned Focus 15 Trading Limited, an insolvent company wound up on HMRC’s petition.

Mr Duckett was not a formally appointed director. He contended that he had merely assisted Richard Cooke, the de jure director, and that a person called John Deere had operated the company. The Official Receiver alleged that Mr Duckett was a de facto director and had failed to ensure that adequate accounting records were maintained and preserved. The issues were whether Mr Duckett was a de facto director, whether his conduct made him unfit, and what period of disqualification was appropriate.

1. De facto directorship. Mr Duckett was a de facto director. The court applied the fact-sensitive approach described in Secretary of State for Trade and Industry v Tjolle, [1998] BCC 282, Holland v The Commissioners for Her Majesty’s Revenue and Customs, [2010] UKSC 51, and Smithton Limited v Naggar, [2014] EWCA Civ 939. The question was whether Mr Duckett formed part of the company’s corporate governance structure and assumed the status and functions of a director. The court had to examine what he actually did, objectively and in context, considering the cumulative effect of his activities.
2. The evidence showed that Mr Duckett dealt with incorporation, selected the bank, instructed accountants and solicitors, received bank statements and HMRC correspondence, dealt with trading and VAT matters, and controlled communications with third parties. The alleged involvement of John Deere was rejected as fictitious. Mr Duckett was therefore the person exercising the company’s governance and management.
3. Accounting records and unfitness. Sections 386 and 388 of the Companies Act 2006 required adequate records sufficient to explain transactions, disclose the company’s financial position, record receipts and expenditure, and identify relevant goods and counterparties. The records produced lacked a clear audit trail, books of prime entry and reliable reconciliation of invoices, bank transactions, trading and VAT liabilities. Mr Duckett failed to ensure that adequate records were maintained and preserved.
4. The rationale of the record-keeping obligation includes enabling directors to make responsible decisions and enabling an insolvency office-holder to identify and recover assets, as explained in Secretary of State for Trade and Industry v Arif, [1986] BCC 586. The failure was serious conduct making Mr Duckett unfit to be concerned in company management.
5. Disqualification. The court applied the three-bracket approach approved in Re Sevenoaks Stationers (Retail) Limited, [1991] Ch 164. The case fell within the six-to-ten-year bracket. Taking account of the seriousness of the breach, Mr Duckett’s experience, the obstruction caused to liquidation and investigation, mitigation, and his egregious lies on oath, the court ordered disqualification for ten years. Suspected VAT fraud was not an independent basis for the order, which was confined to the failure to maintain proper records.