Secretary of State for Business Energy And Industrial Strategy v Evans & Anor

In a directors’ disqualification claim, misconduct may consist of serious incompetence or a serious failure to have regard to the professional and regulatory standards governing the company’s business. A breach of a specific duty is neither necessary nor sufficient to establish unfitness.

The court must assess the conduct alleged, viewed cumulatively and in context, against the standards applicable to the director’s actual role. Adequate systems and isolated human error may mean that regulatory failings do not amount to incompetence of the very high degree required for disqualification. The assessment remains a fact-sensitive value judgment under the Company Directors Disqualification Act 1986.

The Secretary of State sought disqualification orders against Paul Evans and Nigel Evans, respectively the managing director and finance director of Brooklands Trustees Ltd, following the company’s insolvency.

The allegation concerned inadequate due diligence on FCP, a Cypriot introducer, and failures relating to 20 UK customers whose pension funds were invested in a high-risk unregulated collective investment scheme. The defendants accepted that the company’s systems had failed but argued that the failures were isolated, affected a small proportion of its business, and did not meet the statutory threshold for misconduct and unfitness.

The central issues were the scope of the allegation, whether the proven facts amounted to misconduct, and whether the incompetence was sufficiently serious to justify disqualification.

1. Scope of allegation. The court confined the claim to the relationship with FCP and to 20 customers. Dealings with Universal Wealth Management Ltd were treated as factual background rather than part of the allegation. The defendants had sufficient notice of the case they had to meet.
2. Applicable framework. Section 6 of the Company Directors Disqualification Act 1986 requires insolvency, directorship, and conduct making the director unfit. The inquiry proceeds in three stages: whether the facts amount to misconduct; whether they justify a finding of unfitness; and, if so, the appropriate period of disqualification.
3. A director of a regulated or professional business must have regard to the overarching principles governing that business and to relevant regulatory good practice. A breach of a specific duty is neither necessary nor sufficient for misconduct. A serious or pervasive failure to observe those standards may amount to misconduct.
4. The facts were proved. Brooklands failed to identify FCP’s regulatory shortcomings, failed to monitor the business it introduced, and failed to ensure that appropriate advice and due diligence safeguards operated effectively. Those failures amounted to incompetence and therefore misconduct.
5. The statutory threshold for disqualification was not met. The company’s general systems were adequate, the failures concerned one business relationship, and the affected business represented only a small proportion of the company’s activity. The errors were serious but isolated and were not incompetence in a very marked, really gross, or very high degree.
6. The same considerations meant that the defendants were not unfit in their capacity as directors. Their failings related principally to competence as financial services providers and did not justify the public protection consequences of disqualification.
7. The Secretary of State’s claim was dismissed. The judge added that the decision was fact-sensitive and should not be treated as a general precedent.