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

The Secretary of State sought disqualification orders under section 6 of the Company Directors Disqualification Act 1986 arising from Brooklands Trustees Limited's failures to carry out sufficient due diligence in respect of business introduced by FCP Insurance Consultants Limited and the consequent investment of monies into an unregulated collective investment scheme. The court applied the established three-stage approach to disqualification (Re Structural Concrete): (1) whether the alleged matters amounted to misconduct; (2) if so, whether they justified a finding of unfitness; and (3) the appropriate period of disqualification.

The judge accepted that Brooklands and the defendants failed to ensure adequate due diligence in relation to FCP and that that failure led to loss to 20 United Kingdom resident customers. The court had regard to the FCA Principles (notably Principles 2, 3 and 6), the SIPP guidance and Financial Ombudsman findings, but concluded that—taking into account the company’s overall compliance systems, FCA reviews, the limited and essentially isolated character of the failures, and that the misconduct amounted to administrative/incompetent error rather than gross or pervasive incompetence—the failures did not reach the high degree of incompetence required to make the defendants unfit.

Accordingly the Secretary of State's claim was dismissed.

Background and parties. Brooklands Trustees Limited administered SIPPs and was FCA-regulated. The claimant Secretary of State for Business, Energy and Industrial Strategy applied for disqualification orders against Paul Martin Evans (managing director) and Nigel Arthur William Basset Evans (finance director) under the Company Directors Disqualification Act 1986 following the insolvency and regulatory failings of Brooklands. The claim concerned about 20 United Kingdom resident customers introduced by a Cypriot introducer, FCP Insurance Consultants Limited, whose monies were invested in an unregulated collective investment scheme.

Nature of the claim / relief sought. The Secretary of State sought mandatory disqualification orders under section 6 CDDA 1986 on the basis that the company became insolvent, the defendants were directors, and their conduct made them unfit to be concerned in the management of a company.

Procedural posture. First instance hearing in the High Court (Insolvency and Companies List). Evidence included affidavits and oral testimony; regulatory and ombudsman findings were adduced.

Issues framed by the court.

• What is the precise scope of the allegation (period, actors and acts complained of)?
• Are the pleaded facts proven on the evidence?
• If proven, do they amount to misconduct (dishonesty or incompetence) sufficient to make the defendants unfit under the statutory test?
• What weight should be given to regulatory material (FCA Principles, thematic reviews and SIPP guidance) and to decisions of the Financial Ombudsman Service?

Court’s reasoning and conclusions. The court found the pleaded facts (limited to FCP and 20 customers between August 2011 and January 2013) proved: Brooklands failed to ensure sufficient due diligence on FCP, failed to detect a Cypriot regulatory sanction against FCP, and failed to secure appropriate independent advice for most affected customers. The judge analysed regulatory materials (FCA Principles 2, 3 and 6; SIPP reviews and guidance) as relevant statements of professional standards and expectations and concluded that serious failure to observe them can amount to misconduct. However, on the evidence the failures were administrative and isolated to one introducer relationship; the company otherwise had compliance arrangements, had undergone FCA monitoring with largely positive assessments, and the failings did not demonstrate the very high degree of incompetence or pervasive misconduct required to establish unfitness. The judge therefore dismissed the Secretary of State’s claim.

Subsidiary and contextual findings. The court clarified the scope of the allegation (excluding reliance on Universal Wealth Management as part of the pleaded case), stressed the distinction between regulatory "good practice" and mandatory rules while recognising the evidential weight of FCA materials, and cautioned about hindsight and language used in regulatory documents. The judgment notes its factual, value-judgement character and limited precedential effect.

The claim is dismissed. The court found failures of due diligence by Brooklands and that those failures caused loss to 20 customers, but concluded the misconduct was administrative and isolated rather than demonstrating the high degree of incompetence or pervasive failings required to make the defendants unfit to be concerned in the management of a company under the Company Directors Disqualification Act 1986.