Georgallides v The Secretary of State for Business, Energy and Industrial Strategy

A disqualification undertaking is essentially a statutory contract. Retrospective rescission for fraud requires proof of fraudulent misrepresentation: a materially false representation, dishonestly made, intended to induce and actually inducing the undertaking, with the representation made by, or knowingly relied upon by, the Secretary of State. Fraud by a mere witness is insufficient.

The court’s power under section 8A of the Company Directors Disqualification Act 1986 permits prospective variation, but retrospective relief requires the contractual or public-interest grounds identified in the authorities. A company’s insolvency remains an insolvency merely because fraud caused it, and that does not justify retrospective permission under section 216 of the Insolvency Act 1986.

The applicant sought retrospective rescission of two disqualification undertakings, or alternatively reduction of the second undertaking under section 8A of the Company Directors Disqualification Act 1986. He also sought retrospective permission under section 216(3) of the Insolvency Act 1986 to use the prohibited name “Nozomi”.

He alleged that evidence in the earlier disqualification proceedings had been tainted by fraud connected with HBOS, and that this had induced him to give the undertakings. The Secretary of State denied any involvement in, or knowledge of, fraudulent evidence. A preliminary ruling had held that retrospective relief was within the court’s jurisdiction in an appropriate fraud case. The central issues were the limits of that jurisdiction, whether the evidential and contractual requirements for fraud were met, and whether the statutory variation and prohibited-name regimes applied.

1. Retrospective rescission of the first undertaking. The application failed. A disqualification undertaking is contractual in origin but its effect is modified by statute. It cannot be rescinded retrospectively merely because fraud is alleged. The applicant had to establish the elements of fraudulent misrepresentation: a false and material representation, dishonestly made, intended to induce and actually inducing him to act to his detriment. The representation had to be made by the Secretary of State or knowingly relied upon by her.
2. The fraud alleged did not satisfy that test. The asserted HBOS modus operandi did not establish a dishonest representation by the Secretary of State or her knowledge of a false representation. Nor did the convictions of some witnesses establish that their evidence in the earlier proceedings was fraudulent. The applicant failed to prove either dishonest material misrepresentations or that such evidence was an operative cause of the first undertaking.
3. The second undertaking. Retrospective rescission failed because it depended substantially on rescission of the first undertaking and because the breach of that undertaking was an inescapable fact admitted by the applicant. Retrospective relief could not decriminalise past non-compliance. The second undertaking also rested on independent admissions concerning Eastzest’s trading and bank-account conduct.
4. Variation under section 8A. Applying the two-stage approach in Re INS Realisations Ltd, the applicant could not resile from the schedule of unfit conduct. He established neither a contractual ground nor a public-interest ground outweighing the importance of holding him to the undertaking, and no qualifying special circumstances justified reducing its period.
5. Section 216 permission. The application was hopeless. Fraud causing insolvency would not mean that the company was solvent or that the prohibited-name regime was never engaged. The applicant had also used the name through several companies which became insolvent. Permission was refused.

The application was refused in its entirety. Costs were to be addressed separately.