The Secretary of State for Business, Energy And Industrial Strategy v Rajgor

The Secretary of State applied under s.6 of the Company Directors Disqualification Act 1986 for a disqualification order against Mr Vipul Rajgor, the sole director of Javazzi Limited, for failing to keep, preserve or deliver up adequate accounting records in breach of the duty in s.386 Companies Act 2006 (and the related criminal offence in s.387). The judge found the Defendant had not delivered adequate accounting records to the joint liquidators or the Insolvency Service, that the records in the official file were incomplete and that the Defendant gave largely evasive and untruthful evidence. The failure materially impeded the office-holders' ability to verify franchise numbers, turnover and the application of substantial funds received from franchisees and finance companies. Applying Schedule 1 factors (as required by s.12C CDDA 1986) and the established tests of unfitness, the court concluded the Defendant was unfit to be concerned in the management of a company and made a disqualification order for seven years.

This was a first instance disqualification application brought by the Secretary of State pursuant to ss.1 and 6 of the Company Directors Disqualification Act 1986 following Javazzi Limited's creditors' voluntary liquidation on 25 August 2016. The Claim relied on a single core allegation: that Mr Rajgor failed to ensure Javazzi kept, preserved or delivered up adequate accounting records for the period October 2013 to liquidation.

Background and parties:

• Javazzi Limited operated as a franchisor of sandwich and food outlets. The company had realised only modest sums in liquidation against liabilities of over £245,000.
• The Defendant was the sole director; his wife worked in the business. The Insolvency Service and the joint liquidators alleged substantial gaps or absences in accounting records, impeding inquiry into franchise numbers and the application of funds.

Nature of the application and procedural posture:

• The Secretary of State sought a disqualification order under s.6 CDDA 1986. The Defendant appeared in person.
• The judge dealt with procedural points: service and ten-day letter, offers of interview, transfer from County Court to High Court, relief to permit the Defendant to rely on a late affirmation and allowance for the Defendant's wife to assist him in proceedings.

Issues framed by the court:

• Whether the Defendant failed to keep, preserve or deliver up adequate accounting records in breach of s.386 Companies Act 2006 (and thus potentially s.387 criminal liability);
• Whether that misconduct was proved on the balance of probabilities and whether it made the Defendant unfit to be concerned in the management of a company under s.6(1)(b) CDDA 1986; and
• If unfitness was established, what period of disqualification (within the statutory range) was appropriate, applying s.12C and Schedule 1 factors.

Court's reasoning and findings:

• The judge summarised the legal test for unfitness and the Schedule 1 matters to be taken into account. The burden and standard of proof were applied in accordance with authorities cited.
• Evidence from Insolvency Service investigators and third parties (Mr Gitner, Ms Marshall, Mr Joseph and Mr Patel) established that the documents held by the joint liquidators were incomplete and that repeated requests for outstanding records were unanswered. The judge accepted that significant accounting information necessary to verify franchise numbers, turnover and the application of specific sums (including c.£59,853.87, £40,700 and £67,247.73) was not available to the office-holders.
• The Defendant's oral evidence was repeatedly evasive and, in the judge's view, often untruthful. The Defendant could not explain who maintained the company records, how transactions were recorded, or account reliably for sums received and spent. Explanations blaming contractors or former staff were not supported by contemporaneous documents and did not excuse his failure to ensure adequate records or to deliver them up.
• The misconduct (failure to keep/preserve/deliver records) was therefore proved and, given the statutory duties and the extent to which the omissions hampered the liquidators, warranted a finding of unfitness. Ill-health was considered but held to be insufficient mitigation.
• On the authorities and comparing with reported cases involving similar failings, the judge fixed a seven-year period of disqualification.

Other procedural or contextual observations: the judge noted the quasi-penal nature of disqualification proceedings, the duty of fairness by the Secretary of State, and identified that ancillary matters (commencement date for disqualification and costs) were to be fixed at an ancillary hearing.

The court made a disqualification order under s.6 Company Directors Disqualification Act 1986 against Vipul Rajgor for a period of seven years. The order followed a finding, on the balance of probabilities, that the Defendant failed to ensure Javazzi Limited kept, preserved or delivered up adequate accounting records in breach of s.386 Companies Act 2006 (and related duties), that this misconduct materially impeded the liquidators and rendered him unfit to be concerned in the management of a company. The Defendant's evasive and largely untruthful evidence and lack of supervision as sole director were significant factors in the decision.