Summary
For the purposes of director disqualification, a failure by a director to keep, maintain, preserve or deliver up adequate accounting records may itself establish misconduct and unfitness. It is immaterial that adequate records may have existed if they were not delivered to the office-holder. The director remains responsible even where bookkeeping was delegated, unless appropriate systems, competent personnel and effective supervision were provided. The consequences of inadequate records are not essential ingredients of the charge, although they may support unfitness and affect the disqualification period. The court applies the ordinary civil standard of proof, while requiring clear evidence because disqualification is penal or quasi-penal in nature. A single serious allegation may justify disqualification where it significantly impedes the office-holder’s functions.
Factual background
The Secretary of State applied under sections 1 and 6 of the Company Directors Disqualification Act 1986 for an order against the sole director of Javazzi Limited. The company had entered creditors’ voluntary liquidation, leaving a substantial deficiency to creditors. The claim alleged that the defendant had failed to keep, maintain or preserve adequate accounting records, or alternatively had failed to deliver them to the joint liquidators or the Insolvency Service.
The proceedings were issued in the County Court at Luton, transferred to Birmingham and then transferred to the High Court for trial. The central issues were whether the charge was proved, whether the defendant’s conduct made him unfit to be concerned in the management of a company, and the appropriate period of disqualification.
Held
- Charge proved. The defendant had not delivered accounting records complying with section 386 of the Companies Act 2006 to the joint liquidators or the Insolvency Service. Whether the company had failed to keep adequate records or the defendant had failed to deliver records that existed, the charge was made out.
- The consequences relied on by the claimant were not essential ingredients of the charge. The relevant question was whether the director had failed to maintain or deliver adequate records. The inability of the liquidators or the Insolvency Service to verify transactions and the company’s affairs was nevertheless relevant to unfitness and the period of disqualification.
- The statutory requirements could not be avoided by blaming employees, contractors or accountants. A director who delegates bookkeeping must put in place appropriate systems, appoint competent personnel, and supervise and monitor their work. The director must also provide the information and explanations needed for accurate records.
- The court applied the statutory test of unfitness under section 6(1)(b) of the Company Directors Disqualification Act 1986. The defendant’s conduct, considered cumulatively, fell below the standards of probity and competence appropriate for a company director. His lack of understanding of accounting records, failure to supervise their preparation, and refusal to accept responsibility aggravated the misconduct.
- The claimant bore the primary burden of proof on the balance of probabilities. The standard was not heightened, although clear evidence was required because of the penal or quasi-penal consequences of disqualification.
- A single allegation of failure to keep or deliver accounting records may justify a finding of unfitness, particularly where the failure seriously or significantly impedes an office-holder. The defendant was unfit to be concerned in the management of a company.
- A disqualification order for seven years was made. Costs and ancillary matters were left for a further hearing.
The court’s approach to earlier authorities
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Appellate history
- County Court at Luton: The claim was issued there.
- County Court at Birmingham: The claim was transferred there as Business and Property work.
- High Court (Chancery Division): The claim was transferred for determination by a judge authorised to sit in the High Court. The defendant was found unfit and disqualified for seven years.
Key cases cited
23 authorities cited.
- Barton v Wright Hassall LLP [2018] UKSC 12
- S-B (Children) [2009] UKSC 17
- In re B (Children) (FC) [2008] UKHL 35
- Denton & Ors v TH White Ltd & Ors [2014] EWCA Civ 906
- Mitchell MP v News Group Newspapers Ltd [2013] EWCA Civ 1537
- Re SAS Fire & Security Ltd, Official Receiver v McVey [2014] EWHC 3723 (Ch)
- Re Bunting Electric Manufacturing Ltd, Secretary of State for Trade and Industry v Golby [2005] EWHC 3345 (Ch)
- Re Devonshire Business Services Ltd, Secretary of State for Business, Innovation and Skills v Williams and Hyde 15 January 2013
- Official Receiver v Key [2009] BCC 11
- Official Receiver v Hubbard 26 June 2007
- Re Commercial Driving Services Limited, Official Receiver v Elliott and another 29 November 2007
- Secretary of State for Trade and Industry v Goldberg [2004] 1 BCLC 597
- Re Finelist [2004] BCC 877
- Re Amaron Ltd [2001] 1 BCLC 562
- Re Structural Concrete Ltd [2001] BCC 578
- Re Deaduck Ltd, Baker v Secretary of State for Trade and Industry [2000] 1 BCLC 148
- Re Barings plc [1999] 1 BCLC 433
- Re Westmid Packing Services Ltd [1998] 2 All ER 124
- Secretary of State v Arif [1997] 1 BCLC 34
- Re Grayan Building Services Limited, Secretary of State for Trade & Industry v Gray [1995] 1 BCLC 276
- Re Firedart Ltd [1994] 2 BCLC 340
- Secretary of State for Trade and Industry v Langridge [1991] Ch 402
- In re Sevenoaks Stationers (Retail) Ltd [1991] Ch 164
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Cases citing this case
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