Hobson v Secretary of State for Business, Energy and Industrial Stategy

Leave to act as a company director during a disqualification undertaking is a fact-sensitive protective jurisdiction. The court must balance the public interest in protection from the conduct underlying the disqualification against the company’s practical need for the applicant’s involvement. Appropriate safeguards may include financial controls, independent directors and reporting conditions, but none is automatically required. The court must assess their protective value against their cost and effect on the company’s viability. A person’s specialist knowledge and client-facing role may make employee status impracticable in a small business, although that will depend on the circumstances. A probationary period is optional and need not be imposed where existing controls and successful trading provide sufficient protection.

The claimant had given the defendant a three-and-a-half-year undertaking under the Company Directors Disqualification Act 1986 after the insolvent liquidation of a company of which he had been a director. The alleged unfitness arose from inadequate financial management, not dishonesty.

He applied under CPR Part 8 for leave under sections 1A and 17 of the Act to continue as a director of two companies carrying on wind-turbine and replica-aircraft businesses. The defendant did not oppose the order but was required to assist the court on matters relevant to the public interest. The central issue was whether leave, subject to conditions, would adequately protect creditors and the public.

1. The application was granted. The claimant was given leave to act as director of Airblade Dynamics Ltd and Replica Aircraft Fabrications Ltd, subject to the agreed conditions as amended.
2. The jurisdiction under sections 1A and 17 of the Company Directors Disqualification Act 1986 requires a practical balancing exercise. The court must compare the protection afforded by refusing leave with the protection afforded by permitting the applicant to act under suitable conditions. The focus is protection against the matters which led to disqualification, rather than prevention of all entrepreneurial risk.
3. The claimant’s failure involved lack of financial competence rather than dishonesty. The continuing companies had qualified financial personnel, accountants, reporting systems, adequate records and evidence of financial health. Those safeguards sufficiently addressed the relevant risk.
4. In a small specialist business, the applicant’s strategic, client-facing and commercial role may make it unrealistic for him to act merely as an employee. The undertaking also covered involvement in management, so separating employment from management could create uncertainty.
5. An additional independent non-executive director was not required. Although such a director could enhance public protection, the court had to weigh that benefit against the cost and the risk that the requirement would threaten the companies’ viability. A different assessment could be made in another case.
6. A probationary period was also unnecessary. The businesses had already traded successfully, and the financial conditions provided sufficient protection to justify avoiding additional cost and uncertainty.