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

The claimant sought the court's leave under section 17 of the Company Directors Disqualification Act 1986 to act as a director of two companies despite having given a disqualification undertaking accepted by the Secretary of State under section 1A of the Act. The judge treated the matter as a final hearing and balanced the public interest in protection from unfit directors against the commercial need of the companies to benefit from the claimant's specialist expertise.

The court found that the claimant had not acted dishonestly but had been negligent in financial management at a previous company, Gateguards, which went into insolvent liquidation. The Secretary of State had accepted a three years and six months undertaking reflecting middle-band culpability. The claimant had since implemented significant safeguards for the two ongoing companies, including the appointment of qualified accountants, a finance director, monthly management accounts and other controls.

Applying the guidance in Re Chartmore and Hennelly, the court concluded that, subject to detailed conditions designed to protect creditors and the public (tax compliance, accountancy oversight, management accounts, dividend restrictions and record-keeping), it was appropriate to grant leave for the claimant to act as director of Airblade Dynamics Ltd and Replica Aircraft Fabrications Ltd. The court rejected imposition of a mandatory third director and a limited probationary period because those measures would likely impose unaffordable burdens or add no substantial protection in the circumstances.

The claimant, with specialist technical expertise in replica aircraft and composite construction, had been a director of Gateguards (insolvent liquidation 4 October 2018). The Secretary of State investigated and considered him unfit to act as a director but accepted a disqualification undertaking on 22 April 2021 that he would not act as a director or be involved in management for three years and six months without the leave of the court.

Nature of the application:

• An application under CPR Part 8 for an order under sections 1A and 17 of the Company Directors Disqualification Act 1986 giving the claimant leave to act as director of two continuing companies (Airblade and Replica Aircraft Fabrications Ltd) notwithstanding the undertaking.

Issues framed by the court:

• Whether leave should be granted despite the accepted undertaking and the prior finding of unfitness by the Secretary of State.
• Whether safeguards and conditions proposed by the claimant were adequate to protect the public, creditors and the Crown.
• Whether additional conditions (a third independent director or a shorter probationary period) should be imposed.

Key factual and procedural background:

• The claimant was not accused of dishonesty; the concerns related to deficient financial management. The claimant had established two continuing companies which shared premises and back-office services, had retained HM Williams as accountants and appointed a qualified finance director. Recent accounts and management accounts indicated the companies were trading profitably.
• The Secretary of State participated at the hearing as required by section 17 but did not call evidence and did not oppose the order so long as the public interest was protected.

Court's reasoning:

• The court applied the balancing approach illustrated in Re Chartmore and Hennelly: the public protection objective is paramount but must be weighed against the potential detriment to employees, creditors and the public if a viable company is deprived of a director whose personal goodwill and expertise are important to its trading.
• The absence of dishonesty reduced the risk profile; the undertaking length reflected mid-band culpability. The comprehensive safeguards (tax compliance, accountants' oversight, monthly management accounts, dividend restrictions and record-keeping) offered real protection. The court was not persuaded that imposing a third director or a short probationary term would necessarily increase protection in this small-company context and might threaten viability.
• Accordingly, the court approved the draft order (with two minor drafting amendments) and granted leave to the claimant to act as director on the specified conditions.

The judgment notes the rarity and fact-sensitive nature of such orders and relies on a careful balancing exercise between public protection and commercial realities in small companies.

The court granted the claimant leave to act as a director of Airblade Dynamics Ltd and Replica Aircraft Fabrications Ltd on the conditions agreed and incorporated in the court order. The rationale was that the claimant was not dishonest, safeguards (qualified accountants, a finance director, monthly management accounts, tax compliance and dividend controls) provided adequate protection to creditors and the public, and imposing a third director or a probationary year would likely be disproportionate or counterproductive in the small-company context.