the Secretary of State for Business, Energy And Industrial Strategy v Geoghegan & Ors

This first-instance judgment determines the scope of the Company Directors Disqualification Act 1986 (CDDA) as applied to limited liability partnerships (LLPs) by the Limited Liability Partnership Regulations 2001. The court held that, under Reg 4(2), references to a "director" in the CDDA include a "member" of an LLP and that "conduct as a member" denotes the capacity in which the person acted rather than being limited to conduct at board or management-board level.

Consequently: (i) all members of an LLP are potentially liable to disqualification under s.6 CDDA where their conduct as a member renders them "unfit to be concerned in the management of a company or LLP"; (ii) there is no statutory qualification limiting proceedings to members who sit on a management board or who are the equivalent of company directors; and (iii) the test of "unfitness" is applied by reference to the member's actual role and conduct, as with company directors. The applicants' applications for strike out and summary judgment were dismissed.

Background and parties. The Secretary of State for Business, Energy and Industrial Strategy brought disqualification proceedings under s.6 CDDA arising from the collapse of Bell Pottinger LLP (BP LLP). The first and second defendants (Applicants) were members of BP LLP but not members of its Management Board; the Secretary of State also pursues a third defendant who was a company director. The Applicants applied to strike out the claim under CPR 3.4(a) or (b), or in the alternative for summary judgment under CPR 24, arguing that the CDDA only extends to those members concerned in management (i.e. the management board) and therefore the claim against junior members could not succeed.

Nature of the relief sought. The Applicants sought strike out / summary judgment dismissing the disqualification proceedings against them. The Secretary of State seeks a disqualification order under s.6 CDDA (minimum two years) on the basis that the Applicants' conduct as members contributed to the LLP's failure and thus makes them unfit to be concerned in management.

Issues framed by the court. The principal issue was whether, as a matter of statutory construction of s.6 CDDA as modified by Reg 4(2) of the Regulations, Parliament intended to confine disqualification proceedings to those members who were involved in the central management of an LLP (for example, members of a management board), or whether all members may potentially be liable, with the unfitness inquiry conducted by reference to their actual role and conduct.

Court's analysis and reasoning. The judge reviewed the purpose of the CDDA and the policy objective of protecting the public and raising standards for those trading with limited liability. He considered literal and purposive approaches to interpretation, applying authorities on statutory construction and prior CDDA jurisprudence (including Re Barings, Re Grayan, and Re Keeping Kids Company). He concluded that the words used, read with the Regulations, unambiguously extend to members of LLPs and that "conduct as a member" refers to conduct in that capacity rather than being limited to conduct at management-board level. The unfitness inquiry remains the established test applied in context by reference to the role actually played by the individual. The Regulations and the form of a disqualification order (which forbids even non-managing membership of an LLP) supported a wide application. The judge rejected the Applicants' submission that additional qualifications should be implied into the statute or that Reg 4(2)(i) required further modification to limit the CDDA's reach.

Result. The judge dismissed the Applicants' strike out and summary judgment applications and held that the factual role of the Applicants remains a matter for trial in assessing whether their alleged conduct renders them unfit to be concerned in management.

The court dismissed the Applicants' applications for strike out under CPR 3.4 and for summary judgment under CPR 24. The judge held that s.6 CDDA as applied to LLPs by Reg 4(2) reaches all members of an LLP; "conduct as a member" means conduct in the capacity of member and need not be limited to membership of a management board; the statutory test of unfitness is applied by reference to the member's actual role and conduct. Accordingly the disqualification claim could proceed to trial.