THE OFFICIAL RECEIVER v NDUKA OBAIGBENA

Under section 6 of the Company Directors Disqualification Act 1986, the statutory question is whether the director’s proven conduct makes him unfit to be concerned in company management. Trading while insolvent is not automatically sufficient, but the court need not impose a separate requirement that the director knew or ought to have known that creditors could not be paid or insolvency avoided. That circumstance commonly supplies culpability, but it is not an essential legal element in every case. The assessment remains broad and evaluative. A director who continues trading on an irrational basis, taking unwarranted risks with creditors’ money, may be unfit. In fixing the disqualification period, the court applies the Re Sevenoaks brackets broadly. Dishonesty is not a prerequisite for the middle bracket, and appellate intervention requires an error of principle or a decision outside the permissible discretion.

The Official Receiver brought proceedings under section 6 of the Company Directors Disqualification Act 1986 against Nduka Obaigbena, the sole director of Arise Networks Ltd. The Deputy Insolvency and Companies Court Judge found that he caused the company to continue trading while insolvent, to the detriment of creditors, when there was no reasonable prospect of their being paid or of the company avoiding insolvent liquidation. She ordered a seven-year disqualification.

On appeal, the appellant argued that the judge had to find that he knew or ought to have known that there was no such reasonable prospect, and that seven years was disproportionate and failed to reflect mitigation. The central issues were the content of the statutory unfitness test and whether the period of disqualification involved an error of principle.

1. Appeal dismissed. The judge’s finding that the appellant’s conduct made him unfit was upheld.
2. Section 6 of the Company Directors Disqualification Act 1986 states the sole statutory criterion: whether the director’s conduct makes him unfit to be concerned in the management of a company. The statement required by rule 3(3) of the Insolvent Companies (Disqualification of Unfit Directors) Proceedings Rules 1987 performs the function of a pleading and confines the matters for decision. The Official Receiver’s allegation was contained in paragraph 6 of the report; paragraph 48 was argument about how culpability should be assessed.
3. The allegation that the company traded to the detriment of creditors when there was no reasonable prospect of creditors being paid carried an allegation of blameworthy conduct. It did not need to include an express allegation that the director knew or ought to have known of that absence of reasonable prospect.
4. Secretary of State for Trade and Industry v Creegan, Secretary of State v Taylor and Re Uno plc, Secretary of State for Trade and Industry v Gill did not impose a judge-made overlay on section 6. They distinguished ordinary insolvent trading from conduct sufficiently serious to establish unfitness. Knowledge or deemed knowledge will often provide the necessary culpability, but is not mandatory in every case. There is no fixed taxonomy into which every case must fall.
5. The judge was entitled to find that the appellant’s belief that future funds would arrive was irrational and unsupported, and that continuing to trade was an unwarranted gamble with creditors’ money. That was sufficient, on the facts, to support unfitness.
6. The seven-year period was within the judge’s broad discretion. Under Re Sevenoaks Stationers (Retail) Ltd, the middle bracket covers serious cases not warranting the top bracket. Dishonesty is not a prerequisite for that bracket and its absence is not necessarily a mitigating factor. The substantial increase in unpaid liabilities, the duration of trading, the absence of revenue and the gambling with creditors’ money justified the classification.
7. The judge was not required to explain in detail how each mitigating factor, including a £700,000 settlement contribution, affected the period. The broad-brush approach endorsed in Re Westmid Packing Services Ltd (No.2) permitted the order to stand. The period was not outside the permissible ambit of discretion.

• Chancery Appeals, High Court: Appeal from an order of Deputy Insolvency and Companies Court Judge Agnello QC dated 8 April 2021. The seven-year disqualification order was upheld.