THE OFFICIAL RECEIVER v NDUKA OBAIGBENA

The appeal concerned a disqualification order made under section 6 of the Company Directors Disqualification Act 1986. The judge below found that the appellant, the sole director of Arise Networks Ltd, caused the company to trade to the detriment of creditors from 31 December 2014 onwards when there was no reasonable prospect of creditors being paid or of the company avoiding insolvent liquidation. The judge found that the appellant genuinely believed funds would come from Nigeria but that belief was irrational, unsupported by evidence and amounted to gambling with creditors' money. Applying the Court of Appeal brackets in Re Sevenoaks and the guidance in Re Westmid, the judge placed the case in the middle bracket and ordered disqualification for seven years.

On appeal the principal legal challenge was that the judge had applied the wrong legal test by failing to find that the director "knew or ought to have known" there was no prospect of payment. The court held that section 6 requires an evaluative judgment about whether proven conduct makes a person unfit and does not impose a compulsory additional legal overlay that a director must have known or ought to have known in every insolvent-trading case. The appellant's other ground, that seven years was disproportionate or that mitigation was ignored, was also rejected. The appeal was dismissed.

Background and parties: Arise Networks Ltd was incorporated in 2012 to develop a broadcast business. The company had no turnover and depended on funds from associated Nigerian companies. From September 2014 Nigerian exchange controls substantially restricted transfers, but funds continued intermittently and the company continued trading while incurring mounting losses. The Official Receiver sued under section 6 of the Company Directors Disqualification Act 1986 seeking disqualification of Mr Nduka Obaigbena, the sole director.

Procedural posture: The Deputy Insolvency and Companies Court Judge found the appellant unfit and made a seven-year disqualification order effective 29 April 2021. Permission to appeal was initially refused on the papers by Meade J on 23 June 2021. Permission to appeal was later granted on limited grounds by Fancourt J and the appeal was heard.

Nature of the claim / relief sought: A disqualification order under section 6 of the 1986 Act, based on alleged conduct of causing the company to trade to the detriment of creditors from 31 December 2014 with no reasonable prospect of creditors being paid or of avoiding insolvent liquidation. The Official Receiver's pleaded matters were contained in the Insolvency Service report required by rule 3(3) of the Insolvent Companies (Disqualification of Unfit Directors) Proceedings Rules 1987.

Issues framed by the court:

• Whether the judge below applied an incorrect legal test by failing to find that the director "knew or ought to have known" there was no reasonable prospect of payment (i.e. whether that finding was required as part of the pleaded charge); and
• Whether the seven-year disqualification was excessive, disproportionate or undertaken without proper regard to mitigation.

Court's reasoning on the key issues:

• On the legal test: the court held that the statutory criterion in section 6 is broad and requires an evaluative finding whether the director's proven conduct makes him unfit. The Official Receiver's report set out the matters relied on in para 6 and that sufficed as the pleaded case; paragraph 48 of the report was argumentative and not part of the pleaded matters. The court concluded that established authorities (including Re Bath Glass, Re Sevenoaks, Creegan, Taylor and Re Uno) do not impose a mandatory overlay that a director must have "known or ought to have known" in every insolvent-trading case. Although in many cases culpability will be shown by such knowledge, it is not an obligatory element of every s.6 finding. The judge had expressly found the appellant's belief irrational and unsupported by evidence and that he had gambled with creditors' money; those findings were a sufficient factual basis for the evaluative conclusion of unfitness.
• On the period of disqualification: the court applied the bracket approach in Re Sevenoaks and the broad-brush guidance in Re Westmid. The judge considered aggravating and mitigating factors, including the scale of increased unsecured trade liabilities (circa £2.1m), the longer related-party debts, the absence of revenue, the length of continued trading while insolvent and the judge's adverse findings about the appellant's credibility and approach to creditors. The settlement payment of £700,000 was noted; the judge was entitled to take a broad-brush approach and was not required to set out in detail how each mitigating point altered the period. The court concluded that seven years, while towards the upper end of the middle bracket, was within the judge's discretionary ambit and not an error of principle or manifestly excessive.

Subsidiary findings and wider comments: The court accepted the judge's factual findings that creditors (often engaged as consultants or workers described as 'employees') were repeatedly promised payment which was frequently broken, that the appellant did not deal openly with creditor complaints, and that his optimistic expectation that currency restrictions would ease had no evidential foundation. The court emphasised that absence of dishonesty does not prevent a case from being a middle bracket case when other features show serious misconduct.

The appeal is dismissed. The court held that section 6 of the Company Directors Disqualification Act 1986 requires an evaluative finding whether proven conduct makes a person unfit and does not universally require a separate finding that the director "knew or ought to have known" there was no reasonable prospect of payment. The judge below was entitled to conclude the appellant's irrational optimism and continued trading amounted to gambling with creditors' money and that seven years' disqualification was within the proper exercise of judicial discretion.

Permission to appeal was initially refused on the papers by Meade J on 23 June 2021. Permission to appeal was renewed and granted by Fancourt J on 16 December 2021 on limited grounds. Appeal heard 18 May 2022; judgment given 14 June 2022, neutral citation [2022] EWHC 1399 (Ch).