IN THE MATTER OF PURE ZANZIBAR LIMITED

A sole director may be found unfit where, through knowledge, positive instructions or inaction in the face of duty, he causes or allows a company to commit continuing material breaches of a highly regulated statutory regime.

Honest belief, lack of personal gain and reliance on employees do not excuse conduct which objectively demonstrates marked recklessness and incompetence. A director of a regulated company must understand the applicable requirements, obtain professional advice where necessary, and take reasonable steps to secure compliance.

The appropriate disqualification period depends on the gravity of the conduct, the relevant statutory guidance and mitigation. A seven-year period was appropriate for serious but non-fraudulent misconduct.

The Secretary of State applied under section 6 of the Company Directors Disqualification Act 1986 to disqualify the sole director of Pure Zanzibar Limited. The company operated as a travel agency and its ATOL expired on 31 March 2017.

After expiry, the company continued to accept bookings and payments involving flight accommodation, displayed ATOL references, failed to provide required refunds and misled consumers as to statutory protection. The central issues were whether the defendant had caused or allowed those breaches, whether his conduct made him unfit to be concerned in company management, and the appropriate period of disqualification.

1. The court found that the defendant was responsible for continuing breaches of the 2012 Regulations. He caused breaches by instructing staff that the company could continue to accept holidays involving flights after the ATOL expired. He allowed further breaches by failing to instruct staff to stop, monitor bookings, cancel unlawful bookings or refund customers.

2. The defendant also caused or allowed continuing breaches by failing to remove ATOL references from websites, staff email signatures and booking forms. The court rejected the contention that the breaches were merely employee errors or that the defendant could await renewal of the ATOL. The statutory restrictions applied immediately on expiry.

3. The court applied the guidance in Kappler v Secretary of State for Trade and Industry [2006] EWHC 3694 (Ch) and Re X E Solutions Ltd: The Secretary of State for Business, Energy and Industrial Strategy v Selby & Ors [2021] EWHC 3261 (Ch). Knowledge of a state of affairs, coupled with failure to act, may amount to causing or allowing the resulting contraventions.

4. The statutory conditions in section 6 of the Company Directors Disqualification Act 1986 were satisfied. Applying the principles summarised in Secretary of State for Business Innovation and Skills v Khan [2017] EWHC 288 (Ch), the defendant’s conduct fell below the standards of probity and competence required of a fit director. His honest intentions and absence of personal gain did not prevent an objective finding of unfitness.

5. The conduct demonstrated recklessness and incompetence to a marked degree. It exposed consumers to substantial financial risk, misled them as to ATOL protection and exposed the company to criminal sanctions. The defendant was therefore unfit to be concerned in the management of a company.

6. Applying Re Sevenoaks Stationers (Retail) Ltd 1991 Ch 164 and Re Westmid Packing Service Ltd, Secretary of State for Trade and Industry v Griffiths [1998] BCC 836, the appropriate period before mitigation was eight years. The defendant’s honesty, lack of personal gain, personal circumstances and other mitigating matters reduced the period to seven years.

7. The defendant was disqualified from acting as a director for seven years. Costs and consequential matters were reserved for further submissions.