The Secretary of State for Business and Trade v George Edward Goring & Anor

The Secretary of State sought disqualification orders under section 6 of the Company Directors’ Disqualification Act 1986 in respect of the directors of Active Ticketing Limited, arising from a €35m bond issue and allegations that the bonds were marketed as "fully secured" by a Sberbank bank guarantee which did not exist and that investor funds were not used for the purposes represented. The court applied the statutory test in s.6 CDDA and the established authorities on unfitness, including the need for a high threshold where incompetence rather than dishonesty is alleged.

The judge found, on the balance of probabilities, that it was more likely than not that a Sberbank guarantee had been obtained and that the defendants reasonably relied on professional advisers (notably Trend Advisors and Lochwood) and the contractual escrow arrangements. Alternatively, even if an executed guarantee had not been received by the Company, the directors had carried out adequate checks measured by reasonable reliance on professional advice. The court also rejected the narrower allegation that monies paid out were for purposes other than those stated in the marketing material, finding payments were legitimate reimbursements and operational/marketing expenditures within the contemplated purposes.

Background and parties:

• The Company, Active Ticketing Limited, sought to raise short-term finance by issuing bonds in late 2016 to fund preparation for an intended Initial Public Offering. The Claimant was the Secretary of State for Business and Trade; the defendants were Mr George Edward Goring and Mr Lee Jon Booth, directors of the Company.
• The Company was wound up in June 2018 and entered liquidation. The Secretary of State issued proceedings on 14 June 2021 seeking disqualification orders under s.6 of the Company Directors’ Disqualification Act 1986.

Nature of the application: The claimant sought disqualification on public interest grounds, alleging (i) the bonds were misrepresented as "fully secured" by a Sberbank guarantee when no such guarantee existed and that the directors failed to carry out adequate checks, and (ii) funds raised were diverted or spent for reasons other than the purposes stated in the marketing material.

Issues framed:

• Whether a genuine Sberbank bank guarantee existed in respect of the bond issue.
• Whether the directors failed to carry out adequate checks to confirm the guarantee and thus were unfit to be concerned in the management of a company.
• Whether amounts paid out (including payments to the defendants and intermediaries) were for purposes inconsistent with the marketing representations.
• Application of the legal standard for unfitness under s.6 CDDA and relevant authorities dealing with competence, reliance on professional advice and the standard of proof required where incompetence (rather than dishonesty) is alleged.

Court’s reasoning and findings:

• The judge reviewed documentary and oral evidence, including contemporaneous communications, the alleged guarantee and certificate, escrow documents, correspondence from Trend Advisors, and an express denial from Sberbank in 2018 to the Official Receiver.
• Weighing the evidence, the judge concluded it was more likely than not that a Sberbank guarantee had been procured and that the defendants attended Belgrade and signed documentation. Findings supporting that conclusion included contemporaneous documents from Trend Advisors, translations and sealed translated documents presented to the court, payment to Trend Advisors and escrow arrangements, board minutes, and the conduct of advisers and solicitors who accepted the documentation at the time.
• Even measured on the alternative hypothesis that no executed guarantee was ultimately held by the Company, the court found the directors had acted reasonably in relying on professional advisers and escrow arrangements and had carried out adequate checks in the commercial context; reliance on Trend Advisors and other advisers was not unreasonable.
• Regarding expenditure, the court found the sums paid to the defendants were largely reimbursements for expenses and that significant payments to marketing and intermediaries fell within the marketing representations about use of proceeds; the Secretary of State had not demonstrated that the expenditure was outside the purposes stated.
• The judge applied the established principle that ordinary commercial misjudgement is not sufficient to demonstrate unfitness and that the Secretary of State bears a heavy burden when alleging incompetence. Taking the facts cumulatively, the court concluded the conduct did not fall below the standards required to find unfitness.

Relief sought and disposition: The Secretary of State’s application for disqualification was dismissed.

The court noted the seriousness of disqualification orders and the high evidential threshold where incompetence alone is alleged.

The court dismissed the Secretary of State's application for disqualification of Mr Goring and Mr Booth. The judge held that, on the balance of probabilities, it was more likely than not that a Sberbank guarantee had been obtained and, in any event, the defendants had carried out adequate checks by reasonably relying on professional advisers and contractual escrow arrangements. The court also found that payments and expenditures were legitimate and within the purposes set out in the marketing material; accordingly, the conduct did not make the defendants unfit under s.6 CDDA 1986.