The Secretary of State for Business and Trade v Helen Anderson

For the purposes of director disqualification, conduct must be assessed in its factual context, including during the Covid-19 pandemic. Pandemic-related commercial difficulty does not excuse conduct falling below the standards of probity and competence required of fit directors.

Causing an insolvent company to make gratuitous or unexplained payments to a related company, thereby depleting assets available to unsecured creditors, may amount to misconduct and unfitness. The same conclusion may arise where government-backed loan funds are used outside their contractual purpose and without economic benefit to the company.

The Secretary of State applied under section 6 of the Company Directors Disqualification Act 1986 for the disqualification of Helen Anderson, a director of Paranoid Expedition Engineering Limited. The Company entered administration on 13 January 2021 with a substantial deficiency to creditors.

The application concerned payments totalling £137,810 made by the Company to Paranoid Engineering Limited, another company of which Ms Anderson was a director and shareholder. The issues were whether the payments were gratuitous or otherwise detrimental to creditors, whether the Company was insolvent when they were made, and whether government-backed loan funds had been used in breach of their agreements.

1. Disqualification. A seven-year disqualification order was made under section 6 of the Company Directors Disqualification Act 1986.
2. Applicable approach. The court applied the three-stage process identified in Re Structural Concrete Ltd: whether the conduct amounted to misconduct, whether it justified a finding of unfitness, and what period of disqualification should follow. Conduct was assessed cumulatively, with extenuating circumstances considered, applying Re Grayan Building Services Ltd.
3. Payments and creditor detriment. The payments were gratuitous, unsupported by reliable evidence of an intercompany debt, and made without benefit to the Company. They depleted assets available to unsecured creditors while the Company was cash-flow insolvent and Ms Anderson knew, or must have known, of that insolvency. Applying Re Deaduck Ltd, the payments were detrimental to creditors. Even repayment of a genuine debt would not necessarily have avoided that conclusion where there was no established reason to prefer the related company over other creditors.
4. Pandemic legislation. Section 12 of the Corporate Insolvency and Governance Act 2020 concerned the assessment of contribution liability for wrongful trading under sections 214 and 246ZB of the Insolvency Act 1986. It did not apply to proceedings under the CDDA, directors’ duties generally, or conduct involving detriment to creditors or breach of contract. The pandemic remained relevant to the contextual assessment of conduct, but did not excuse failure to meet the required standards.
5. Loan agreements. Funds borrowed under the Bounce Back Loan and CBIL agreements were used neither as working capital nor to provide economic benefit to the Company. Their use for the payments therefore breached the agreements and constituted misconduct and unfitness, consistently with Secretary of State for Business, Energy and Industrial Strategy v DEEA Construct Ltd.
6. Period. Applying Re Sevenoaks Stationers (Retail) Ltd, the case fell within the middle bracket of seriousness. Misuse of government-backed funds and deliberate depletion of the Company’s assets justified seven years.

First-instance proceedings. No prior appellate decision is stated in the judgment.