The Secretary of State for Business and Trade v Aurel Stan

In a directors’ disqualification claim, the court must decide the case on the misconduct properly pleaded and must not determine it on a materially different allegation introduced at trial. Serious misconduct allegations, including dishonesty, fraud, knowing wrongdoing or recklessness, require clear and particularised pleading.

Unfitness under the Company Directors Disqualification Act 1986 is assessed by considering the pleaded conduct cumulatively, including any extenuating circumstances. A material but careless error in a Bounce-Back Loan application may establish unfitness without proof of dishonesty or recklessness. The seriousness and culpability of the conduct determine the disqualification period. A compensation order is discretionary, although causation of identifiable creditor loss must be established.

The Secretary of State sought orders under sections 6 and 15A of the Company Directors Disqualification Act 1986 against Aurel Stan, the sole director of ADS14 Ltd until July 2016 and a director thereafter.

Mr Stan had applied for a £50,000 Bounce-Back Loan in July 2020, stating turnover of £225,000. The company’s relevant turnover was materially lower, so it received approximately £20,000 more than it was entitled to receive. The company later entered creditors’ voluntary liquidation, leaving the loan substantially unpaid.

The pleaded case alleged that Mr Stan caused the company to obtain an excessive loan through overstated turnover. The Secretary of State did not plead dishonesty, fraud, knowing wrongdoing or recklessness, but sought to rely at trial on a knowingly or recklessly false application. The issues were unfitness, the appropriate period of disqualification and compensation for creditor loss.

1. Unpleaded case. The court must determine the issues which the parties have chosen to place before it. It is generally unfair and procedurally impermissible to decide a case on a materially unpleaded issue. A departure may be permitted where justice requires, but the proper course is amendment. The authorities concerning fair notice and the adversarial process supported that conclusion.
2. Particularity. In a disqualification claim, the supporting affidavit performs a pleading function. Where serious misconduct is alleged, it must state that the misconduct is serious and particularise dishonesty, fraud, or the acts and omissions said to constitute other serious misconduct. The guidance in Re Pinemoor Ltd and Secretary of State for Trade and Industry v Swan was applied.
3. Unfitness. Under section 6 of the Company Directors Disqualification Act 1986, the court applied the ordinary statutory test of whether the director’s conduct made him unfit. The analysis involved three stages: whether the conduct amounted to misconduct, whether it justified unfitness, and the appropriate period of disqualification. The conduct was assessed cumulatively, with extenuating circumstances.
4. Mr Stan’s careless use of an impermissible turnover figure caused the company to obtain more Bounce-Back Loan funding than permitted. The error, the signed declarations, the substantial disparity in turnover and the company’s insolvency established unfitness. The absence of pleaded or proved dishonesty, knowing misconduct or recklessness materially reduced culpability.
5. Period. Applying the Re Sevenoaks Stationers (Retail) Ltd brackets, the case fell within the lower bracket. A four-year disqualification was appropriate and proportionate.
6. Compensation. Section 15A creates a distinct discretionary jurisdiction. A finding warranting disqualification will generally provide a starting point for considering creditor loss, but it creates no default entitlement. Causation was established: the inflated turnover caused an excess payment of £19,752. Mr Stan was ordered to pay that sum with interest at 2.5% per annum from 29 November 2022.