The Secretary of State for Business and Trade v Sehar Pal (Re 7SPEED Ltd)

Knowingly or recklessly overstating turnover in a Bounce Back Loan application, combined with using the loan for purposes unrelated to the company’s business or economic benefit, may amount to misconduct and demonstrate unfitness under the Company Directors Disqualification Act 1986. The court must assess unfitness separately from the appropriate period of disqualification. Post-event attempts to repay may mitigate the period, but do not negate unfitness. A compensation order is a discretionary, creditor-focused remedy. Mere impecuniosity will rarely justify refusing one where the misconduct caused identifiable loss and there has been no recompense.

The Secretary of State sought disqualification and compensation orders against the sole director of 7Speed Ltd under sections 6 and 15A of the Company Directors Disqualification Act 1986. The allegations were that she overstated the company’s 2019 turnover as £220,000, obtaining the maximum £50,000 Bounce Back Loan, and then used £49,997 for purposes that did not provide economic benefit to the company.

The defendant disputed liability, relying principally on the company’s former name, alleged trading turnover, and purported business purposes for the payments. The court considered whether the conduct amounted to misconduct, established unfitness, justified the proposed period of disqualification, and caused compensable loss to Santander.

1. Liability. The defendant had applied for the loan and entered into the facility agreement on the company’s behalf. Use of the company’s former name did not alter that conclusion because the company number was correct and a change of name did not affect the company’s rights or obligations under section 81 of the Companies Act 2006.
2. The company’s actual 2019 turnover was nil or close to zero. The defendant knowingly, or at least recklessly, declared turnover of £220,000 and obtained a loan to which the company was not entitled. She then used £49,997 for purposes other than the company’s business and not for its economic benefit. Applying the three-stage approach in Re Structural Concrete Ltd [2001] BCC 578, the conduct amounted to misconduct and justified a finding of unfitness. It fell below the standards of probity and competence and abused the privileges of limited liability.
3. Under section 6 of the Company Directors Disqualification Act 1986, disqualification was mandatory once unfitness was established. The court applied the three-bracket guidance in In re Sevenoaks Stationers (Retail) Ltd [1991] Ch. 164. The serious and substantial inflation of turnover, the misuse of the loan, and the defendant’s sole-director role warranted 11 years. An earlier attempt to repay Santander was mitigating, but late conditional offers to repay could not be used to bargain away a lengthy disqualification.
4. The threshold requirements in section 15A(3) were met. The misconduct directly caused Santander loss equal to the unpaid loan. The compensation jurisdiction is discretionary and must serve its creditor-compensation purpose. Mere impecuniosity did not justify refusal, particularly where there was no evidence of it and no other recompense. A compensation order was therefore made for £50,000 plus interest at 2.5 per cent from 21 June 2021, having regard to section 15B(3).