Law report: Proceedings can be continued despite undertakings

Law REPORT: 21 November 1997

The Secretary of State for Trade and Industry was entitled to continue proceedings for the disqualification of a company director on the grounds of his unfitness to act as a director, notwithstanding that the director had offered undertakings which would have substantially the same practical effect as a disqualification order.

Secretary of State for Trade and Industry v Davies and others; Court of Appeal (Lord Woolf, Master of the Rolls, Lord Justice Millett and Lord Justice Mummery) 19 November 1997

The Court of Appeal dismissed the appeal of Vernon Davies against the dismissal of his applications for a stay of proceedings against him under sections 6 and 8 of the Company Directors Disqualification Act 1986, and for leave to move for judicial review of the decision of the Secretary of State for Trade and Industry to continue the proceedings and to refuse to consent to the stays.

Following a report made by inspectors under section 437 of the Companies Act 1985 in respect of Atlantic Computers plc and Atlantic Computer Systems plc, companies of which the appellant was a director, the Secretary of State for Trade and Industry commenced disqualification proceedings against the appellant and others under section 8 of the Company Directors Disqualification Act 1986. Disqualification proceedings were also commenced against the appellant and others under section 6 of the 1986 Act in respect of the Blackspur group of companies, which had gone into administrative receivership, and of which the appellant was also a director.

Michael Briggs QC and Paul Girolami (Peters & Peters) for the appellant; A.W.H. Charles, Mark Cunningham and Richard Gillis (Treasury Solicitor) for the Secretary of State.

Lord Justice Mummery, delivering the reserved judgment of the court, said that the appellant had applied for a stay of both sets of disqualification proceedings on the grounds that it would be oppressive to him, prejudicial to the interests of the public, and a misuse of the procedure of the court for the Secretary of State to pursue them in the face of undertakings offered by him.

The evidence served by the Secretary of State in the proceedings contained allegations of serious misconduct, including dishonesty, which the appellant strongly disputed. He contended that the proceedings would impose a "prodigious burden" on him, estimating that his cost of defending them would be in the region of pounds 900,000.

The undertakings, which were of permanent duration, included undertakings not to act as a company director, liquidator, administrator, receiver or manager, nor in any way to be concerned or to take part in the promotion, formation or management of a company, and an undertaking never to apply to vary or be discharged from any of the earlier undertakings.

It had not, however, been unfair, oppressive or a misuse of the process of the court to institute the proceedings against the appellant, as it had appeared to the Secretary of State at the time to be expedient in the public interest to do so, and, notwithstanding the undertakings offered by the appellant, it appeared to Secretary of State at the present time to be expedient in the public interest to continue the proceedings.

That was because the undertakings, offered without an admission of the facts, were not equivalent to a disqualification order made by the court. Whilst it was true that the object of the 1986 Act was the protection of the public, the means by which that object was to be achieved was embodied in a carefully structured, detailed statutory scheme which did not provide for the disposal of the proceedings on the basis of non-admissions undertakings.

On the contrary, the regulatory scheme operated by the Secretary of State and adjudicated upon by the court presupposed the making of an order on a factual basis, sufficient to justify the judicial finding that the respondent was unfit to be the director of a company. The factual basis for making disqualification orders, predicated on findings or admissions of unfitness, had a real deterrent effect, and afforded protection to the public against the menace of persons unfit to enjoy the privileges of limited liability.

In those circumstances the Secretary of State was entitled to take the position that it appeared to her to be expedient in the public interest to prosecute the proceedings against the appellant, and the appeals would be dismissed.

- Kate O'Hanlon, Barrister