Although the judgment in The Secretary of State for Business, Innovation and Skills v Akbar & Ors [2017] EWHC 2856 is concerned with a fairly routine analysis of whether the conduct of various directors was such as to make them unfit to be concerned in the management of a company under s 6 CDDA 1986 and as such, is not particularly of note, the judge (HH Judge Davis-White QC) commented on the liability of disinterested and uninvolved non-executive directors and on amendments made to CDDA 1986 by SBEEA 2015.
The judge concluded that the conduct of all 4 directors necessitated disqualification orders of varying length. In relation to two of the directors (who were the wives of the two executive directors), the case is a reminder that a lack of involvement in the business of a company is not a justification for failing to comply with directors’ duties. It was acknowledged that the wives of the two executive directors were never involved with the business or management of the relevant companies and indeed, had no understanding of the existence or requirements of directors’ duties. Although describing their conduct as “abysmal” and “a complete dereliction in the performance and understanding of their duties,” the judge stated that they were not disqualified because of that in itself but because of the link between that conduct and its consequence (that a payment out was made under an employee benefit trust which was not in the best interests of the company and should never have been made) (at [184]). He strongly rejected the argument that as they were not in a position to assert any influence over the company, their conduct should not be considered unfit. The comment of Chadwick J (as he then was) in Secretary of State v Gash [1997] [1 BCLC 341] was cited in relation to the point that “staying as [a] director to do nothing (other than draw fees and preserve status) would not be a circumstance in which an unfit finding might be avoided.” (at [185]).
S 6 CDDA 1986 provides that the court shall make a disqualification order against a person if it considers that during a time when such person was a director of a company which has become insolvent (whether while he was a director or subsequently), his conduct was such as to make him unfit to be concerned with management of a company. These provisions are more fully explained in Mandatory disqualification orders under CDDA 1986.
The SBEEA 2015 amendments, made on 1 October 2015, include a new s 12C which, among other things, requires the court, in deciding whether the relevant director’s conduct is such as to render him unfit to be concerned in company management and if so, the period of disqualification, to consider the matters set out in the replacement Schedule 1 to CDDA 1986 (inserted by SBEEA 2015 also on 1 October 2015).
On the facts, the new s 12C and Schedule 1 did not apply as the relevant conduct analysed by the court occurred prior to 1 October 2015 (at [98]). However, being clear to limit his conclusion to the circumstances before him, HH Judge Davis-White QC commented that “[i]n my judgment, and at least as regards these proceedings, s 106 of the 2015 Act makes little real difference to the position applying under the preceding provisions [being the previous s 9 and Schedule 1 CDDA 1986]. Section 9 only required the former Schedule 1 to be taken into account when determining whether particular conduct makes the director unfit to be concerned in management. However, seriousness of misconduct goes not only as to whether it is serious enough to make the director “unfit” but, if it does, also as to how serious is the “unfit” conduct which will be relevant to setting the period of disqualification. Thus, old Schedule 1 would have been a factor in determining any applicable period of disqualification. Further, for present purposes, the new Schedule 1 is little different in effect to the old Schedule 1.” (at [98]).
He also commented that even if s 9 (and now s 12C) and Schedule 1 did not exist, the matters set out in Schedule 1 (both pre- and post-SBEEA 2015) would be highly relevant for the court to consider where determining if conduct is such as to warrant a disqualification order and if so, for how long. While clearly limiting his conclusion to the facts and being obiter dicta only, the judge’s comments are of note in considering post-1 October 2015 conduct (coming from a judge who is the co-author of a leading text on the subject (Directors' Disqualification and Insolvency Restrictions, co-authored with Adrian Walters)
This piece was first published in FromCounsel's Corporate Briefing on 1 February 2018.