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Directors’ Disqualification Proceedings: Bradley v HM Secretary of State for Business, Innovation and Skills

Document Cited authorities 3 Cited in Related
Vincent
Pages222-227
Date01 May 2017
Published date01 May 2017
AuthorJoseph Liptrap
DOI10.3366/elr.2017.0412
<p>The Inner House of the Court of Session in <italic>Bradley v HM Secretary of State for Business, Innovation and Skills</italic> has addressed an appeal about whether a company director who allegedly operated a policy of discrimination against a company creditor ought to be disqualified in terms of <span class="vid_spn">section 6 of the Company Directors Disqualification Act 1986</span>.<xref ref-type="fn" rid="fn1"><sup>1</sup> </xref></p> THE FACTS

P was the director of Barhaul (2003) Limited (“the company”). The company ceased trading on 30 June 2010. The company's balance sheet reflected debts of £109,881 to trade creditors, and £134,468.68 for PAYE and NIC and £147,567 for VAT to Her Majesty's Revenue and Customs (HMRC).2 The undertaking of the company was transferred to a different company of which P was also a director – Barhaul Aberfeldy Limited (“BAL”). The assets which were transferred to BAL included book debts of £378,986. BAL collected on some of the book debts, but only paid the company's trade creditors.3 BAL did not make any payments in relation to the sums owed to HMRC. HMRC lodged a summary application at Perth Sheriff Court and sought to disqualify P as a director under section 6 of the Company Directors Disqualification Act 1986 (“the Act”).4 HMRC argued that P was unfit to be a company director since he failed in his duties when, through the transfer of the assets of the company to BAL, he caused “book debts to be realised and paid to trade creditors, all to the detriment of HMRC, to which he chose to make no payment at all.”5 Conversely, P argued that HMRC was never paid because (i) the sums sought by HMRC were excessively high; and (ii) HMRC refused to accommodate a compromise agreement on payment.6 The sheriff was satisfied that P's conduct – a deliberate policy of discrimination against HMRC in favour of the company's trade creditors – made him unfit to be a company director for three years.7 P appealed to the sheriff principal who upheld the disqualification order.8 P appealed again to the Inner House.

 THE DECISION

The issue before the Inner House was whether the sheriff erred in making the assessment that P was unfit to be a company director.9 It was held that the sheriff was entitled to make the assessment that P was unfit to manage a company. The court noted that, as a matter of policy, section 6 of the Act exists to protect company creditors from monetary loss “through the insolvency of companies whose directors are unfit to be involved in their management”.10 Furthermore, section 9 instructs a court to have particular regard for the matters listed in Schedule 1 to the Act, which, although not a closed-list, functions to aid a court in the determination of whether a person's conduct in the capacity of a director makes him unfit to be concerned in the management of a company.11 The sheriff, however, did not rely on the matters listed in Schedule 1 to the Act when she came to her decision; facts other than those listed in Schedule 1 to the Act were demonstrative of P's unfitness.12

Specifically, two things were demonstrative of P's unfitness which were not listed as such in Schedule 1 to the Act. First, the Inner House rejected P's submission that the sheriff erred when she characterised as irrelevant P's argument that the sums claimed by HMRC were excessive.13 This is because P accepted that a valid debt was owed, and he had not relied upon the appropriate statutory appeal mechanism to challenge the extent of HMRC's tabulation. P simply elected not to discharge any of the debt, and, therefore, an argument over the extent of the debt did not form the basis of the sheriff's decision...

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