The Advocate General For Scotland V. Thomas Reilly+stephen Reilly
| Jurisdiction | Scotland |
| Judge | Lord Bannatyne |
| Neutral Citation | [2011] CSOH 141 |
| Court | Court of Session |
| Published date | 19 August 2011 |
| Year | 2011 |
| Date | 19 August 2011 |
| Docket Number | A564/10 |
| OUTER HOUSE, COURT OF SESSION [2011] CSOH 141 | |
| A564/10 | OPINION OF LORD BANNATYNE in the cause THE ADVOCATE GENERAL FOR SCOTLAND for and on behalf of the Commissioners of Her Majesty's Revenue and Customs Pursuer; against THOMAS REILLY First Defender: and STEPHEN REILLY Second Defender; ________________ |
Pursuer: Artis; Office of the Solicitor to the Advocate General for Scotland
Defender: Party
19 August 2011
Background
Procedural history
[1] By interlocutor dated 11 January 2011 the pursuer obtained decree in absence against the second defender for payment to the pursuer of the various sums concluded for in the summons. Since that date the action has been defended by only the first defender.
[2] On 13 January 2011 the pursuer enrolled a motion in the following terms:
For summary decree in terms of Rule 21.2 against the first defender, repelling his pleas-in-law, in terms of the conclusions of the summons and for expenses. After sundry procedure and the parties being heard in part on the said motion, it was conceded on behalf of the pursuer in relation to certain of the conclusions that it was not appropriate to seek summary decree and that these matters required to be adjudicated upon at proof.
[3] As the matter came before me on 28 July 2011 the pursuer's motion was confined to seeking summary decree in terms of only the fourth to eighth conclusions.
The dispute
[4] In terms of these conclusions the pursuer sought decree against the first defender for certain sums said to be due and resting owing by a company called Aquaseal UK Ltd to the Revenue and Customs all as is more fully detailed in articles of condescendence 13 to 15. The pursuer contended that the first defender's liability for these debts arose by operation of sections 216 and 217 of the Insolvency Act 1986.
[5] Section 216 defines the circumstances in which criminal liability is imposed on directors and others for acting without the leave of the court, in relation to a company known by a prohibited name. Said section is in the following terms:
"(1) This section applies to a person where a company ("the liquidating company") has gone into insolvent liquidation on or after the appointed day and he was a director or shadow director of the company at any time in the period of 12 months ending with the day before it went into liquidation.
(2) For the purposes of this section, a name is a prohibited name in relation to such a person if-
(a) it is a name by which the liquidating company was known at any time in that period of 12 months, or
(b) it is a name which is so similar to a name falling within paragraph (a) as to suggest an association with that company.
(3) Except with leave of the court or in such circumstances as may be prescribed, a person to whom this section applies shall not at any time in the period of 5 years beginning with the day on which the liquidating company went into liquidation-
(a) be a director of any other company that is known by a prohibited name,
or
(b) in any way, whether directly or indirectly, be concerned or take part in the promotion, formation or management of any such company, or
(c) in any way, whether directly or indirectly, be concerned or take part in the carrying on of a business carried on (otherwise than by a company) under a prohibited name.
(4) If a person acts in contravention of this section, he is liable to imprisonment or a fine, or both.
(5) In subsection (3) 'the court' means any court having jurisdiction to wind up companies; and on an application for leave under that subsection, the Secretary of State or the official receiver may appear and call the attention of the court to any matters which seem to him to be relevant.
(6) References in this section, in relation to any time, to a name by which a company is known are to the name of the company at that time or to any name under which the company carries on business at that time.
(7) For the purposes of this section a company goes into insolvent liquidation if it goes into liquidation at a time when its assets are insufficient for the payment of its debts and other liabilities and the expenses of the winding up.
(8) In this section 'company' includes a company which may be wound up under Part V of this Act."
Section 217 makes specified individuals personally liable for the debts of a company following contravention of section 216. Said section is in the following terms:
"(1) A person is personally responsible for all the relevant debts of a company if at any time-
(a) in contravention of section 216, he is involved in the management of the company, or
(b) as a person who is involved in the management of the company, he acts or is willing to act on instructions given (without the leave of the court) by a person whom he knows at that time to be in contravention in relation to the company of section 216.
(2) Where a person is personally responsible under this section for the relevant debts of a company, he is jointly and severally liable in respect of those debts with the company and any other person who, whether under this section or otherwise, is so liable.
(3) For the purposes of this section the relevant debts of a company are -
(a) in relation to a person who is personally responsible under paragraph (a) of subsection (1), such debts and other liabilities of the company as are incurred at a time when that person was involved in the management of the company, and
(b) in relation to a person who is personally responsible under paragraph (b) of that subsection, such debts and other liabilities of the company as are incurred at a time when that person was acting or was willing to act on instructions given as mentioned in that paragraph.
(4) For the purposes of this section, a person is involved in the management of a company if he is a director of the company or if he is concerned, whether directly or indirectly, or takes part, in the management of the company.
(5) For the purposes of this section a person who, as a person involved in the management of a company, has at any time acted on instructions given (without the leave of the court) by a person whom he knew at that time to be in contravention in relation to the company of section 216 is presumed, unless the contrary is shown, to have been willing at any time thereafter to act on any instructions given by that person.
(6) In this section 'company' includes a company which may be wound up under Part V."
Submissions for the pursuer
[6] For the purposes of sections 216 and 217 of the Act Aqua Seal IT Limited was the liquidating company.
[7] It was not disputed that the first defender was a director of that company from 17 December 2002 to 20 February 2003 (see: Answer 2 at page 8 of the Closed Record).
[8] On 29 May 2003 an interlocutor was pronounced at Glasgow Sheriff Court ordering the winding up of that company in pursuance of the Insolvency Act 1986 on the basis that the company was unable to pay its debts (6/45 of process). Accordingly the said liquidation fulfilled the definition of an insolvent liquidation in terms of section 216(7) of the Act.
[9] Resulting from the above, the first defender was a director of the liquidating company within 12 months of the day before the said company went into liquidation and was thus a person who fell within the terms of section 216(1) of the Act.
[10] It was thus submitted that if without the leave of the court the first defender was involved in the management of a company with a prohibited name as defined by section 216(2) of the Act he was personally responsible for all relevant debts of the company with the prohibited name (section 217(1)(a)). Being involved in the management is defined in terms of section 217(4) and includes being a director of the company with the prohibited name.
[11] It was not disputed that the first defender thereafter within five years (see section 216 subsection (3) of the Act) without the leave of the court became a director of Aquaseal UK Ltd which traded under the name Aquaseal (see: Answer 4 at page 10 of the Closed Record).
[12] Counsel submitted that the name Aquaseal UK Ltd was almost identical to Aqua Seal IT Ltd and for that reason was a prohibited name in terms of section 216(2)(b) of the Act. In further support of the contention that it was a prohibited name he pointed to the following: the two companies carried on similar trades, namely the supply and installing of roof coating, wall covering and flat roofing products and associated work and that they both traded out of premises in Glasgow.
[13] Counsel referred me to a single authority in which sections 216 and 217 had been considered: Ricketts v Ad Valorem Factors Ltd 2003 EWCA Civ 1706.
[14] Counsel accepted that the facts of the case were very different to those in the instant case. However, he submitted that of relevance were the observations of Mummery LJ as to the proper interpretation of these sections. At paragraphs 18 to 20 he says:
"18. I appreciate the relevance of a purposive interpretation, but the legal position is that, if the name of Air Equipment is a prohibited name within the natural and ordinary meaning of the language of s.216(2), this case is caught by the restrictions, even if this is not a 'phoenix syndrome' case and even if the sanctions of criminal liability seem to be harsh. In Thorne v Silverleaf [1994] BCC 109 at p.113G Peter Gibson LJ said -
'But it is clear that the sections as enacted apply to a wider set of circumstances than the case of a person attempting to exploit the goodwill of a previous insolvent company. However in the absence of an application under s.216(3) for leave, the court is left with no discretion on the application of the sections, and so long as the statutory provisions remain unaltered a creditor of a company is entitled to take advantage of them, if they can be shown to be applicable.'
19. A director is able to protect himself from the risk of committing criminal offences and...
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