Continental Assurance Company of London Plc and Others (Applicant/Respondent) v David Jonathan Burrows and Others (Respondents/Applicants)
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE HOBHOUSE,LORD JUSTICE MORRITT |
| Judgment Date | 04 July 1996 |
| Judgment citation (vLex) | [1996] EWCA Civ J0704-4 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | FC2 96/6450/B |
| Date | 04 July 1996 |
[1996] EWCA Civ J0704-4
IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE CHANCERY DIVISION (Companies Court)
(MR JUSTICE CHADWICK)
Royal Courts of Justice
Strand
London WC2
Lord Justice Hobhouse
Lord Justice Morritt
FC2 96/6450/B
and
MISS S PREVEZER (Instructed by Izod Evans, London W1X OBB) appeared on behalf of the Applicants.
MR D RICHARDS QC (Instructed by The Treasury Solicitor, London, SW1H 9JS) appeared on behalf of the Respondent.
This is an application for a stay of a three year disqualification order that has been made against the applicant, Mr Michael Gordon Burt, under Section 6 of the Company Directors Disqualification Act 1986. The principles which this court has to apply in considering any such application are those set out in the case of Secretary of State and Industry v Bannister [1996] 1 WLR 118 to which I will have to return.
The order for disqualification was made by Chadwick J following a hearing. His decisions were also concerned with other directors. They were split between the various judgments when he considered whether there had been any misfeasance on the part of the directors and what orders he should make. He also considered the question of suspension of the order, but ruled against it.
The company concerned is an insurance company, the Continental Assurance Company of London Plc ("CAL"). It went into creditors' voluntary liquidation on 27 March 1992. There was a very substantial deficiency as regards creditors in excess of £8m. It therefore raised questions under the Act as to whether or not disqualification orders should be made.
The company was a subsidiary of another company, Yorkdale, which effectively had no assets other than its shareholding in CAL. Yorkdale had acquired its shareholding in CAL, and later increased it, by means of obtaining a loan from the Scandinavian Bank Group Limited ("Scanbank") using a facility letter given by Scanbank in June 1985. The facility letter obliged Yorkdale in particular to make periodic payments of substantial quantities of interest to Scanbank.
Yorkdale was able to finance those repayments to a certain extent by dividends which it received from CAL and from management fees which it was paid. But it appears that these sources did not sufficiently enable Yorkdale to meet its obligations and so they were additionally financed by loans made by CAL to Yorkdale. Further, there came a stage whereby, for reasons related to a possible sale of one or other of the companies, it was thought advantageous that no further dividends should be declared by CAL and that the payments to the Bank should be entirely financed by the loans from CAL. This apparently improved the appearance of the companies' balance sheets.
Over the years, between 1985 and 1990, a substantial indebtedness accumulated in this way. By the time of the statement of affairs in February 1992 CAL were shown as a creditor of Yorkdale of over £2m. There came a time in 1991 when it was appreciated (and counsel's advice was taken) that there were breaches of Section 151 of the Companies Act 1985. It is accepted that such breaches were obvious once the existence of the transactions was appreciated.
Mr Burt, the director in question who is making the application to the court, had been with Scanbank. Through his relationship with Scanbank, and Scanbank granting a facility letter to Yorkdale, he became involved with Yorkdale and CAL. He became a director of CAL in June 1988 and continued until October 1991. He was a non-executive director of Yorkdale, and at sometime its Chairman, between October 1985 and October 1991 when he resigned from both companies.
It will be appreciated that his responsibilities were in certain respects non-executive. The case that was made against him was originally that he was a knowing party to breaches of Section 151. The judge did not accept that case and he accepted that Mr Burt had acted honestly in what he had done. The judge's view was that what was going on was there for anybody to see. In the judge's words "it was plain to see". He accepted that Mr Burt had not appreciated that it was going on, surprising though that may be, and he came to a conclusion that there must have been incompetence and neglect on the part of Mr Burt. I quote from the judgment at page 14:
"I am forced, therefore, to the view that this is a case in which Mr Burt, who was appointed at the request or on behalf of the bank as a director of the company to which it was lending (Yorkdale) and its wholly owned subsidiary (CAL), simply failed to appreciate what the responsibilities of a director were in relation to the understanding of a company's financial affairs.
Accordingly I do not find that Mr Burt knew what was going on. I do find, however, that any competent director in his position would have known what was going on; and that his failure to know displays serious incompetence or neglect in relation to the affairs of CAL."
He then went on to consider to what conclusion he should come in view of this finding of serious incompetence and neglect. In due course he made a disqualification order and fixed the period of that disqualification at one year above the minimum, ie three years. In accordance with the statute and the practice, he...
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