Re Pantmaenog Timber Company Ltd
| Jurisdiction | England & Wales |
| Judge | CHADWICK LJ,LORD JUSTICE KENNEDY |
| Judgment Date | 25 July 2001 |
| Neutral Citation | [2001] EWCA Civ 1227 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: 2000/3575/3576/3577 |
| Date | 25 July 2001 |
[2001] EWCA Civ 1227
IN THE SUPREME COURT OF JUDICATURE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE CHANCERY DIVISION
HIS HONOUR JUDGE WEEKS QC
(sitting as a Deputy Judge)
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Kennedy and
Lord Justice Chadwick
Case No: 2000/3575/3576/3577
Mr Jonathan Crow & Miss Bridget Lucas (instructed by Messrs Osborne Clarke, Bristol for the Appellant)
Mr Stephen Davies QC & Mr Hugh Sims (instructed by Messrs Beachcroft Wansbrough, London for the Respondents)
These are appeals from orders made on 14 November 2000 by His Honour Judge Weeks QC, sitting as a Deputy Judge of the High Court in the Chancery Division, in proceedings in the liquidation of Pantmaenog Timber Company Limited ("the company"). In making those orders the judge allowed appeals from, and set aside, orders made on 2 October 2000 by District Judge Frenkel on applications made by the official receiver under section 236 of the Insolvency Act 1986 against two firms of solicitors and a firm of accountants. Those firms have taken no part in the proceedings and do not appear on this appeal. The effective respondent to the appeal is Mr Andrew Hay, a former director of the company against whom the official receiver has brought proceedings in which he seeks a disqualification order under section 6 of the Company Directors Disqualification Act 1986.
The appeals fall within section 55(1) of the Access to Justice Act 1999. They are brought with the permission of this Court (Lord Justice Aldous) granted on 11 January 2001. Permission was granted on the basis that the appeals raise a point of some general importance in relation to the powers of the official receiver; namely, whether, at a time when the official receiver is pursuing disqualification proceedings against a former director, the court has jurisdiction to make an order, on an application made by the official receiver under section 236 of the Insolvency Act 1986, requiring third parties to disclose documents and provide information to him in circumstances where the sole purpose of the application is to obtain evidence for use in the disqualification proceedings.
The underlying facts
The company was incorporated under the Companies Act 1985 with the object of purchasing Pantmaenog Forest in the Pembrokeshire National Park from the Hay family trust. Mr Andrew Hay was one of the first directors of the company. The purchase was completed on 25 March 1995 by the issue to the Hay trustees of preference shares in the company. The company commenced trading shortly thereafter. It engaged Tilhill Economic Forestry Limited to provide a forestry management service.
On 16 May 1996 information was laid before the magistrates in Haverfordwest alleging that the company and Mr Hay had permitted the felling of trees in excess of the number allowed by the felling licence. Shortly thereafter, on 30 May 1996, Tilhill issued proceedings against the company in respect of unpaid fees. The company responded with a counterclaim alleging that Tilhill had failed to comply with instructions to obtain an adequate felling licence. On 29 April 1997 those proceedings were compromised on terms that Tilhill paid the sum of £6,500 to the company. In the meantime the company and Mr Hay had been convicted in the magistrates' court. Mr Hay's appeal to the Crown Court was dismissed on 29 November 1997. On 8 December 1997 he resigned as a director of the company. The company's appeal to the High Court, by way of case stated, was dismissed by consent on 28 January 1998. The company remained liable to pay £11,500 or thereabouts in respect of the fine and costs imposed by the magistrates.
The company had ceased trading on 25 September 1997. On 16 April 1998 it sold its business to a new company, Pantmaenog Limited, of which Mr Hay and his father, Mr Peter Hay, were directors. The purchase price, some £912,000, seems to have been applied in the redemption for cash of the preference shares which had been issued to the Hay trustees in 1995.
On 17 June 1999 an order was made in the Bristol County Court for the winding-up of the company. On the making of that order the official receiver became liquidator of the company by virtue of his office – see section 136(2) of the Insolvency Act 198On 30 November 1999, the registrar of companies, who appears to have been unaware that a winding-up order had been made, caused the company's name to be struck off the register under section 652 of the Companies Act 1985. Upon publication in the Gazette that that had been done, the company was dissolved – see section 652(5) of that Act.
The Disqualification Act proceedings
Section 6(1) of the Company Directors Disqualification Act 1986 requires the court, on an application under that section, to make a disqualification order against a director or former director of a company which has become insolvent if satisfied that his conduct as a director of that company makes him unfit to be concerned in the management of a company. A disqualification order, in that context, is defined by section 1(1) of that Act. Section 7(3) of the Disqualification Act requires the official receiver (in a case where the company is being wound up by the court in England and Wales), if it appears to him that the conditions mentioned in section 6(1) are satisfied as respects a person who is or has been a director of that company, to report that matter to the Secretary of State. It is for the Secretary of State to decide whether it is expedient in the public interest that a disqualification order under section 6 of the Act should be made against a person who is the subject of a report made under section 7(3) – see section 7(1) of the Act. But, where the Secretary of State is of the view that a disqualification order should be made, an application for such an order may be made, if the Secretary of State so directs and where the company is being wound up by the court in England and Wales, by the official receiver – see paragraph (b) of section 7(1).
An application for a disqualification order under section 6 of the Disqualification Act against Mr Hay was made by proceedings commenced in the Bristol County Court on 29 February 2000. The application was made by the official receiver, purporting to act on the direction of the Secretary of State under section 7(1)(b) of that Act. The application, when made, was irregular in that – unknown to the official receiver and, no doubt, to the Secretary of State – the company had been dissolved some three months earlier. The effect of dissolution was that, at the date when the application for a disqualification order was made, the company was, strictly, no longer being wound up by the court – so that section 7(1)(b) had no application. In the circumstances as they were at the time, the application for a disqualification order should have been made by the Secretary of State, acting under section 7(1)(a). But the proceedings, although irregular, were not fatally flawed. The normal course, upon the official receiver and the Secretary of State becoming aware of the dissolution, would have been to transfer the proceedings from the County Court to the High Court and to substitute the Secretary of State as applicant in the place of the official receiver – see In re NP Engineering and Security Products Limited [1998] 1 BCLC 20 An application for transfer and substitution was, in fact, made jointly by the official receiver and the Secretary of State in the present case, on 4 September 2000; but, in circumstances which I shall describe, it was not pursued.
Proceedings under the Disqualification Act are subject to the Insolvent Companies (Disqualification of Unfit Directors) Proceedings Rules 1987 (SI 1987/2023). Rule 3(1) of those rules requires that, at the time when the proceedings are issued, there must be filed in court evidence in support of the application for a disqualification order. Where the applicant is the official receiver, that evidence is in the form of a written report "which shall be prima facie evidence of any matter contained in it" – see rule 3(2). Rule 3(3) requires that the official receiver's report shall include "a statement of the matters by reference to which the [respondent] is alleged to be unfit to be concerned in the management of a company".
The application for a disqualification order against Mr Hay was supported by a report made by the official receiver and dated 29 February 2000. No copy of that report has been put before this Court; but it appears from the judgment delivered by His Honour Judge Weeks QC on 14 November 2000 (now reported at [2001] 1 WLR 730) at page 733C-D, that the report contained three allegations of misconduct on the part of Mr Hay: (i) causing the company to redeem the preference shares before paying the fine and costs imposed by the magistrates; (ii) failing to ensure that adequate accounting records were kept; and (iii) causing the company to contravene its felling licence. The first of those matters – causing the company to redeem the preference shares issued to the Hay trustees – took place some two years after Mr Hay had resigned as a director of the company. As the judge put it, at page 733D in his judgment: "It was alleged (implicitly if not explicitly) that Mr Hay was a de facto director after his resignation on 8 December 1997."
Rule 6(1) of the 1987 rules provides for the respondent to an application for a disqualification order to file in court such affidavit evidence in opposition to the application as he wishes the...
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