Re R Williams Leisure Plc

JurisdictionEngland & Wales
JudgeLORD JUSTICE HOFFMANN,LORD JUSTICE STAUGHTON,LORD JUSTICE RUSSELL
Judgment Date27 April 1994
Judgment citation (vLex)[1994] EWCA Civ J0427-4
Docket NumberNo. CHANI 93/0006/B
CourtCourt of Appeal (Civil Division)
Date27 April 1994
The Secretary of State for Trade and Industry
Plaintiff
and
Frank John Warren
Peter Allan Sealey
Defendants

[1994] EWCA Civ J0427-4

On Appeal from the Rulings of the Rt. Hon. the Vice-Chancellor

Before: Lord Justice Russell Lord Justice Staughton and Lord Justice Hoffmann

No. CHANI 93/0006/B

IN THE SUPREME COURT OF JUDICATURE,

COURT OF APPEAL (CIVIL DIVISION)

MR. CLIVE HUGH JONES (instructed by Messrs. Garstangs, Drury Lane Moat House, 10 Drury Lane, London WC2B 5RE) appeared on behalf of the Appellant.

MISS E. GLOSTER Q.C. and MR. GUY NEWEY (instructed by The Treasury Solicitor, Queen Anne's Chambers, 28 Broadway, London SW1H 9JS) appeared on behalf of the Respondent.

1

)

LORD JUSTICE HOFFMANN
2

This is an appeal by leave of the judge from three interlocutory rulings of the Vice-Chancellor. They concern the procedure to be followed in an application by the Secretary of State to have company directors disqualified. Two of them raise questions of general importance. One is whether a respondent to such an application must file his evidence in opposition before the hearing or whether he can wait until then and give or call oral evidence. The other is whether the Secretary of State as applicant can rely upon statements taken from third parties in the course of an official investigation into the affairs of a company.

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1. The Facts

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The appellants (respondents to the application to disqualify) are Mr Frank Warren and Mr Peter Sealey. Mr Warren is, among other things, a boxing promoter. Mr Sealey is a solicitor. Both were directors of a company called Rex Williams Leisure plc. Its principal business was the supply of amusement machines. It obtained a quotation on the Unlisted Securities Market. Members of the public subscribed for shares. Early in 1988 it appears to have entered into some kind of transaction to buy from Mr Warren the shares in another company which he controlled for over £2 million. In the end the purchase did not proceed. But as part of the transaction the company on 21st March 1988 paid Mr Warren £200,000. Mr Sealey authorised the payment. After the share sale fell through, Mr Warren did not return the money. It remained unpaid on 30th April 1990, when the company was placed in administration. The estimated deficiency for creditors is £4.4 million.

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2. Procedural steps so far

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The joint administrators sued Mr Warren for the return of the £200,000. He gave notice of intention to defend the action. For the last three years the action has been asleep. The last thing that happened was on 9th January 1991, when a summons for summary judgment issued by the administrators was adjourned to the judge.

7

On 2nd April 1991 the Secretary of State took an interest. There is no evidence as to why, but the chances are that he had received a report from the administrators under the Insolvent Companies (Reports on Conduct of Directors) No.2 Rules 1986. This requires administrators within 6 months of the date of the administration order to furnish the Secretary of State with a report on the persons who have been directors within the preceding three years. At any rate, the Secretary of State authorised Mr Desmond High, a chartered accountant, to investigate the £200,000 payment pursuant to section 447 of the Companies Act 1985.

8

Section 447 is one of a battery of powers contained in Part XIV of the Companies Act 1985, which is headed "Investigation of Companies and their Affairs; Requisition of Documents." The best known is section 432(2), which empowers the Secretary of State to appoint inspectors to investigate the affairs of a company and report if it appears to him that there are circumstances suggesting various kinds of misconduct, including misfeasance by the persons concerned in its management. Section 431, more rarely used, provides for inspection on the application of some of the members or the company itself. Sections 442 and 446 deal with more limited investigations into share ownership and share dealings. Section 447 has the side-note "Secretary of State's power to require production of documents." For present purposes, these are the relevant provisions:

(3) The Secretary of State may at any time, if he thinks there is good reason to do so, authorise an officer of his or any other competent person, on producing (if so required) evidence of his authority, to require a company to produce to him (the officer or other person) forthwith any documents which he (the officer or other person) may specify

(4) Where by virtue of sub-section…(3) the Secretary of State or an officer of his or other person has power to require the production of documents from a company, he or the officer or other person has the like power to require production of those documents from any person who appears to him or the officer or other person to be in possession of them…

(5) The power under this section to require a company or other person to produce documents includes power -

(a) if the documents are produced -

(ii) to require that person, or any other person who is a past or present officer of, or is or was at any time employed by the company in question, to provide an explanation of any of them.

(8) A statement made by a person in compliance with such a requirement may be used in evidence against him.

9

The product of a section 447 investigation will therefore consist primarily of documents which were already in existence but also explanations and commentary by former officers or employees. It is an offence knowingly or recklessly to provide an explanation which is false in a material particular: section 451. But, unlike an inspector under sections 431 or 432, a person authorised to conduct an investigation under section 447 is not required to write a report expressing his opinion in the matters under investigation. His formal duty is simply to gather information.

10

Informally, however, Mr High told the Investigations Division at the Department of Trade and Industry that as a result of his investigations, he had come to the conclusion that Mr Warren and Mr Sealey had acted unlawfully and in breach of their fiduciary duties to the company. They had simply extracted its cash. The result was that the Secretary of State decided to apply to the court under section 8 of the Company Directors Disqualification Act 1986 for the disqualification of Mr Warren and Mr Sealey as directors on the ground that their conduct made them ''unfit to be concerned in the management of a company.''

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Sections 6 to 10 of the Company Directors Disqualification Act 1986 provides for various circumstances in which such an application may be made. The most common is under section 6, which deals with persons who have been directors of insolvent companies and whose conduct shows them to be unfit. If it appears to the Secretary of State "expedient in the public interest" that a disqualification order should be made under section 6, he may either make the application himself or, in the case of a person who has been a director a company in compulsory liquidation, he may direct that the application be made by the official receiver. In either case, the information upon which the Secretary of State will act in deciding with an application for a disqualification order is expedient in the public interest will be primarily derived from the "office-holder" (i.e. the liquidator, administrator or administrative receiver). He has a statutory duty under section 7 of the Act and also under the Insolvent Companies (Reports on Conduct of Directors) No.2 Rules 1986 to report to the Secretary of State on matters which may indicate that a director is unfit.

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An alternative route is section 8, which can be used even if the company has not become insolvent. Leaving out reference to a number of statutory powers which do not for present purposes matter, these are the relevant provisions:

(1) If it appears to the Secretary of State from a report made by inspectors under section 437 of the Companies Act…or from information or documents obtained under section 447…of the Companies Act 1985…that it is expedient in the public interest that a disqualification order should be made against any person who is or has been a director or shadow director of any company, he may apply to the court for such an order to be made against that person

(2) The court may make a disqualification order against a person where on an application under this section, it is satisfied that his conduct in relation to the company makes him unfit to be concerned in the management of a company.

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In this case the Secretary of State applied under section 8.

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The procedure governing applications for disqualification orders is for the most part contained in the Insolvent Companies (Disqualification of Directors) Proceedings Rules 1987 ( SI 1987/2023) ("the Disqualification Rules"). Rule 2(a) says that an application in the High Court shall be made by originating summons and that the appropriate provisions of the Rules of the Supreme Court shall apply accordingly, except when the Disqualification Rules make provision to inconsistent effect. The Secretary of State issued the originating summons in these proceedings on 27th April 1992.

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Rule 3 of the Disqualification Rules is headed "The case against the respondent." It reads as follows:

(1) There shall, at the time when the summons is issued, be filed in court evidence in support of the application for a disqualification order; and copies of the evidence shall be served with the summons on the respondent.

(2) The evidence shall be by one or more affidavits, except where the applicant is the official receiver, in which case it may be in the form of the written...

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26 cases
  • Re Bovale Dev: Director of Corporate Enforcement v Bailey
    • Ireland
    • Supreme Court
    • 14 July 2011
    ...entirely on the existence of a statutory scheme and there was no such scheme in this jurisdiction. In re Rex Williams Leisure Plc. [1994] Ch. 350;Re Barings Plc. (in administration) (No. 2) [1998] 1 B.C.L.C. 590; Sec. of State for Trade v. Ashcroft[1998] Ch. 71 and Secretary of State v. Aar......
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    • 2 April 2009
    ...what was hearsay and what constituted opinion evidence or findings of fact. His conclusion was upheld by the Court of Appeal at [1994] Ch 350 at p.364–368. Hoffmann LJ made clear that the principle developed in relation to winding up also applied to disqualification proceedings under s.8 o......
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    • Court of Appeal (Civil Division)
    • 26 February 1997
    ...Addleshaw Sons & Latham, Manchester) appeared on behalf of the Respondent/Respondent Mr. John Ashcroft. LORD JUSTICE MILLETT 1 In Re Rex Williams Leisure plc [ 1994] Ch. 350 this Court held that the Secretary of State can rely upon hearsay evidence obtained in the course of an official inve......
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