Secretary of State for Trade and Industry v Deverell and Another

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgeLORD JUSTICE MORRITT
Judgment Date21 December 1999
Judgment citation (vLex)[1999] EWCA Civ J1221-76
Docket NumberCase No: CHANF 1998/0775/A3

[1999] EWCA Civ J1221-48

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

CHANCERY DIVISION (HH JUDGE COOKE)

Before:

Lord Justice Morritt

Lord Justice Potter and

Mr Justice Morison

Case No: CHANF 1998/0775/A3

The Secretary of State for Trade and Industry
Appellant
and
(1) John Deverell
(2) Peter Hopkins
Respondents

Mr Michael Green (instructed by Burstows for the Appellant)

Mr Ian Alexander QC, Mr. Simon Airey (instructed by Edwin Coe for the first respondent) and

Miss Clare Hoffmann (instructed by Gordon Dadds for the second respondent)

LORD JUSTICE MORRITT

1

Euro Express Ltd ("the Company") carried on the business of tour operators. On 10th March 1993 it went into creditors voluntary liquidation with an estimated deficiency with regard to creditors of £4.46m. In due course the Secretary of State for Trade and Industry applied under s.6 Company Directors Disqualification Act 1986 for disqualification orders to be made against three of the Company's duly appointed directors, namely, Mr William Besant, Mr Colin Blyth and Mr John Stevens. He also sought such orders against Mr John Deverell and Mr Peter Hopkins on the ground that each of them was a "shadow director" of the Company to whom by virtue of s.22(4) the provisions of s.6 applied. Such a director is defined by s.22(5) as

"a person in accordance with whose directions or instructions the directors of the company are accustomed to act (but so that a person is not deemed a shadow director by reason only that the directors act on advice given by him in a professional capacity)."

2

After a hearing extending over 17 working days, by his order dated 11th May 1998, HH Judge Cooke, sitting as a deputy judge of the Chancery Division, made disqualification orders against Mr Blyth for 11 years, Mr Besant for 6 years and Mr Stevens for 2 years. With regard to both Mr Deverell and Mr Hopkins he considered that their respective conduct warranted such an order but he dismissed the application against each of them because, as he concluded, neither of them had been shown to be a shadow director.

3

This is the appeal of the Secretary of State. He contends that if the judge had properly construed and applied the statutory definition to the facts as found by him or, in the alternative, to the facts he should have found then he would have decided that each of Mr Deverell and Mr Hopkins was a shadow director. Mr Deverell and Mr Hopkins submit that the judge was right for the reasons he gave and that no sufficient grounds are shown to entitle this court to interfere with the judge's findings of fact.

The facts

4

The Company was incorporated on 17th February 1986. Its issued capital was 20,000 shares of £1. All but one such shares were registered in the name of Mr Besant. According to the file maintained at Companies House Mr Besant was a director of the Company from the time of its incorporation down to his resignation in circumstances I shall describe in more detail later on 5th November 1991. For a short period after incorporation there was another director appointed to protect the interests of Mr Deverell's father as a loan creditor. Otherwise Mr Besant was the only apparent director from the time of incorporation down to 18th October 1990.

5

As I have indicated the business of the Company was that of a tour operator. For that purpose it required an Air Traffic Organiser's Licence ("ATOL") from the Civil Aviation Authority. As a practical matter it also needed to be a member of the Association of British Travel Agents ("ABTA") and to obtain an ABTA Bond. The rules of ABTA provided that to be eligible to become or remain a member

"Every director, principal shareholder, proprietor or partner and every person employed or concerned in the management of a member's business must be "a respectable and honest businessman" and in particular must not:

(a) be an undischarged bankrupt;

(b)…

(c) have been an owner or a controlling director of or partner in a business which has failed to meet its liabilities;

(d)…"

In due course the Company obtained an ATOL licence, membership of ABTA and an ABTA Bond.

6

Mr Deverell had been concerned with two companies which had previously failed. Giro Travel Service Ltd of which he had been controlling director went out of business in August 1971. Century Tours Ltd of which he was also the owner or controlling director had gone into insolvent liquidation as recently as 13th September 1985. Mr Deverell was concerned in the management of the Company from the time of its incorporation; he was one of the signatories to the Company's bank account. In a sales document drawn up in 1992 for which he was responsible he was described as an effective founder. He claimed that his participation was as a consultant. The judge concluded that "in reality he was throughout the whole story senior management and a key executive".

7

The particular business of the Company was that of a flight seat sales operator on the Gatwick/Nice route. For the purpose of promoting the sales of flight seats on the return journey and acting as its broker in France it formed an associated or subsidiary company in France called Euro Express SARL. Mr Deverell was the gerant or managing director of that company.

8

Mr Colin Blyth joined the Company as a manager shortly after its incorporation. He was appointed company secretary on 12th July 1987. He became a director of the company on 23rd August 1991 shortly before the resignation of Mr Besant. He remained a director until the liquidation of the Company in March 1993.

9

The Company was acquired by Pilgrim Air, a subsidiary of Granada plc, in June 1988. Though the shares in the Company were acquired by Pilgrim Air Mr Besant remained a director. The judge found that "the internal management [of the Company] proceeded as before with Mr Besant and Mr Deverell taking an important and active role in management". In October 1989 Pilgrim Air closed down the Company's operations but agreed, in January 1990, to what was colloquially known as a management buyout. The apparent purchaser was Mr Besant. He paid £1 for all 20,000 issued shares. The shares were registered in his sole name and, according to the file maintained at Companies House, he remained the sole director of the Company.

10

Mr Hopkins had been chief executive of Granada Travel, the holding company of Pilgrim Air. He had been involved in the travel business since 1961. In 1988 he left Granada Travel on grounds of ill-health and went to live in France. Shortly after the management buyout in January 1990 he was approached initially by Mr Besant alone and later by both Mr Besant and Mr Deverell to help expand the Company's business on the return leg of its route, ie from Nice to London. Mr Hopkins told the judge that he agreed to do so on a consultancy basis. He bought one third of the issued shares (6,666) from Mr Besant for £3,333 which, at his request, were registered in the name of Checkout Ltd, an offshore company controlled by Mr Hopkins. He was provided by the Company with free air travel between Nice and Gatwick as well as substantial cash benefits.

11

By July 1990, as the judge accepted, the shares in Checkout Ltd, which by then had acquired all Mr Hopkins other assets, had been transferred to Languedoc, a Channel Island Trust Company, and were held by that Company on the trusts of an offshore settlement for the benefit of Mr Hopkins and his family. In October 1990 Checkout transferred the shares in the Company to another Channel Island Company, Chalfont Enterprises Ltd. At some time in late 1991 or 1992 Chalfont Enterprises Ltd charged the shares in the Company in favour of Allied Irish Bank (Channel Islands)Ltd. The initial steps were no doubt taken in anticipation of the presentation on 17th August 1990 by the Inland Revenue of a petition for a bankruptcy order against Mr Hopkins. Ultimately a bankruptcy order was made against him on 27th November 1991.

12

Mr Stevens joined the Company in October 1990. He was appointed a director on 18th October 1990 and he acquired from Mr Besant 6,666 shares in the Company. This represented one third of Mr Besant's original holding and half of what he had left after having transferred 6,666 shares to Checkout Ltd at the direction of Mr Hopkins. Mr Stevens did not give evidence before the judge. The judge described him as a distinctly shadowy figure. Initially he was brought in as a non-executive director and was not paid. He dealt with matters concerning the Civil Aviation Authority and ATOL. The judge considered that it would be consistent with what happened to describe Mr Stevens as Mr Deverell's stooge and that he was the most obvious candidate for casting in the role of a puppet.

13

In April 1991 the business of the Company expanded in a new direction, namely the schools ski market. The judge found that this market had been in the hands of two giants who had both gone out of business. The Company diversified into this area under the name of Kaleidoscope. In relation to schools' ski holidays in Austria there was a profit-sharing arrangement with the Company's agent, Mr Walter Mayer, and his wholly owned company WMFerienhotels. The judge referred to the evidence of Mr Hopkins that he had advised that Mr David Lyne and Mrs Pamela Smith should be brought in to look after the operation (as they were), that he Mr Hopkins would not be available in the United Kingdom and that, in anticipation of his bankruptcy, he could not be involved in the management of the business. He said that his own duties would have to be restricted to advice, the production of...

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41 cases
3 books & journal articles
  • The Recasting of Insolvency Law
    • United Kingdom
    • The Modern Law Review Nbr. 68-5, September 2005
    • 1 September 2005
    ...Act 1985,ss 317(8),318(6),319(7), 320(3); InsolvencyAct 1986,ss 206(3), 214(7).83 See Secretary of State forTrade and IndustryvDeverell[2001] Ch 340, [2000]2 BCLC 133. See D. Mil-man,‘A Fresh Light on Shadow Directors’ [2000] Ins Law 171; J. Payne, ‘Casti ng Light into theShadows: Secretary......
  • Business integrity v. business efficiency: the corporate opportunity doctrine in China
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    • Journal of Financial Crime Nbr. 23-1, January 2016
    • 4 January 2016
    ...reason only that the directors act on advicegiven by him in a professional capacity [Section 251 (2)]. See Secretary of State v Deverell[2000] BCC 1057.35. Article 217 (1), CCL 2005.36. [Beijing Jinghua Sifang Maoyi Youxian Gongsi yu Yuqian Gaoji Guanli Renyuan SunhaiGongsi Liyi Peichang Ji......
  • Piercing the veil on corporate groups in Australia: the case for reform.
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    • Melbourne University Law Review Vol. 33 Nbr. 2, August 2009
    • 1 August 2009
    ...an excellent exposition of the UK provisions and their use, see the leading case of Secretary of State for Trade and Industry v Deverell [2001] Ch 340. See generally Noonan and Watson, above n (170) See, eg, Insolvency Act 1986 (UK) c 45, ss 6A, 206, 208, 210-11, 214, 216, 249, 251; Company......

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