Secretary of State for Trade & Industry v Goldberg

JurisdictionEngland & Wales
JudgeMr Justice Lewison,no,No
Judgment Date26 November 2003
Neutral Citation[2003] EWHC 2843 (Ch)
Docket NumberCase No: 1689 of 2001
CourtChancery Division
Date26 November 2003
Between:
The Secretary of State for Trade and Industry
Claimant
and
(1)mark Goldberg
(2) James Flannagan Mcavoy
Defendants

[2003] EWHC 2843 (Ch)

Before:

The Honourable Mr Justice Lewison

Case No: 1689 of 2001

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

Mr G Newey QC & Mr A Westwood (instructed by Howes Percival) for the claimant

Mr Mark Goldberg appeared in person

Mr P Downes & Miss K Lee (instructed by McClure Naismith) for the second defendant

Hearing dates : 7 – 9, 13 – 17, 20 – 24, 27 – 28 October 2003 3 – 7 November 2003

Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this judgment and that copies of this version as handed down may be treated as authentic.

Mr Justice Lewison Mr Justice Lewison

Mr Justice Lewison:

Introduction

1

Until the end of the 1997/98 football season Crystal Palace FC ("Crystal Palace") played in the Premier League. However, it was heading for relegation. At the end of the season the club was relegated to Nationwide Division One. On 4 June 1998 Mr Mark Goldberg, through the vehicle of Allowclear Ltd, acquired control of the club, which was then being operated through Crystal Palace FC (1986) Ltd ("CPFC"). He had just realised some £25 million from the sale of shares, and spent most of it in buying CPFC. The acquisition proved to be a disaster.

2

Relegation from the Premier League has serious consequences for a football club. Its gate receipts are likely to fall, both because fewer people will watch a First Division; rather than a Premiership match, and because the price that can be charged for a ticket is lower. In addition a relegated club is likely to lose a very substantial amount of income from television and sponsorship deals. The financial gulf between a Premiership club and a First Division club is well known, and for that reason the Premier League makes "parachute payments" to newly relegated clubs. However, although income drops, expenses do not. Unless players are sold, they will continue to be entitled to their wages at a Premiership level. CPFC did not survive the club's relegation and it went into administration on 31 March 1999. The deficiency as regards creditors exceeded £30 million. Its business has subsequently been sold for £11 million.

3

A number of other companies, of which Mr Goldberg was also a director, became insolvent at about the same time, and Mr Goldberg himself was adjudicated bankrupt in December 1999.

4

Mr Goldberg was a director of CPFC between 1 August 1997 and 11 August 1999. Mr Jim McAvoy was a director of CPFC between 4 June 1998 and 2 March 1999, although he ceased to play an active part in the affairs of the company in January 1999.

5

The Secretary of State alleges that, primarily as a result of their stewardship of CPFC, both Mr Goldberg and Mr McAvoy are unfit to be concerned in the management of a company. In relation to Mr McAvoy she also makes allegations in relation to Allowclear, and MG Investments Ltd (MGI"). She further alleges that accounts and annual returns relating to a number of companies of which Mr McAvoy is a director have not been filed on time, and in some cases not filed at all.

6

Mr Newey QC and Mr Westwood appeared on behalf of the Secretary of State. Mr Downes and Ms Lee appeared on behalf of Mr McAvoy. I wish to record my thanks to counsel for expertly guiding me through the murky waters of both the law and the facts, and for patiently answering what must have seemed, at times, tiresome and naïve questions. Both sides of the argument were presented to the highest standard. Mr Goldberg appeared in person, although he did have some legal assistance. On the second day of the hearing, towards the end of Mr Newey's opening, the Secretary of State accepted a disqualification undertaking from Mr Goldberg under section 1A of the Company Directors' Disqualification Act 1986 ("the Act") which disposed of the case against him. The case thereafter proceeded against Mr McAvoy alone.

7

I shall describe the football team as "Crystal Palace", and the company as CPFC.

The legal framework

8

Under section 6 of the Act, the court must make a disqualification order against a person in any case where, on an application, it is satisfied—

(a) that he is or has been a director of a company which has at any time become insolvent (whether while he was a director or subsequently), and

(b) that his conduct as a director of that company (either taken alone or taken together with his conduct as a director of any other company or companies) makes him unfit to be concerned in the management of a company.

9

It is not in dispute that the first of these conditions is satisfied. There is a dispute about the extent to which Mr McAvoy had executive responsibility for CPFC's affairs. However, this does not go to the satisfaction of the first condition, although it may well have a bearing on the second. The Secretary of State has made it clear that her case against Mr McAvoy is not based on the allegation that he occupied the position of chief executive. It is based on his position as director. Mr Downes argues that this precludes the Secretary of State from asserting that Mr McAvoy has failed to discharge any special duties over and above those imposed upon him in his capacity as a director and member of the board. He may be right but I do not think that the Secretary of State does allege that Mr McAvoy had special duties.

10

Section 9 of the Act says that where a court has to determine whether a person's conduct as a director of any particular company or companies makes him unfit to be concerned in the management of a company, it must, as respects his conduct as a director of that company or, as the case may be, each of those companies, have regard in particular—

(a) to the matters mentioned in Part I of Schedule 1 to the Act, and

(b) where the company has become insolvent, to the matters mentioned in Part II of that Schedule.

11

The requirement that the court must have regard "in particular" to the matters listed in the schedule means that the court is not confined to looking at those matters: Re Bath Glass Ltd [1988] BCLC 329; Secretary of State for Trade and Industry v Reynard [2002] 2 BCLC 625. However, I accept Mr Downes's submission that the words "in particular" mean that the court should give greater weight to those matters that are expressly mentioned in the Schedule, as opposed to those that are not.

12

The relevant matters laid down in the Schedule to the Act include the following:

(1) any misfeasance or breach of any fiduciary or other duty by the, director in relation to the company;

(2) any misapplication or retention by the director of, or any conduct by the director giving rise to an obligation to account for, any money or other property of the company;

(3) the extent of the director's responsibility for any failure by the company to comply with any of the following provisions of the Companies Act, namely section 221 (companies to keep accounting records); section 222 (where and for how long records to be kept) and section 363 (duty of company to make annual returns);

(4) the extent of the director's responsibility for the causes of the company becoming insolvent.

13

In Re Sevenoaks Stationers (Retail) Ltd [1991] Ch 164 Dillon LJ said at 176:

"The test laid down in section 6 —apart from the requirement that the person concerned is or has been a director of a company which has become insolvent —is whether the person's conduct as a director of the company or companies in question 'makes him unfit to be concerned in the management of a company.' These are ordinary words of the English language and they should be simple to apply in most cases. It is important to hold to those words in each case.

The judges of the Chancery Division have, understandably, attempted in certain cases to give guidance as to what does or does not make a person unfit to be concerned in the management of a company. Thus in In re Lo-Line Electric Motors Ltd [1988] Ch 477, 486, Sir Nicolas Browne-Wilkinson V-C said:

"Ordinary commercial misjudgment is in itself not sufficient to justify disqualification. In the normal case, the conduct complained of must display a lack of commercial probity, although I have no doubt in an extreme case of gross negligence or total incompetence disqualification could be appropriate."

Then, at p 492, he said that the director in question:

"has been shown to have behaved in a commercially culpable manner in trading through limited companies when he knew them to be insolvent and in using the unpaid Crown debts to finance such trading."

Such statements may be helpful in identifying particular circumstances in which a person would clearly be unfit. But there seems to have been a tendency, which I deplore, on the part of the Bar, and possibly also on the part of the official receiver's department, to treat the statements as judicial paraphrases of the words of the statute, which fall to be construed as a matter of law in lieu of the words of the statute. The result is to obscure that the true question to be tried is a question of fact -what used to be pejoratively described in the Chancery Division as "a jury question."

14

A less pejorative description of the question is that it is a "value judgment": see Re Grayan Building Services Ltd [1995] Ch 241 at 255D. That case also shows that to describe the question as simply one of fact may be an over-simplification. It is a question of mixed law and fact, namely the application of the standard laid down by the courts as conduct appropriate to a person fit to be a director (law) to the facts of the case (fact). In his judgment in that case, Henry LJ said:

"The concept of limited liability and the sophistication of our corporate law offers great privileges and great...

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