The Secretary of State for Business, Innovation and Skills v Christopher Jordan Carlson
| Jurisdiction | England & Wales |
| Judge | Mr John Male |
| Judgment Date | 29 September 2014 |
| Neutral Citation | [2014] EWHC 2963 (Ch) |
| Docket Number | Case No: Appeal No: CH/2014/0202; |
| Court | Chancery Division |
| Date | 29 September 2014 |
[2014] EWHC 2963 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
HIGH COURT APPEAL LEVELS, ROYAL COURTS OF JUSTICE
LOWER COURT: ROYAL COURTS OF JUSTICE
ORDER OF DEPUTY REGISTRAR MIDDLETON dated 17 MARCH 2014
LOWER COURT NO: 229/2012
IN THE MATTER OF ARTISTIC INVESTMENT ADVISERS LIMITED AND
IN THE MATTER OF THE COMPANY DIRECTORS DISQUALIFICATION ACT 1986
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr John Male QC
(sitting as a Deputy Judge)
Case No: Appeal No: CH/2014/0202;
Mr Donald McCue (acting by Public Access) for the Appellant
Mr Philip Capon (instructed by Howes Percival LLP) for the Respondent
Hearing date: 25 th July 2014
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 John Male QC:
Introduction
This is an appeal by Mr Christopher Jordan Carlson against an order dated 17 March 2014 made by Deputy Registrar Middleton under section 6 of the Company Directors Disqualification Act 1986 ("the CDDA"). By that order Mr Carlson, and his fellow director Mr Justin Williams, were disqualified from acting as a director and insolvency practitioner for two years.
Mr Carlson appealed against that by order by a notice of appeal dated 4 April 2014. There is no appeal by Mr Williams who did not take part in the proceedings below. Peter Smith J granted permission to appeal on 10 April 2014. The Secretary of State for Business, Innovation and Skills ("the Secretary of State") filed a respondent's notice on 29 April 2014. The case was argued before me on 25 July 2014.
On this appeal, and also below before the Deputy Registrar, Mr Carlson was represented by Mr Donald McCue and the Secretary of State by Mr Philip Capon. I am grateful to both Counsel for their helpful skeleton arguments and oral submissions.
The background, which I take from paragraphs 11 and 12 of the judgment below, is as follows. Artistic Investment Advisers Limited ("The Company") was incorporated on 17 January 2007. Mr Williams and Mr Carlson were directors throughout. There was a third director, Mr Petley, but he resigned on 23 March 2009. The Company's accountants were Macintyre Hudson which is an LLP in which Mr Payne was the principal who dealt with the Company. The Company acted as an investment adviser to the Art Trading Fund based in Guernsey. The Company operated from rented offices in London until June 2009 when it ceased to have any fixed premises. Its income was derived from the Art Trading Fund which income was based on the net asset value of its art fund. There was a basic 2% fee and an additional 20% of the improvement in the net asset value assuming that that was what happened.
Apart from its income, the Company was supported by funds provided by Mr Williams together with an overdraft facility at Lloyds TSB and its corporate credit card. The only formal accounts prepared were those to 31 January 2008 which were signed by Mr Williams on 24 February 2009. Such accounts prepared by Macintyre Hudson showed a loss of £1,440.00 on a turnover of £157,106.00 and a balance sheet deficit as regards shareholders of £1,437.00. Such accounts were not audited – the Company was exempt. No further accounts of this nature were prepared.
Owing to the deteriorating economic situation, from autumn 2008 the performance of the art fund held by the Art Trading Fund fell. In the light of this, an attempt was made to set up a second fund, but this proved unsuccessful. In an attempt to continue trading the Company raised funds from an investor, Martin Rose and, the Deputy Registrar thought, Mr. Sykes, amounting to £80,000.00. This took place in July 2009. However, the performance of the Company continued to decline and it ceased trading on 26 October 2009. At this stage Mr Williams and Mr Carlson consulted Wilkins Kennedy.
The D1 report to the Secretary of State by the liquidator was dated 25 June 2010. There ensued an 18 month dialogue between the Insolvency Service and the directors, their accountants and solicitors, during which the directors attempted to demonstrate that adequate accountancy records had been kept. These attempts were extremely costly to the directors but were unsuccessful.
The application was issued in January 2012 and served in March 2012. The trial took place in February 2014. It dealt with two allegations. The first related to an alleged failure to keep adequate accounting records. The second, put as an alternative by the Secretary of State, related to an alleged failure to deliver up those records to the liquidator. A draft judgment was handed down by the Deputy Registrar in March 2014 and the order was made on 17 March 2014.
I will have to consider the Deputy Registrar's judgment in detail later but, in the broadest outline only, it can be summarised as follows. He found both allegations to be made out. He concluded that there should be a disqualification of both directors in relation to the first allegation but, had it been necessary to make a finding on the second allegation, only Mr Williams in relation to the second. The period of disqualification was the minimum period of two years.
The statutory provisions
I take these provisions as they are summarised in the Secretary of State's skeleton for the hearing below which I understand the parties agree shows the provisions as they were at the relevant time.
Section 6 of the CDDA provides that the Court shall make a disqualification order against a person where it is satisfied that:
(a) A person is or has been the director of a company that has at any time become insolvent (which includes going into liquidation); and
(b) The person's conduct as a director makes him unfit to be concerned in the management of a company.
Section 9 of the CDDA specifies (by reference to Schedule 1) those matters that the Court shall "have regard to" when considering whether the conduct of a director makes him unfit. The first paragraph of Schedule 1, Part 1 of the CDDA specifies the following matter:
Any misfeasance or breach of any fiduciary or other duty by the director in relation to the company, including in particular any breach by the director of a duty under Chapter 2 of Part 10 of the Companies Act 2006 (general duties of directors) owed to the company.
Chapter 2 of Part 10 of the Companies Act 2006 comprises sections 170–181. Sections 172, 173 and 174 of the Companies Act 2006 (all of which came into force on 1 October 2007) provide, amongst other things, as follows:
(1) A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to:
(a) the likely consequences of any decision in the long term
(b) the interests of the company's employees,
(c) the need to foster the Company's business relationships with suppliers, customers and others,
(d) the desirability of the Company maintaining a reputation for high standard of business conduct; (S.172).
(2) A director of a company must exercise independent judgment (S.173)
(3) A director of a company must exercise the reasonable care, skill and diligence that would be exercised by a reasonably diligent person with the general knowledge skill and experience of a person carrying out the functions carried out by the director in relation to the company and the general knowledge, skill and experience that the director has. (S.174).
The fourth paragraph of Schedule 1, Part 1 of the CDDA specifies the following matter:
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 2006 –
…
(h) section 386 (duty to keep accounting records);
(i) section 388 (where and for how long accounting records to be kept);
…
Section 386 of the Companies Act 2006 (which came into effect on 6 April 2008) provides as follows:
386 Duty to keep accounting records
(1) Every company must keep adequate accounting records.
(2) Adequate accounting records means records that are sufficient –
(a) to show and explain the company's transactions,
(b) to disclose with reasonable accuracy, at any time, the financial position of the company at that time, and
(c) to enable the directors to ensure that any accounts required to be prepared comply with the requirements of this Act (and, where applicable, of Article 4 of the IAS Regulation).
(3) Accounting records must, in particular, contain –
(a) entries from day to day of all sums of money received and expended by the company and the matters in respect of which the receipt and expenditure takes place, and
(b) a record of the assets and liabilities of the company.
(4) …
Section 388 of the Companies Act 2006 (which came into effect on 6 April 2008) provides as follows:
388 Where and for how long records to be kept
(1) …
(2) …
(3) …
(4) Accounting records that a company is required by section 386 to keep must be preserved by it –
(a) in the case of a private company, for three years from the date on which they are made;
(b) in the case of a public company, for six years from the date on which they are made.
(5) …
Reverting to the provisions of section 6 of the CDDA which I set out at the start of this section of my judgment, one exposition of the test to be applied under that section is to be found in the case of Re Grayan Building Services Ltd [1995] Ch 241, in which Hoffmann LJ said at p.253E that:
"The court is concerned solely with the conduct specified by the Secretary of State…It must decide whether...
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