The Secretary of State for Business Innovation and Skills v Mr Balinder Chohan (aka Bally Chohan) and Others
| Jurisdiction | England & Wales |
| Judge | Mr Justice Hildyard,The Hon Mr Justice Hildyard |
| Judgment Date | 26 March 2013 |
| Neutral Citation | [2013] EWHC 680 (Ch) |
| Docket Number | Case No: 3213 OF 2010 |
| Court | Chancery Division |
| Date | 26 March 2013 |
In The Matter of Ukli Limited
In The Matter of the Company Directors' Disqualification Act 1986
[2013] EWHC 680 (Ch)
The Honourable Mr Justice Hildyard
Case No: 3213 OF 2010
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mark Cunningham QC and Catherine Addy (instructed by Howes Percival LLP) for the Claimant
The Defendants did not appear and were not represented
Hearing dates: 2 & 3 October 2012
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.
Nature of proceedings and factual background
The Secretary of State for Business, Innovation and Skills ("the Secretary of State") has brought these proceedings on the grounds that it has appeared to him expedient in the public interest that disqualification orders under section 6 of the Company Directors Disqualification Act 1986 (" CDDA") should be made against each of the Defendants with regard to their conduct as directors of a company called UKLI Limited ("UKLI").
The proceedings follow the insolvent collapse of UKLI, which went into administration on 22 April 2008 and liquidation on 21 November 2008. At the date of it going into administration UKLI had an estimated deficiency of in excess of £48 million. By the date of its liquidation (21 November 2008) the estimated deficiency was over £70 million.
The factual background is described by David Richards J in his judgment at an earlier stage of these proceedings, reported as Secretary of State for Business, Innovation and Skills v Chohan and others [2012] 1 BCLC 138. Borrowing liberally and with gratitude from that description I can summarise the relevant background as follows.
UKLI carried on a so-called land bank business. This involved the establishment and marketing to the public of schemes whereby small parcels of land forming part of a larger site, which UKLI either owned or over which it had options to purchase, would be sold to investors. It was envisaged that UKLI would or might itself retain or acquire a significant part of the sites in question: and it did so.
The suggested attraction of investment by the purchase under these schemes of small parcels of land on these sites was that the sites might receive planning permission, or be rezoned in area plans, such as to make it more likely that planning permission would be granted: and in either case leading to a significant increase in value.
As the eventual deficiency might connote, UKLI's business was substantial. It had a sales force of some 60 to 80 people and approximately 5,000 plots were sold on some 17 sites.
After concerns developed in April 2006 as to whether the schemes constituted collective investment schemes in contravention of the financial services legislation, the Financial Services Authority ("the FSA") commenced an investigation into UKLI and its business. It concluded that the way the schemes were being operated and marketed was not lawful.
These proceedings were issued on 19 April 2010. They were listed for a ten-day trial due to start at the commencement of October 2012. However, as the trial date approached, all but one of the Defendants agreed to give Disqualification Undertakings under section 7(2A) of the CDDA which were accepted by the Secretary of State and made unnecessary proceeding further against the Defendants concerned.
Narrowing of Trial: the Undertakings by Second to Sixth Defendants
On the first day of the trial (on 2 October 2012), at the Secretary of State's invitation, I made orders in respect of those Defendants (the Second to Sixth Defendants named above) accordingly. In those circumstances, none of those Defendants appeared at the trial.
The trial thus proceeded substantively only against the First Defendant, Baljinder Chohan ("Mr Chohan"); and it did so in his absence.
Service of the Claim Form on Mr Chohan and his acknowledgment of service
Initially, Mr Chohan instructed solicitors, whom he instructed to accept service; and it appeared that he intended to engage fully in the proceedings to contest any order for his disqualification. An Acknowledgment of Service of the Secretary of State's Claim Form was provided on Mr Chohan's behalf by his then solicitors in England, Devonshires of 30 Finsbury Circus, London ("Devonshires"), on 7 June 2010. That stated his intention to contest the claim on the grounds that (a) his conduct as a director or shadow director was not as alleged by the Secretary of State and (b) he disputed that his conduct made him unfit to be concerned in the management of a company.
Thereafter, there was served on his behalf, under cover of an email from Devonshires dated 3 January 2010, what purported to be a second affidavit, dated 2 January 2011 ("Mr Chohan's Affidavit"). This (which, though described as his second, was in fact the only affidavit served by him in substantive opposition to the proceedings) stated his address as being in Dubai. In Mr Chohan's Affidavit he sought to elaborate the basis of his opposition, which I later describe.
However, on 14 June 2011, Howes Percival LLP, the Secretary of State's solicitors ("Howes Percival"), received a letter dated 13 June 2011 enclosing, by way of service, an Order of Registrar Barber dated 7 November 2010, recording that Devonshires had ceased to act for Mr Chohan and ordering them to be removed from the Court record as so acting.
Since then, Mr Chohan has not engaged at all in the litigation process; and he has proved elusive. His last stated address was (as indicated above) in Dubai. There was an uncorroborated report that he had moved to the Republic of South Africa. Be that as it may, efforts to trace and contact him appear to have been without success.
These efforts to keep him informed (and where necessary to effect personal service) have been sustained nevertheless. I do not think it is necessary to itemise them. I am satisfied that all reasonable efforts have been made in that regard.
Mr Chohan's non-attendance
In the event, and perhaps unsurprisingly in the circumstances adumbrated above, Mr Chohan did not attend the trial. Nothing indeed has been heard from him. As indicated above, since filing his Affidavit, he has not engaged in the proceedings at all.
It was suggested to me by Counsel for the Secretary of State, Mr Mark Cunningham QC and Ms Catherine Addy, that Mr Chohan's appetite for engaging in these proceedings may have been "suppressed" by a previous order made against him in an earlier set of disqualification proceedings. These resulted in him being disqualified for a period of four years commencing on 4 January 2008.
That suggestion may well be correct; but I need not determine that: the fact is that Mr Chohan was well aware of these proceedings, and it was his choice, for whatever reason, not to engage in them. His absence being, in my judgment, elective or voluntary, there was no unfairness in proceeding with the hearing: his election left the court with no realistic choice.
The requirements of Section 6 of the CDDA
In Mr Chohan's absence, it was left to the Secretary of State to satisfy me, on the basis of the evidence available, that the requirements of section 6 of the CDDA have been fulfilled, and that therefore it is the Court's duty to disqualify Mr Chohan from taking part in the management of a business carried on with the privilege of limited liability.
As Timothy Lloyd J (as he then was) put it in Re Atlantic Computers plc 15 June 1998, in a passage quoted by Norris J in Secretary of State v Sullman [2008] EWHC 3179 (Ch), [2009] 1 BCLC 397 at 399:
"The point of a disqualification order is, by depriving the respondent of the liberty to take part in the management of a business carried on with the privilege of limited liability, to protect the public both from misconduct of a business by that director and also by deterrent effect in relation to other company directors… A consistent theme in the cases under the Act is that, while the court must consider the extent of a respondent's responsibility… a director cannot avoid his responsibility by leaving the management to another or others…"
To satisfy the requirements of section 6 the Secretary of State must persuade the Court that the Defendant was
(1) a director;
(2) of a company which became insolvent; and that
(3) 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.
There is no dispute as to UKLI's insolvency. The two other requirements are in issue.
Was Mr Chohan a director in the relevant period?
As to (1) in paragraph 21 above, the Secretary of State accepts that Mr Chohan was not a de jure director of UKLI. His case is that Mr Chohan was a de facto or shadow director in the relevant period, being from April 2006 to March 2007.
The paramount purpose of disqualification being the protection of the public from unscrupulous corporate management, it would frustrate a primary objective of the CDDA if a person who actually was responsible, or jointly responsible with others, for such management could escape disqualification by the simple expedient of never formally being appointed as a director. There is no doubt that section 6 extends to de facto directors: see Re...
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