The Secretary of State for Business, Innovation and Skills v Maria Helena Gifford and Others
| Jurisdiction | England & Wales |
| Judge | Mr Justice Floyd |
| Judgment Date | 21 November 2011 |
| Neutral Citation | [2011] EWHC 3022 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: 3006/2011 |
| Date | 21 November 2011 |
[2011] EWHC 3022 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
IN THE MATTER OF INSTANT ACCESS PROPERTIES LIMITED
AND IN THE MATTER OF THE COMPANY DIRECTORS DISQUALIFICATION ACT 1986
Royal Courts of Justice
Strand, London, WC2A 2LL
The Hon Mr Justice Floyd
Case No: 3006/2011
Michael Green QC and Catherine Addy (instructed by Wragge & Co LLP) for the Claimant
Mark Cunningham QC (instructed by Clintons) for the Second Defendant
Mohammed Zaman QC instructed by Neil Davies & Partners LLP for the Third and Fourth Defendants
The First Defendant did not appear and was not represented
Hearing dates: 3 rd-4 th November 2011
This is an application by the claimant, the Secretary of State for Business, Innovation and Skills, for permission pursuant to section 7(2) of the Company Directors Disqualification Act 1986 (" CDDA") to make applications for disqualification orders against the four named defendant directors of Instant Access Properties Limited ("the Company"), notwithstanding the fact that the period of two years, beginning with the date on which the Company became insolvent, has expired.
The Company was involved in the business of sourcing residential property investment opportunities in the UK and abroad. It derived its revenues from client membership fees and subscriptions, finder's fees payable by members and commissions payable by developers.
The burden of the Secretary of State's case against all four defendants is that between May 2003 and September 2008 the defendants and each of them caused or allowed the Company to structure its affairs in such a way that the UK tax authority, HMRC, received less money than was properly due to it, by (a) creating a sham arrangement which diverted income properly due to the Company to Leadenhall Group Limited, a BVI company ("Leadenhall") and (b) misrepresenting the true position to HMRC.
Each defendant is alleged to have been a director, or shadow or de facto director as follows:
i) Ms Gifford was, according to records at Companies House, appointed as director on 23 rd October 2003 and remained a director throughout the relevant period;
ii) Lumley was recorded in the records at Companies House as having been appointed a director on 31 st October 2003, but, according to the minutes of a board meeting of the Company said to have been held on 23 rd October 2003, it was resolved by the Company that Lumley be appointed as a director as of that date. Mr Philip Donnison is one of the directors of Lumley. Mr Donnison is also the senior partner of Jeffcote Donnison who were IAP's tax advisors. He does not accept that Lumley was made a director before 31 st October;
iii) Mr Moore was appointed as a director, according to the Companies House records, on 1 st March 2003. He resigned this position on 23 rd October 2003, but it is alleged by the Secretary of State that he was at all material times a de facto and/or a shadow director of the Company;
iv) Mr Rosser was never appointed as a director of the Company, but it is likewise asserted against him that he was at all material times a de facto or shadow director of the Company.
So far as shareholdings are concerned, Mr Moore has accepted that he has effective control, through a trust, of over 70% of the Company's shares. Mr Rosser has accepted that he could be considered to have an indirect shareholding of some 20%.
The Company was placed into administration on 19 th September 2008. About three months later, on 21 st December 2008 the Company was placed into liquidation, the joint administrators becoming the joint liquidators. It is common ground that the period during which the Secretary of State could make an application for disqualification of directors without the permission of the Court expired on 20 th September 2010, the two year anniversary (allowing for the fact that the period expired on a Saturday) of the date on which the Company was placed into administration. In fact, the claim form was not issued until 13 th April 2011, some seven months out of time. No notice of the fact that the Secretary of State was still considering disqualification proceedings was sent to the defendants on the expiry of the two year period in September 2010. Instead on 14 th January 2011 a letter was sent to each of the defendants by the Insolvency Service indicating that the investigation was still continuing, and that careful consideration was being given as to whether it was appropriate to ask the Court's permission to commence proceedings. The letters stated that the directors should not assume that an application either would or would not be made, but that it was a possibility. The allegation of causing revenue that would otherwise have been the Company's to be received by Leadenhall, and that Leadenhall purported to carry on activities which it did not in fact carry out, reducing IAP's liability for corporation tax, was also summarised in the letter.
The second to fourth defendants have served evidence (in the case of the second defendant through Mr Donnison) and have appeared on the application to resist the making of the order. The first defendant has not appeared or been represented, although a letter which she has written, dealing with the prejudice she says she will suffer, was drawn to my attention.
The legal approach
The approach to be taken by the court in deciding whether to grant permission under section 7(2) has been considered in a number of cases. First, it is important to have in mind throughout that the two year period is not a limitation period, but merely a period during which proceedings can be brought without permission. After the period has expired a defendant director does not acquire an immunity from suit. All that occurs is that the Secretary of State needs to surmount an additional hurdle. Thus, in Re Blackspur Group plc, Secretary of State for Trade and Industry v Davies [1996] 4 All ER 289, Millett LJ said at 298j-299b:
"I do not find it helpful to describe s 7(2) of the 1986 Act as a limitation provision, or to regard the grant of leave as depriving the respondent of an accrued immunity from suit. The grant of leave is built into the two-year period. Parliament clearly recognised that the two-year period might not be sufficient in every case. Even before the period expires, proceedings cannot be brought unless the Secretary of State has first determined that it is expedient in the public interest that they should be brought; after it has expired, the further requirement is imposed that the leave of the court should be obtained. There are then two preconditions instead of one, but that is all. Once the two-year period has expired, delinquent directors are not immune from disqualification proceedings; they are immune from such proceedings brought without the leave of the court, but that is a very different thing."
A second background factor which it is important to have in mind is that the Secretary of State is not seeking to vindicate a private right, but to act in the public interest to protect the public from the conduct of persons alleged to be unfit to be directors of companies: see for example per Millett LJ in Re Blackspur (above) at 296j-297a.
It is clear that the discretion of the court under section 7(2) is a wide and unfettered one, subject to the limitation that it must be exercised judicially. Some of the important factors to be taken into consideration in the exercise of the discretion were summarised by Scott LJ in Re Probe Data Systems Ltd (No 3), Secretary of State for Trade and Industry v Desai [1992] BCLC 405, in which Scott LJ stated at 416:
"In considering an application under s 7(2) for leave to commence disqualification proceedings out of time the court should in my opinion, take into account the following matters: (1) the length of the delay, (2) the reasons for the delay, (3) the strength of the case against the director, and (4) the degree of prejudice caused to the director by the delay."
In Blackspur, Millett LJ rejected a submission that the reasons given by the Secretary of State for the delay had to reach a threshold of adequacy before the court could grant permission, irrespective of other considerations. He said this at 299j-300a:
"The Secretary of State is, therefore, obliged to explain why he failed to issue the proceedings or serve the supporting evidence (as the case may be) in time. But once an explanation is given it becomes a matter to be considered together with all the other relevant circumstances. There is, in my opinion, no justification for treating the adequacy of the explanation as a free-standing or threshold test which must be satisfied before other considerations can be taken into account. There is no support for such an approach in the authorities, and it is incorrect in principle as well as unworkable in practice."
However, Millett LJ continued:
"In the absence of a deliberate decision to disregard the rules, or to overreach or take an unfair advantage of the other side, there is no such thing as a reason for the delay which is 'good' or 'bad' in itself, regardless of the circumstances, or which is inherently unacceptable."
Mr Zaman QC, who appeared for the third and fourth defendants, stressed this latter sentence in support of a submission that the delay in the present case involved a deliberate decision to disregard the rules. I return to that submission in context.
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