The Secretary of State for Business, Energy and Industrial Strategy v Edward Charles Ormond Steven
| Jurisdiction | England & Wales |
| Judge | Russen |
| Judgment Date | 12 June 2018 |
| Neutral Citation | [2018] EWHC 1331 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: D31BS600 |
| Date | 12 June 2018 |
[2018] EWHC 1331 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS IN BRISTOL
INSOLVENCY & COMPANIES LIST (Ch D)
Bristol Civil & Family Justice Centre
2 Redcliff Street
Bristol BS1 6GR
HH JUDGE Russen QC
(Sitting as a Judge of the High Court)
Case No: D31BS600
In the Matter of: CQH1 Limited and RTD1 Limited
Mr Jeremy Bamford (instructed by Gowling WLG) for the Claimant
Mr Christopher Brockman (instructed by WilmerHale) for the Defendant
Hearing dates: 17 and 18 April and 11 May 2018
Judgment Approved
HH JUDGE Russen QC:
Introduction
This is my judgment following a trial in the proceedings brought by the claimant, the Secretary of State identified by his then department and style, against Mr Edward Steven (“Mr Steven”).
By proceedings issued on 29 January 2016 the Secretary of State seeks a disqualification order against Mr Steven under section 6 of the Company Directors Disqualification Act 1986 (“ CDDA”).
Disqualification orders under section 6 are made by reference to the conduct of a director (which includes a shadow director) of a company which has become insolvent. As their title indicates, these proceedings have been brought as a consequence of the insolvency of two such companies: CQH1 Limited (“CQH”) which went into compulsory liquidation on 2 June 2014 and RTD1 Limited (“RTD”) which went into voluntary liquidation on 10 February 2014. However, the Secretary of State has also brought under scrutiny Mr Steven's conduct as a director of another company, The Glassblowing House Limited (“GBH”), which went into liquidation on 31 October 2013. As explained below, the language of section 6(1)(b) permits the Secretary of State to extend the court's consideration of Mr Steven's conduct to that as a director of what might be described as a “collateral company” such as GBH. GBH is not therefore a “lead company” because its liquidation on 31 October 2013 fell outside what, for the purposes of these proceedings, was the two year period (since increased to three years) for bringing a claim under section 6.
The proceedings were originally brought against Mr Steven and also his father, John Steven, as second defendant (and to whom I refer below either as “the father” or “Mr Steven Snr”). This was on the basis that the father was said to have breached a 2 year disqualification order which had been made on 4 May 2012 by being concerned directly or indirectly as a director of CQH, RTD and GBH; in other words, by acting as a de facto director of those companies. However, the Secretary of State discontinued the claim against John Steven on 2 March 2017 and, by a Consent Order dated 12 May 2017, agreed to pay his costs.
With that discontinuance there also fell away a significant part of the allegations made in the continuing proceedings against Mr Steven, namely that he had permitted the father to be concerned, directly or indirectly, as a director of each of CQH, RTD and GBH from the date of commencement of the disqualification made against him (which was 25 May 2012). I should note that, as a consequence, Mr Steven made an application in November 2017 for an order that the claimant should pay the costs thrown away by the withdrawal of that allegation. That application was refused though the Order of District Judge Watkins dated 31 January 2018 made it clear that Mr Steven would be able to raise an argument before the trial judge, at the conclusion of the proceedings, over those particular costs in the context of the costs of the litigation generally.
In essence, what remains of the allegation of unfitness on the part of Mr Steven is that he:
6.1. failed to ensure that CQH complied with its statutory duties in filing returns and making payment to HMRC and additionally that he caused CQH to trade to the detriment of HMRC from 7 January 2013 at the latest;
6.2. failed to ensure that RTD complied with its statutory duties in filing returns and making payment to HMRC and additionally that he caused RTD to trade to the detriment of HMRC and utility suppliers from 22 April 2013 at the latest; and
6.3. failed to ensure that GBH complied with its statutory duties in making payments to HMRC and thereby caused GBH to trade to the detriment of HMRC from 22 April 2012 at the latest.
In relation to each company, the relevant period of allegedly detrimental trading is said to have ended with the cessation of the company's trading upon its sale of the business mentioned below.
It will therefore be noted that the principal victim of the conduct complained about is HMRC, though the suppliers of utilities to RTD (British Gas, E: On and South West Water) are also identified by the Secretary of State as having remained unpaid at the date of that company's insolvency. Although each of the three companies went into liquidation owing certain amounts to other unsecured creditors, those amounts were relatively small in the context of the overall deficiency and it is a theme of the Secretary of State's evidence that Mr Steven caused the relevant company to pay other creditors whilst not making payments to HMRC (and those utility suppliers in the case of RTD) and thereby caused the company to treat HMRC differently to trade creditors, to a material degree. The allegation of detrimental trading was the primary allegation of unfitness, over that based upon the absence of returns, sought to be pressed home during the Secretary of State's closing submissions.
Background
The background to the proceedings may be summarised by reference to a brief synopsis of each company and Mr Steven's position within it. The common theme between the companies is that they each operated a restaurant business on the Devon coast.
GBH
GBH was incorporated on 11 April 2008 and, until its assets were sold in July 2013 to Barbican Restaurants Limited (“Barbican”, a newly incorporated company of which Mr Steven was director) it carried on the business of a licensed restaurant under the name “The Glassblowing House” from premises at Sutton Harbour, Plymouth. Mr Steven Snr. had been a director of the company from incorporation (along with at least one other until April 2009) but he resigned on May 2011 when Mr Steven was appointed in his place. Mr Steven had worked in GBH's business and had risen to the position of Restaurant Manager before he was appointed as director.
The disqualification order against Mr Steven Snr., mentioned above, was made in the Plymouth County Court in May 2012. After the expiry of his 2 year disqualification order the father became the sole director of Barbican, the successor to the business, in May 2015 (Mr Steven having resigned his directorship of Barbican in October 2013 in favour of Ms Ashlee Scott who herself resigned in May 2015).
Mr Steven was a director of GBH between 1 May 2011 and 28 October 2013, shortly before the company entered into voluntary liquidation on 31 October 2013 following the sale to Barbican. In his affidavit filed in these proceedings, Mr Steven refers to GBH having lost a claim brought by a former employee in the employment tribunal in April 2013, resulting in a liability of £59,000, and identifies that unwelcome development (as well as a lack of seasonal trading) as the cause of the company's downfall.
At the date of GBH's liquidation the overall liability to unsecured creditors (including associated companies) stood at £420,011 (and £377,029 excluding associates). The Official Receiver has recognised a liability to HMRC of £130,469 in respect of VAT (including interest and surcharges) and HMRC having submitted a proof of debt in respect of PAYE and National Insurance Contributions of £46,636.
It was the earlier success of GBH, prior to this state of affairs arising, which Mr Steven says inspired him to open other restaurant businesses in the locality.
CQH
CQH was a start-up business which traded as a restaurant under the name “Crab Quay House” from The Fish Quay, Brixham, Torbay. The company was incorporated on 24 May 2011 (under the name Brixham Quay Limited) and Mr Steven was its appointed director from the outset. He was also its sole shareholder. Mr Steven remained a director of the company until 8 April 2014 when Ms Scott was appointed (but then resigned the next day in favour of Mr Steven Snr. even though that further change was not registered until 22 October 2015).
The company was established following Mr Steven's success in a tender process initiated by the local authority to find a tenant for its new building at the Brixham fish market. The restaurant became operational in July or August 2012 and he was responsible for the company's day-to-day administration and all operational aspects. CQH's trading life was less than 2 years as it went into compulsory liquidation on 2 June 2014 on the petition of HMRC presented on 10 April 2014 in respect of a debt of £69,271.71.
Mr Steven attributes the failure of CQH to the unexpected impact of seasonal trade (the winter and off-peak months being exceptionally tough for business) followed by the severe storms of late 2013 and early 2014 (his Director's Questionnaire completed in June 2014 referred to the restaurant being unable to trade for 5 days and the road also being blocked as a result of the storms).
In the month prior to the presentation of HMRC's petition, on 19 March 2014, CQH sold its business to Brixham Quay Restaurants Limited (“Brixham”, a company incorporated in December 2013 with Ashlee Scott as its sole director). At the date of CQH's liquidation the company had a deficiency to creditors of £248,341 with £217,647 owed to HMRC. Including interest and applicable surcharges, the amount owed in respect of PAYE/NIC was £47,351 and the...
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