The Secretary of State for Business, Energy and Industrial Strategy v Anthony Jon Domingo Armstrong Emery
| Jurisdiction | England & Wales |
| Judge | Briggs |
| Judgment Date | 28 February 2019 |
| Neutral Citation | [2019] EWHC 578 (Ch) |
| Docket Number | Case No: CR-2017-000310 |
| Court | Chancery Division |
| Date | 28 February 2019 |
[2019] EWHC 578 (Ch)
IN THE HIGH COURT OF JUSTICE
THE BUSINESS AND PROPERTY COURTS ENGLAND AND WALES
INSOLVENCY AND COMPANIES LIST (ChD)
Rolls Building
7 Fetter Lane
London
EC4A 1NL
CHIEF INSOLVENCY AND COMPANIES COURT JUDGE Briggs
Case No: CR-2017-000310
Tiran Nersessian (instructed by HOWES PERCIVAL LLP) for the CLAIMANT
THE FIRST DEFENDANT NOT APPEARING
THE SECOND DEFENDANT IN PERSON
Hearing dates: 18, 19, 20 February 2019
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.
CHIEF INSOLVENCY AND COMPANIES COURT JUDGE Briggs
Chief ICC Judge
The Secretary of State for Business, Energy and Industrial Strategy (the “Claimant”) seeks a disqualification order against Mr Anthony Armstrong-Emery (recorded at Companies House as Mr Emery (“Mr Emery”)) and Mr Xavier Wiggins (“Mr Wiggins”) pursuant to section 6 of the Company Directors' Disqualification Act 1986 (the “Act”). The proceedings relate to two companies. The first is EcoHouse Developments Ltd (“Developments”) and the second EcoHouse Group Developments Limited (“Group”). Mr Emery was a director of Developments. Mr Wiggins was a director of Group only.
In this judgment I shall set out the legal principles applicable to disqualification and then the structure shall take the following form:
2.1. The rise and fall of Developments.
2.2. The purpose of Group.
2.3. Promotional material.
2.4. The allegations made by the Claimant.
2.5. The defence of Mr Emery.
2.6. The defence of Mr Wiggins.
2.7. Witnesses of fact.
2.8. Disqualification.
2.9. Period of disqualification.
Legal principles
I start with the legislation. s6(1) of the Act provides:
“The court shall make a disqualification order against a person in any case where, on an application under this section, 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 … makes him unfit to be concerned in the management of a company.”
The requirements of sub-sections (a) and (b) of s6(1) must be satisfied for the court to make a disqualification order. Where the requirements are met such an order is mandatory. A disqualification order is defined in s1(1) of the 1986 Act as being:
“… an order that he shall not, without leave of the court—
(a) be a director of a company, or
(b) be a liquidator or administrator of a company, or
(c) be a receiver or manager of a company's property, or
(d) in any way, whether directly or indirectly, be concerned or take part in the promotion, formation or management of a company, for a specified period beginning with the date of the order.”
By virtue of s6(4), if the court makes a disqualification order under s6, the specified period is between two and 15 years.
It is settled that each case must turn on its own facts and a “failure to appreciate or observe the duties attendant on the privilege of conducing business with the protection of limited liability is likely to lead to a disqualification order: Re Stanford Services Ltd (1987) 3 BCC 326, 336. On the other hand, Sir Nicholas Browne-Wilkinson V-C explained in Re Lo-Line Electric Motors Ltd (1988) 4 BCC 415, 419:
“Ordinary commercial misjudgement 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 that in an extreme case of gross negligence or total incompetence disqualification could be appropriate.”
I am not sure if there is a difference between “gross negligence” and “total incompetence” but the overall meaning is clear. For a disqualification order to be made something more than a failure to act with due care and skill is required. Some courts have said that there needs to be a “high level” of incompetence: Secretary of State v Hollier [2007] BCC 11. In Re Bath Glass Ltd (1988) 4 BCC 130 Peter Gibson J preferred to say that the court must find a serious failure:
“To reach a finding of unfitness the court must be satisfied that the director has been guilty of a serious failure or serious failures, whether deliberately or through incompetence, to perform those duties of directors which are attendant on the privilege of trading through companies with limited liability.”
If the failure is serious it matters not whether it was deliberate or through incompetence. If deliberate the period of disqualification may be greater. It is perhaps useful to see how incompetence was treated in Re Continental Assurance Co of London Plc [1996] BCC 888, 896 where Chadwick J (as he was) considered the duties of directors and observed:
“Those in the position of Mr Burt, being senior employees of major banks, who accept appointment as directors of client companies of those banks, are lending their name and the respectability associated with their employer to the board of directors of that client company. Those dealing with the client company are entitled to expect external directors appointed on the basis of their apparent expertise will exercise the competence required by the Companies Act 1985…. The competence required by the 1985 Act extends, at the least, to a requirement that a director who is a corporate financier should be prepared to read and understand the statutory accounts of the holding company of the company of which he is a director….” (my emphasis)
An allegation of causing or allowing may be treated as if it is an allegation of incompetence: Re Continental Assurance Co of London Plc 896 D-E. Relevant to the allegations in this case is the treatment of marketing material designed to induce investors. In Re Walter J Jacob & Co Ltd [1989] BCLC 345 the Secretary of State authorised an officer of the Department of Trade and Industry to examine the books and records of the company which resulted in a petition to wind up. The affidavit alleged that the company had been giving investment advice in a way that was misleading in that it gave the impression that the company was giving disinterested advice on shares whereas it was the owner of the shares. Nicholls LJ said (p359):
“In the present case I am in no doubt that the method by which the company sought to persuade, and did persuade, investing members of the public to purchase shares in ESPI and Magnacard was unacceptable. The more unusual and speculative the investment, the heavier is the burden resting on a vendor of shares to ensure that the contents and get-up of his sales literature are not misleading, either as to the nature of his interest in the shares, or as to the absence of any unusual restrictions affecting the shares, or as to his connection with the company in question, or otherwise.”
Mr Nersessian submits that it was incumbent upon the directors of Group and Developments to ensure that any promotional material used was accurate and did not mislead. He rightly takes the court to Re Grayan Building Services Ltd (in liq.) [1995] Ch 241, and the judgment of Hoffmann LJ, with whom Neill and Henry LJJ agreed:
“It must decide whether that conduct, viewed cumulatively and taking into account any extenuating circumstances, has fallen below the standards of probity and competence appropriate for persons fit to be directors of companies.”
In the same case Neill LJ commented (258C):
“Those who trade under the regime of a limited liability and who avail themselves of the privileges of that regime must accept the standards of probity and competence to which the law requires company directors to conform.”
As a disqualification order carries significant consequences for a defendant, not only in respect of the business reputation of the director but also as a serious interference with the freedom and ability of the director to pursue a business career, it is important to have in mind that it is for the Claimant to discharge the evidential burden of proof: Re Hollier, cited above.
As to any period of disqualification, if the Court considers that the conduct of a director merits a disqualification order it must disqualify him for between 2 and 15 years. The leading case on disqualification period is Re Sevenoaks Stationers (Retail) Ltd [1991] Ch 164. Dillion LJ gave guidance on period dividing the period between 2 years and 15 years into brackets of seriousness:
13.1. the top bracket – over 10 years, reserved for particularly serious cases;
13.2. the middle bracket – 6–10 years, for serious cases that do not merit the top bracket; and
13.3. the minimum bracket – 2–5 years, for cases that are not, relatively speaking, very serious.
In Re Westmid Packing Services Ltd (No. 2) [1998] B.C.C. 836 the Court of Appeal reiterated that that the primary purpose of disqualification is to protect the public against the future conduct of companies by persons whose past records show them to be a danger to creditors and others. Other factors may also come into play in the wider interests of protecting the public, such as a deterrent element in relation to the director himself and a deterrent element as far as other directors are concerned. The period of disqualification must reflect the gravity of the offence. Matters of mitigation may also be taken into account, such as including the former director's age and state of health, the length of time that he has been in jeopardy, whether he has admitted the offence and his general conduct before and after the offence.
The rise and fall of Developments
Developments was incorporated on 28 May 2010, began trading...
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