Directors disqualification-unusual recent cases

Most directors’ disqualification cases concern an application for the disqualification of an individual who has acted inappropriately in his duties as director of a company. However, two unusual recent cases widen the range of disqualification actions usually seen in the UK courts.

Wood v Mistry (10 July 2012)

Facts of the case

The liquidators of a group of companies successfully brought disqualification proceedings in the English High Court against the companies’ former liquidator under the Company Directors Disqualification Act 1986. The case is unusual in that the proceedings were initiated by liquidators (rather than the Secretary of State) and were against a former liquidator rather than a director.

The subsequent liquidators of the companies initiated disqualification proceedings against Mr Mistry who they claimed had, while acting as liquidator, dishonestly diverted funds from the companies for his own financial benefit, paid invoices that he knew to be fraudulent and failed to recover sums from third parties for the benefit of the companies.

Judgement

The judge said that the court should make a disqualification order against a liquidator only where “serious misconduct” was established. He rejected the defence submission that the liquidators must have a financial interest in the disqualification order being made, and noted that the purpose of disqualification is essentially for the protection of the public, and a liquidator’s functions include the consideration of criminal or civil sanctions in respect of misconduct.

The judge was satisfied that Mr Mistry’s conduct had been “grossly improper” and granted a 12-year disqualification order.

Comment

It is worth noting that where a liquidator pursues disqualification proceedings, there is no financial gain for the insolvent company’s creditors. Therefore, before making an application, a liquidator may wish to obtain confirmation of support from the company’s creditors including funding in appropriate cases.

Cunningham v HM Advocate (16 May 2012)

Facts of the case

Mr Cunningham was appealing against a conviction by a jury in Edinburgh Sheriff Court for contravening a twelve year directors’ disqualification order made in 1999 by being concerned in the management of a company in 2003 and 2004.

As the original disqualification order contained the condition that Mr Cunningham could not be a director or take part in the promotion, formation or management of a company “without the leave of the court”, it was submitted on behalf of Mr Cunningham that it was for the prosecution to establish by corroborated evidence that leave had not been granted, and that as this had not been established the prosecution must fail.

Judgement

The appeal court held that if Mr Cunningham had received leave from a court to act in contravention of his disqualification order, this could easily be proved by him and that the onus was on him to establish that leave had been granted. For this reason, the defence submission was not well-founded and was rejected. Proceedings were continued for an appeal against sentence.

Comment

The facts of these cases are unusual. Nevertheless, the two judgements do provide useful guidance on the court’s approach and highlight the serious consequences of engaging in fraudulent activities or acting in contravention of a disqualification order.