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Two directors, George Goring and Lee Booth appeared in person successfully defending Director Disqualification proceedings in the matter of Secretary of State for Business and Trade v Goring & Anor (Re Active Ticketing Ltd – Company Directors’ Disqualification Act 1986) [2024] EWHC 1024 (Ch).

When the Secretary of State brings Director Disqualification proceedings they have to show that the conduct of a director is unfit and merits in the public interest being taken out of the business community for a period of time.

It is for the court to determine when a director to be disqualified except when a director disqualification undertaking disposes of such proceedings by consent. The Secretary of State brings the proceedings (which are adversarial) and the directors can and in this case, did defend them. In effect, it is the state versus the individual. However, the state has to be specific when pleading its case as to what the complaint(s) are.

One of the reasons that Mr Goring and Mr Booth successfully defended the Director Disqualification proceedings was because they were said to be entitled to rely upon advice they had received in an area of business they did not already have pre-existing expertise. They appear to have extensively taken and relied upon professional advice.

Successfully Defending Director Disqualification Proceedings

Defending Suggestions Of Incompetence

Directors are not expected to act with perfection. That is not the test for disqualification proceedings. They can make mistakes. Not unlimited in number or seriousness. 

The Court recognised that to be disqualified as a director due to incompetence is a high bar: 

On the issue of the evaluative nature of a decision to disqualify a director for incompetence I was taken to Re Barings (No. 5) [1991] 1 BCLC 433, 481:

“Where, as in the instant case, the Secretary of State’s case is based solely on allegations of incompetence (no dishonesty of any kind being alleged against any of the respondents), the burden is on the Secretary of State to satisfy the court that the conduct complained of demonstrates incompetence of a high degree. Various expressions have been used by the courts in this connection, including ‘total incompetence ‘ (see Re Lo-Line Electric Motors Ltd [1988] BCLC 698 at 703, [1988] Ch 477 at 486 per Browne-Wilkinson V-C), incompetence ‘in a very marked degree ‘ (see Re Sevenoaks Stationers (Retail) Ltd [1991} BCLC 325 at 337, [1991] Ch 164 at 184 per Dillon LJ) and ‘really gross incompetence ‘ (see Re Dawson Print Group Ltd [1987] BCLC 601 per Hoffmann J). Whatever words one chooses to use, the substantive point is that the burden on the Secretary of State in establishing unfitness based on incompetence is a heavy one. The reason for that is the serious nature of a disqualification order, including the fact that (subject to the court giving leave under s 17 of the Act) the order will prevent the respondent being concerned in the management of any company”.

Successfully Defending Fitness To Act As A Director

The Courts have determined its assessment of unfitness as follows:

In Secretary of State for Business, Innovation and Skills v Chohan [2013] EWHC 680 at [170]-[171] Hildyard J. stated the following propositions:

“(1) The court is required by s.[12C] of the CDDA to have particular regard to the matters mentioned in Sch.1 to that Act.

2) However, Sch.1 to the CDDA is not exhaustive: the court is entitled to take into account other conduct in order to determine the question of unfitness: any misconduct of a person exercising the powers of a director may be relevant.

(3) “Unfitness” is ultimately a question of fact, or, as Dillon LJ stated in Re Sevenoaks Stationers (Retail) Ltd [1991] Ch. 164 … “what used to be pejoratively described in the Chancery Division as ‘a jury question'”: but, as the authorities demonstrate, a less pejorative and possibly more accurate description may be a “value judgment” (see Re Grayan Building Services Ltd [1995] Ch. 241 at 255D …). As such, that determination of unfitness involves a comparison with a standard of behaviour against which the conduct complained of may be measured.

(4) Accordingly, as explained by Hoffmann LJ (as he then was) in Re Grayan at 254G …:”The judge is deciding a question of mixed fact and law in that he is applying the standard laid down by the courts (conduct appropriate to a person fit to be a director) to the facts of the case.”

(5) It being a major concern of the CDDA to raise standards and to protect those who deal with companies which have the benefit of limited liability from directors who have in the past departed from such standards, a finding of unfitness does not depend upon a finding of lack of moral probity:

“the touchstone is lack of regard for and compliance with proper standards, and breaches of the rules and disciplines by which those who avail themselves of the great privileges and opportunities of limited liability must abide (see per Henry LJ in Re Grayan)”.

(6) Equally, ordinary commercial misjudgement is in itself insufficient to demonstrate unfitness (see per Browne-Wilkinson V-C (as he then was) in Re Lo-Line Electric Motors Ltd [1988] Ch. 477, 486 …): risks that have eventuated may in retrospect, and with the wisdom of hindsight, appear to have been taken wrongly, but the purpose of limited liability is to provide some protection from risk-taking, subject to proper standards of care and compliance with duty.

(7) As, again, Hoffmann LJ put it in Re Grayan, the court:

“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.”

(8) Although the touchstone of unfitness should reflect the public interest in promoting and raising standards amongst those who manage companies with the benefit of limited liability, the test is always whether the conduct complained of makes the defendant unfit, and not whether it is more generally in the public interest that a person be disqualified: thus, for example, the question is whether the present evidence of the director’s past misconduct makes him unfit, not whether the defendant is likely to behave wrongly again in the future.

(9) In each case the court must consider the director’s personal responsibility:

“it is his personal conduct which is in issue, and it is not sufficient to assume responsibility for some departure from required standards in the management of the company from the fact of his being a director”.

(10) Nevertheless, a “broad brush” is not inappropriate (see Re Barings Plc (No.5); Secretary of State for Trade and Industry v Baker [1999] 1 B.C.L.C. 433, 483, approved by the Court of Appeal [2001] B.C.C. 273, 283), and “responsibility” is not confined to direct executive responsibility for the particular misconduct, and a failure to engage in proper supervision, review or scrutiny of the activities of delegates or fellow directors may suffice (see Re Skyward Builders Plc; Official Receiver v Broad [2002] EWHC 2786 (Ch) at [393]).

(11) The court must consider any allegations of misconduct both individually and in the round: Secretary of State for Trade & Industry v McTighe [1997] B.C.C 224

Directors Of Active Ticketing Limited Defending Director Disqualification Claims

On 14 October 2016 Active Ticketing Limited (“the Company”) provided a first bond of £5,060,000 to 213 individuals who understood it was backed by a bank guarantee. This was a provide short term bridge financing to expand the Company’s dealings in mobile ticketing software.

An investor issued a statutory demand on 25 January 2018 winding up the Company on 20 June 2018.

Sberbank advised the Official Receiver on 13 September 2018 that a bank guarantee was not issued by Sberbank of Russia.

The Secretary of State brought Director Disqualification Proceedings under Section 16 of the Company Directors Disqualification Act 1986.

A key issue was whether or not a bank backed guarantee existed for the bond to safeguard the investors. The Secretary of State said there was no guarantee as put forward in marketing brochures. The Secretary of State said the two directors had not undertaken adequate checks to confirm the existence of the guarantee to secure the investors’ money.

Solicitors acting for Mr Goring and Mr Booth highlighted that they acted on advice in respect of the bond offering.

The duty of the Secretary of State in Director Disqualification Proceedings is not to overstate the case. The Secretary of State acts in the public interest, not as a civil litigant to win at all costs.

Mithani, Directors’ Disqualification chapter 5, para [7] the authors explain:

“The duty of fairness casts the claimant more in the role of a criminal prosecutor whose duty is not to obtain a disqualification order at all cost but to present to the court a balanced view of the evidence with a view to the court deciding whether the claimant’s case that it is expedient in the public interest that a disqualification order should be imposed has been made out.”

Notably, although it seems the Secretary of State cross examination suggested the directors knew there was no guarantee, nevertheless this was not its closing position.

In this instance, the Court made a finding that there was a bank backed guarantee:

If I had to decide whether adequate checks had been made after the execution of the guarantee, I would find in favour of the Defendants. The defence of Mr Goring and Mr Booth is that they reasonably relied on advisors. They did not have access to the original documents as these were held, under contract, by the Escrow Agent. The Defendants relied on the Escrow Agents to inform them if the guarantee was properly executed and binding.

It is worth stating what the case is not about. It is not the Secretary of State’s case that the Defendants were not entitled to rely on Trend Advisors; that Trend Advisors were unqualified to act; that the Company should not have entered contractual agreements with Trend Advisors; or that it was unreasonable to obtain a guarantee from Sberbank.

It is not the Secretary of State’s case that Mr Goring and/or Mr Booth lied about their trip to Belgrade (that is an accepted fact).

The Secretary of State does not assert that Mr Goring did not execute the guarantee.

Mithani on Disqualification [775] sums up the position of reliance on professional advice:

“There are limits to the extent to which a director may rely on professional advice. It may not be reasonable for a director to rely entirely on such advice where he himself has relevant professional experience. In addition, such reliance will not protect him if the advice is obviously wrong.”

It can be said straight away that neither Mr Goring nor Mr Booth had professional experience of bond issuance or obtaining a guarantee to back a bond issue. The Secretary of State does not allege that advice received from Trend Advisors, or any advisor engaged by the Company, was obviously wrong.

There is no doubt that questions were asked about the veracity of the guarantee internally and externally. I accept the evidence of Mr Goring that Monte Carlo Capital had satisfied themselves of the existence of the guarantee having spoken with or contacted Trend Advisors. Trend Advisors continued to act as Escrow Agents and received fees for doing so.

Mr Goring and Mr Booth accept that they made mistakes. It was a mistake to walk away from Belgrade without a signed copy of the guarantee instrument in their possession; and it was an unnecessary short-cut to execute the guarantee in a foreign country without the presence of the Company’s appointed lawyer. Nevertheless, the Company was not without advisors.

Trend Advisors had contractual arrangements with the Company and, owing to the agency agreement, will have been bound by the rules of agency which included fiduciary obligations. The contractual agreement included an obligation to procure a valid guarantee. The agency agreement obliged Trend Advisors to, among other things, retain money from the Company, retain the original guarantee executed at Sberbank, and deal with potential claims from bondholders where the Company had defaulted. The third agreement entered was called a term bond agreement. This ostensibly facilitated, I infer, the issue of a second bond after the expiry (by effluxion of time) of the first. There was a further agreement known as the “Settlement Agreement”. There is no copy of this agreement but the parties agree that it related to the payment of fees by the Company to Trend Advisors in respect of commissions or work done.

The Company and the Defendants acted on advice provided by a London based advisor (Lochwood Capital) and engaged Trend Advisors. Malcolm Johnson was known to the Company and had a reputation for bond issues and taking a company public. It was reasonable for the Company to rely on advice and representations made by these combined advisors.

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Author: Elliot Green
Last Updated: June 12, 2024

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Disclaimer: Successfully Defending Director Disqualification Proceedings

This page is not legal advice and is not to be relied upon as such. This article Successfully Defending Director Disqualification Proceedings is provided for information purposes only. You should take independent advice on the facts of your case. No liability is accepted for reliance upon this post.

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