Travel Agent Hit With Director Disqualification Compensation Order

Overview Of Travel Agent Hit With Director Disqualification Compensation Order

A travel agent hit with a Director Disqualification Compensation Order was ordered to pay the sum of £81,405 plus interest at 1.5% per annum from the date of Liquidation. The case of Secretary of State For Business and Trade v Barnsby (Re Pure Zanzibar Ltd) (Rev1) [2023] EWHC 2284 (Ch) sprouted on 20 September 2023.

We previously reported in Financial Frontline on 4 May 2022 in the post, Travel Agent Banned For 7 Years about the Director Disqualification Proceedings that foreshadowed this latest Court episode arising from the Creditors Voluntary Liquidation of Pure Zanzibar Limited (“the Company”). 

It has taken over 3 years for this matter to navigate through the Court system with the claim issued by the Secretary of State on 7 February 2020 culminating in Director Disqualification Proceedings and a subsequent disqualification order of 7 years for the Director (“TB”).

What Is A Company Director Disqualification Compensation Ordrer?

A Director Disqualification Compensation Order can be issued on an application to the Court in light of Section 15A of the Company Directors Disqualification Act 1986. The principle requirement is that there is a Director Disqualfication Order made in respect of an insolvent company (that has gone into Liquidation or Administration) and a loss has been suffered by creditors. 

What Is The Purpose Of A Company Director Disqualification Compensation Ordrer?

The purpose of a Director Disqualification Compensation Order is to provide compensation for creditors when they have not been adequately compensated by the insolvency regime and reassure the public that wrongdoers are held to account thereby giving confidence in that regmie.

This position was explained in the case The Secretary of State for Business, Energy And Industrial Strategy v Eagling [2019] EWHC 2806 (Ch):

So the intention was to enhance in the public interest the protective aspect of the disqualification regime by giving monetary redress to creditors financially affected by the misconduct, thereby giving the regime as a whole more ‘bite’, actual and perceived; and also to fill gaps in the exploitation of IA86 remedies…

Loss Suffered By Creditors

Customers of the Company suffered loss in respect of monies paid over by them to it amounting to £81,405 overall.

TB defending the claim said he believed some of the customers may have obtained recompense from their travel insurance policies and or one of them may have done so partially via ATOL. However, TB filed no evidence to support this position.

However, it seems the customers confirmed otherwise. 

Wishful Thinking

The Court robustly dismissed the proposition put forward as a belief by TB:

If the Defendant wished to challenge such evidence, or to contend that any of the Customers received (or became entitled to) refunds from any source at some time after the email exchange of March/April 2019, it was open to him to do so by filing evidence in relation to the compensation application in accordance with the Order of 29 April 2022. Having failed to do so, in my judgment he cannot sensibly invite the Court now to proceed on the basis of his entirely unevidenced (and somewhat self-serving) beliefs that ‘at least some’ of the Customers may have obtained or be entitled to some recompense, whether via individually held travel insurance policies or, in the case of Mr Welfare, through the ATOL scheme itself. This was little more than wishful thinking on the part of the Defendant.

In the absence of any evidence controverting that of the Claimant on this point, this court will proceed on the footing that in relation to the sums listed at paragraph 107 of Mr Elliot’s first affidavit, none of the Customers have received or are entitled to a refund from any source save for the sum of £6215 confirmed by the Hladniks.

Open Offer

Shortly before the latest Court hearing the Defendant, TB, made an open offer to settle the claim at £10,000 which was rejected by the Secretary of State.

Judges Conclusions

The Judge’s conclusions were as follows: 

For reasons explored, I am satisfied that the threshold requirements of s15A are cleared. I am further satisfied that the loss caused by the Defendant to the Customers by his conduct (net of interest) is that set out at paragraph [61] above.

I accept that the court retains a discretion as to whether or not to grant relief under s.15A in circumstances in which the jurisdiction to do so is established. In exercising that discretion, however, the court must have regard to the policy objectives underlying s15A.

On the evidence before me I am satisfied that the appropriate course in the exercise of my discretion is to grant a compensation order in an amount representing the full loss of the Customers as found at paragraph [61] above, together with interest at 1.5% from the date of liquidation. In my judgment the circumstances of this case do not warrant the refusal of a compensation order or the grant of an award in a lesser or minimal sum.

In reaching this conclusion I take into account the factors put forward by the Defendant as summarised at [64] above. In my judgment these factors must however be considered against all relevant circumstances of the case, including the following:

(1) As I found in the 2022 judgment, this was a case of ‘woefully reckless and incompetent conduct on the part of a sole director of a company operating in … a highly regulated framework’ which conduct ‘put customers’ money at significant risk’.

(2) The Defendant’s wrongful conduct clearly caused quantifiable loss to each of the Customers, as summarised at [61] above.

(3) The Defendant has made no financial contribution in recompense for his conduct. Indeed, he spent much of the disqualification trial attempting to lay the blame on others.

(4) The Customers have no other means of making recovery, as the Company has now been dissolved with no distribution made to any creditors. Realistically, no-one is now likely to apply to resurrect the Company; and it would not be cost-effective for individual consumers to pursue litigation.

I also take into account the Defendant’s current impecuniosity. Whilst impecuniosity is not of itself, a defence to a claim under s.15A, in principle, a director’s resources (or lack thereof) may be a factor to take into account when the court comes to consider, in the exercise of its discretion, whether to grant relief and, if so, how best to tailor the relief granted to the justice of a particular case.

That said, impecuniosity is only one factor of many to consider. Mere impecuniosity, without more, will very rarely weigh heavily in the balance when the court considers, in the exercise of its discretion, whether and if so in what sum to grant a compensation award. Whilst the discretion is at large, it must be exercised judicially, with due regard to the policy objectives underlying s15A.

In my judgment the court should be slow to allow mere impecuniosity, of itself, to dictate the outcome of a s.15A application; particularly where, as here, that impecuniosity is, in part at least, a result of lifestyle choices freely adopted. Such an approach would risk undermining the policy objectives underpinning s.15A, as summarised at [25(2)] and [26] above.

Given the Defendant’s age and abilities, it cannot be said that a compensation award would serve no purpose in this case. There is scope for recovery on the award. The Defendant has been sole director of a company and running a travel agency; it is entirely possible that he will take up full time employment again at some point in the future.

Even if the Defendant were to declare himself bankrupt as he has indicated, it would be open to his trustee in bankruptcy to seek an income payments order.

The ‘global settlement’ open offer of £10,000 put forward by the Defendant shortly before the hearing was plainly unacceptable. That sum would not even cover the Claimant’s costs and would not benefit the Customers at all.

In my judgment, the nature of the Defendant’s conduct, involving as it did breaches of important legislation intended to protect the public, cynically ignored by the Defendant after 31 March 2017, is sufficiently serious to merit a compensation order for the full amount of the loss plus interest. This was not a case of ‘relatively minor negligence’ which might lead the court to balance ‘the claimed loss against the nature of the conduct’, as suggested in Re Noble Vintners at [44]. The Defendant’s recklessness and incompetence was wilful and defiant; he had been told by the CAA on four separate occasions not to take new licensable bookings. He had also been told by the CAA to refund any deposits paid by customers for licensable bookings prior to expiry of the ATOL which were referable to holidays scheduled to take place post-expiry. He knew what a licensable booking was. He took the risk with the Customers’ money and must now live with the consequences.

In my judgment, nothing short of an award in the full amount of the loss plus interest at 1.5% will suffice in this case. Directors cannot escape liability under the compensation order regime by pleading impecuniosity and offering a derisory sum at the last minute. The Defendant must face the full consequences of his actions.

I shall therefore make a compensation order in the sum of £81,405 plus interest at 1.5% per annum from the date of liquidation.

This case shows how a Director of a Limited liability company may be at risk if they are judged by the Court to have engaged in a breach of their Directors’ duties that it considers caused a loss to creditors where the insolvency regime might not give them satisfactory compensation. It also shows the requirement for a litigant to support their case with evidence, particularly when they wish to rebut the consequences of previous Court findings.