Can You Act As A Director Whilst Disqualified? No but…

The answer to the question Can You Act As A Director Whilst Disqualified? is plainly no you cannot. However, what you can do is apply to the Court for permission to act but you can potentially face an uphill struggle.

Brown v Competition and Markets Authority (Re NRLB Ltd – Brown and Mason Group Ltd – Company Directors Disqualification Act 1986) [2024] EWHC 206 (Ch) was a case involving Nicholas Brown of Brown and Mason Group Limited (“BMG”) who offered to the Competition and Markets Authority (“CMA”) director disqualification undertaking for 7 years under Section 9B of the Company Directors Disqualfiication Act 1986. The CMA were it seems seeking 8 years:

On 19 May 2023 Mr Brown offered an undertaking under s.9B CDDA for a period of 7 years commencing on 28 July 2023, as against the 8 years which the CMA would have suggested as an appropriate period at trial. The 10-week commencement period was to allow Mr Brown the opportunity to put his affairs in order and/ or to make an application for permission to act.

On 13 July he issued this claim for permission under s.17 CDDA in respect of BMG and its holding company, NRLB Limited (“NRLB”), supported by 16 affidavits, which have been supplemented by evidence in reply to the CMA’s. The CMA opposes the application.

This followed a CMA investigation into suspected anti-competitive conduct involving 10 firms including BMG.

The Court refused the application for permission subject to a run-off period:

I will therefore refuse Mr Brown’s application in respect of BMG, subject to a run-off period which will be discussed below.

Mr Brown applied for permission under Section 17 of the Company Directors Disqualification Act 1986 for permission to act as a Director.

In order to be granted permission Mr Brown agreed to a series of conditions.

His application was supported by evidence from a whole series of third parties but also a series of admissions that the Court said: 

On this application it is not open to Mr Brown to go behind those admissions.

What Are The Principles Of Section 17 Permission To Act As A Director?

The Court has unfettered discretion in determining if it will give permission to someone to act as a Director whilst disqualified

There are a number of principles that the Court will typically consider when faced with an application for permission under Section 17 of the Company Directors Disqualification Act 1986:

• It is the Court which has unrestricted discretion to grant permission under Section 17 to allow a person the ability to act as a Director.
• The burden is on the director making the application.
• The Court takes into account the nature and degree of the alleged misconduct. Permission is not granted too readily, particularly if there has been any dishonesty.
• Account will be taken in respect of the need to avoid undermining the disqualification regime and ensure its deterrence is maintained.
• It might be in the public interest to permit a director to act as such even whilst disqualified.
• An application for permission with acceptance of conditions may itself be considered promoting a policy of deterrence.

Purpose Of The Disqualification Regime

Public protection is at the heart of the director disqualification regime

The purpose of the director disqualification regime is:

• To protect the public.
• Not to punish the director.
• Permission being granted is a balancing process being that of need as against deterrence.

The CMA’s Position

The CMA suggested that permitting Mr Brown to act would undermine the deterrent effect of the disqualification regime in competition cases:

It “regards Mr Brown’s conduct as a paradigm example of cartel activity that is hard to detect, time consuming and costly to enforce, ostensibly very profitable for the undertakings involved and deleterious for the consumer and the wider economy”.

The Court’s Decision

The Court after consideration of the admissions made refused amongst other things the application save for a run off period which had the overall effect of providing permission for a 1 year period.

The Court’s balancing exercise was expressed in the following paragraphs in respect of BMG:

This wide public interest must of course be placed in the balance against Mr Brown’s individual interests, and the interests of BMG and its staff and those with whom it deals. But it is a public interest which on the evidence is under a degree of threat were this application to be granted. Further, it must be recalled that the burden is on Mr Brown. Here, he has admitted the Infringements, which he brought about and the economic benefit of which he later caused to be pursued through the issue of false invoices. The Shell Building Infringement was one of cover bidding, a dishonest activity. Mr Buckley submits that there have been no breaches since 2014, but on 2 May 2017 Mr Brown was still ensuring Brown and Mason gained the economic benefit of the Shell Building Infringement through the submission of the final false invoice to McGee. Moreover, the Infringements and the invoices were at a time when year on year Brown and Mason was proclaiming to the United Nations its adherence to the UN Global Compact and its “zero tolerance policy towards corruption and bribery”. That proclamation was entirely hollow.

It is right to say that Mr Brown’s disqualification was “only” in the Sevenoaks middle bracket; but as was said in Fourfront, the main consideration is not the period but the reasons for disqualification.

I also bear in mind that Mr Brown has demonstrated a cogent reason for his continuance in office; and that there is a likelihood that his exclusion from that office will cause significant if not catastrophic economic harm to BMG and those interested and dealing with it. I am not, though, persuaded that Mr Brown acting as a consultant is doomed to failure; nor that an outsider or possibly outsiders could not be found to fulfil his role.

I also recognise, with the qualifications described, that BMG has overhauled its compliance regime and expended considerable sums (including covering the reasonable costs of the CMA) in effecting that regime and agreeing the interim conditions; and that there is nothing to suggest those conditions, in place now for 6 months, have not been and will not be effective (subject always to any desirable adjustments).

However, this is also a case, as was Morija, in which the self-same Mr Brown is proposed to be left at the head of the entity which offended both against the UN and the UK competition laws, for the entirety of the period of his disqualification. That seems to me an overly great intrusion into the public benefits of this disqualification.

I will therefore refuse Mr Brown’s application in respect of BMG, subject to a run-off period which will be discussed below.

As a cross-check, I do not consider that our postulate member of the public would be offended by that conclusion.

That conclusion is reached without consideration of the additional, specific, evidence. One element of that is directly related to Mr Brown: Mr Yap’s erroneous belief that disqualification may only be effective at the conclusion of this application. Another is in the reporting of Mr Cluskey’s permission in the trade and other press. Construction News ran an article on 15 May 2023 describing Mr Cluskey’s application as an “appeal against his CMA disqualification”, and on 30 May reported the decision as a “win” for him, the headline being “Former Cantillon MD wins court case over cover-bidding disqualification”. The Global Competition Review of 25 May 2023 had a headline “CMA loses director disqualification case”. On 30 May 2023 Building wrote of the “High Court… appeal decision”, and, more accurately, of how “while not technically a reversal of his disqualification, [it] will allow him to continue to act”.

As I have said, this is not evidence which can simply be swept under a lawyer’s carpet as erroneous. This is how Mr Brown’s disqualification has been perceived by a professional; and Mr Cluskey’s in the press. These reactions, consequent on the s.17 applications, themselves erode the public benefit in a strong competition regime, and must therefore tell against the granting of permission; though in this case that is simply an additional element, given the other evidence.