CHANCERY DIVISION
NEWCASTLE UPON TYNE DISTRICT REGISTRY
B e f o r e :
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IN THE MATTER OF BRAMPTON MANOR (LEISURE) LIMITED | ||
AND | ||
IN THE MATTER OF THE COMPANY DIRECTORS DISQUALIFICATION ACT 1986 | ||
THE SECRETARY OF STATE FOR TRADE AND INDUSTRY | Claimant | |
AND | ||
DAVID HARRY WOOLF | Defendant |
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Crown Copyright ©
4. 1. The Appointment of the Receivers
1. It records that the Receivers will resign their office or submit to an order of the Court removing them once the litigation is resolved. This reflects a letter sent by the Receivers' solicitors dated 13th September 2005. That letter made the point that the allegations were all made against the Bank, and that the Receivers had completed their functions as Administrative Receivers. They had no wish to remain as parties to expensive litigation.2. It directed the trial of a preliminary issue of all issues save for issues as to the quantum of the alleged loss and damage and any remedies.
3. It timetabled the trial for the hearing of the preliminary issue for a trial lasting 12 days in a trial window between 1st July 2006 and 30th November 2006. Built into that timetable (and criticised by Miss Wilson-Barnes) was a stay of 6 weeks following the exchange of expert reports to allow the parties to consider settlement. I was informed that the trial has now been fixed for the week commencing 16th October 2006.
A proportion of the delay has been caused due to funding problems experienced by Leisure. In short Leisure has legal expenses insurance which it has sought to invoke in order to finance its claim but, unfortunately, significant problems have been experienced with its insurers, Capita, and as yet they are still refusing to confirm that the London action will be funded by them. I can confirm, however, that even if the insurers remain intransigent, I intend to cause Leisure to pursue the London action, which I have funded to date, and that all steps will be taken to avoid any additional delays.
1. Mr Woolf caused Leisure to enter into transactions to the detriment of the floating charge holder - the Bank by causing Leisure to enter into a lease with associated companies in contravention of the floating charge. He also failed to disclose in the Statement of Affairs the fact that the premium of £900,000 payable on the execution of the lease had not been paid to Leisure.2. Mr Woolf failed to co-operate with the Receivers following their appointment. The summary lists 6 specific items of complaint including a failure to allow access until ordered to do so by the Court, to produce the lease, to provide information and accounting records when requested.
1. Mr Woolf should offer a disqualification undertaking to the Secretary of State
2. Mr Woolf should then make an application under section 17 of the Act for leave to act as a director of Leisure to the extent necessary to prosecute the London action
3. If Mr Woolf is successful in the London action he should then make an application under section 8A to discharge the undertaking.
6(1) – '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 (either taken alone or taken together with his conduct as a director of any other company or companies) makes him unfit to be concerned in the management of a company.'
6(2) – 'For the purposes of this section and the next, a company becomes insolvent if—(a) the company goes into liquidation at a time when its assets are insufficient for the payment of its debts and other liabilities and the expenses of the winding up, (b) an administration order is made in relation to the company, or (c) an administrative receiver of the company is appointed;'
Where, however, the Secretary of State relies upon the making of an administration order or the appointment of an administrative receiver the position is different. Unless or until the order or appointment is discharged in proceedings properly constituted for the purpose, the Secretary of State is entitled to rely upon it.
In my judgment the preliminary issue should not have been ordered; and having been ordered it should not have been determined in these proceedings. The proper course, should circumstances justify it were a similar case to arise in future, is to stay or adjourn the disqualification proceedings in order to allow the company to bring appropriate proceedings properly constituted against the debenture holder for the necessary declaration. In those proceedings the court would be concerned with the narrow question whether the debenture was valid or the appointment was proper and whether, in all the circumstances, it ought to exercise its discretionary power to set aside the debenture or the appointment or to declare them invalid. In the present case where four years had elapsed between the date of the appointment and the date when application to the court was first made for the question to be decided, it was, in my opinion, out of the question that the court would intervene in an administrative receivership long since spent to declare that the appointment was invalid.[4]
If following the service of these proceedings on Mr Potier, he wanted to challenge the applicant's assertion that International went into liquidation in August 1993, then his correct course was to apply promptly for a stay or adjournment of these proceedings so that he could in the meantime start separate proceedings challenging Mr Alexander's status as liquidator ……
6. The DiscretionJabble was a case under s 6 (2)(c) and Millett LJ contemplated that in some circumstances there might be a stay or adjournment in order to permit separate proceedings to be taken by a company to challenge the validity of a debenture or the propriety of the appointment of a receiver. … But on the facts of the case before him Millett LJ regarded it as out of the question that the court would intervene in an administrative receivership which was long since spent, and that observation seems to me even more apposite in the circumstances of the present case. I would not hold out to Mr Potier any hope at all of success in some future application to the Companies Court.
I am not impressed by these submissions. The proceedings are brought by the Secretary of State in the public interest. There is a public interest in disqualification orders being made in respect of unfit directors of insolvent companies. Section 6(4) of the Disqualification Act prescribes a minimum period of disqualification of two years. It cannot, in general, be right that disqualification proceedings should await the outcome of parallel private litigation. The protection afforded to the public by a disqualification order should not have to wait on the determination of other claims against a director and the speed at which the parties choose to proceed with them. Here there has been no movement in the administrators' action for almost two years. Mr Warren has taken no step to hasten on those proceedings. I can see no justification for staying the disqualification proceedings because of the existence of this presently dormant action. The disqualification proceedings may prove to be mistaken. The allegations of misconduct against the defendants may turn out to be without substance. That is a matter to be determined at the hearing of the disqualification application. The application should proceed to that hearing in the ordinary way.
In this court, Mr Jones put forward the more modest proposal that there should be a stay of these proceedings until the action had been concluded. Even this was not pursued with great enthusiasm. For my part, I think it would be quite absurd. The Secretary of State has a public duty to apply for the disqualification of unfit directors. He cannot be held up indefinitely by other proceedings over which he has no control.
1) There is no principle of law that a claimant in a civil action is to be debarred from pursuing that action in accordance with the normal rules merely because to do so would, or might, result in the defendant having to disclose his defence.
2) The judge in criminal proceedings has extensive powers to control those proceedings in order to ensure a fair trial, and the responsibility for doing justice in the criminal proceedings lies primarily with the criminal court.
3) That is not to say that the civil court has no responsibility in the matter. It has powers, including a power to stay the civil proceedings, which will be exercised if justice so requires, having regard to the concurrent criminal proceedings. Ferris J cited the following statement of Neill LJ in R v Panel on Takeovers and Mergers, ex p Fayed [1992] BCLC 938 at 947:
"It is clear that the court has power to intervene to prevent injustice where the continuation of one set of proceedings may prejudice the fairness of the trial of other proceedings…But it is a power which has to be exercised with great care and only where there is a real risk of serious prejudice which may lead to injustice"Ferris J observed that while the civil court will clearly strive to avoid a manifest risk of injustice, it should not go out of its way to anticipate the existence of a mere possibility of injustice.
4) The Secretary of State has a public duty to apply for the disqualification of unfit directors. Such proceedings are brought in the public interest and the purpose of a disqualification order is the protection of the public. The public interest in bringing such proceedings to a substantive hearing is particularly strong in those cases where serious misconduct is alleged, as will be the case where there are concurrent disqualification and criminal proceedings arising from the same conduct.
I accept Mr Davis-White's submission that it would not be right to order a stay of the disqualification proceedings on case management grounds. Such proceedings are brought in the public interest and they serve an important purpose. The public interest is best served by such proceedings being brought to a conclusion as soon as reasonably practicable. While Mr Carr's proposed undertaking is designed to achieve as much as possible of the effect of a disqualification order, Mr Jones accepts that it achieves less than an order. For example, breach of the undertaking would be a civil contempt of court with a maximum penalty of 2 years' imprisonment, while breach of a disqualification order is an offence punishable by a maximum of 5 years' imprisonment. There is no public register on which the undertaking could appear. While Mr Carr is willing to give an undertaking to be personally liable for debts as provided by section 15 of the 1986 Act as if a disqualification order had been made, there can be no similar liability imposed on his associates (cf section 15(1)(b)). Moreover, if a respondent is to be prohibited from acting as a director, the public is entitled to know as early as reasonably practicable the grounds on which he has been found unfit.
7. SubmissionsThe second point is allied to the first. Section 17 prescribes a method by which a person disqualified may nevertheless obtain leave to act as a director. Further as Chadwick J observed in Re Auto Electro and Powder Finishers the grant of such leave would not have the effect which I assume, for it is not necessary to decide, a stay or suspension would have of shortening the period of the disqualification. Though, as I have already observed, such a dispensation pending appeal may not do justice in all cases in my view, in agreement with Chadwick J, it is the relief which the disqualified director should normally pursue. The usual practice is to require the applicant to give details of the financial standing and management structure of the company concerned. The leave, if granted, may be on condition or subject to undertakings and is confined to the company in respect of which the leave is sought. It seems to me that the interests of the disqualified director and the protection of the public can be more suitably considered on an application for leave to act under that section rather than on an application for a stay pending appeal. The flexibility which it permits is shown by the order of Hoffmann J in Re Ipcon Fashions Ltd (1989) 5 BCC 773 at 776.
Thus the discretion to stay or suspend the disqualification order would, in practice, only be exercised in favour of the applicant if he showed that his case was one of those exceptional cases in which the alternative remedy under s 17 was inadequate. This is not one of those cases; Mr Bannister has not applied to the court prescribed by s 17 for leave to act and has not filed any evidence on this application such as the court deciding whether such leave should be given would require. Accordingly in my judgment this application should be refused for that reason alone.
1. I do not accept that there is a true analogy between this application and the cases cited by Miss Wilson-Barnes in relation in relation to the stay of concurrent civil and criminal proceedings. The crucial distinction between this case and those cases is that the validity of the appointment of the Receivers is a defence to the disqualification proceedings that cannot be determined in those proceedings.
2. I do not therefore accept that before a stay can be granted in a case such as this an applicant must establish serious prejudice. In my view it should be enough that there is a genuine triable issue as to the validity of the receivership which is being prosecuted with due diligence. Both of the decided cases would have failed this test.
3. If I am wrong about this and it is necessary for an applicant to establish serious prejudice then I think Mr Woolf will suffer prejudice in the ways identified by Mr Maynard-Connor. The order itself and the additional expense coupled with the risk of not obtaining an order under section 17 amount to prejudice.
4. In this case Mr Woolf/Leisure commenced their proceedings in December 2002 – some 2 years before the disqualification proceedings were instituted. The proceedings have survived an application to strike out lasting 3 days before the Chief Chancery Master. There has been no appeal. It cannot be said that they do not raise genuine triable issues. Indeed Miss Wilson-Barnes did not so submit. In my view the pleaded allegations make it almost inevitable that the court will have to determine whether the appointment was valid.
5. It is true that there have been delays both in the London action and in making this application. I have given this aspect of the case anxious consideration. The position now is that the London action is now back on track with a trial date next autumn. There is no reason to believe that Mr Woolf is not now prosecuting it with diligence. If there is slippage the undertaking given will be sufficient to enable the Secretary of State to apply to remove the stay. The effect of a stay will not mean that there cannot be a fair hearing of the application in 2007. In all the circumstances I do not think it would be right as a matter of discretion to refuse a stay because of the delays in this case.
6. I accept that there is a public interest in having disqualification applications dealt with speedily and efficiently. I also accept that the Secretary of State has no control over the London action. It seems to me that there is also a public interest in the Court not making disqualification orders when it has no jurisdiction to do so. Thus a balance has to be struck between these 2 public interests. In the circumstances of this case that balance can be accommodated by the undertakings offered by Mr Woolf in his affidavit. In so deciding I am not overlooking the views of David Richards J cited above.
JOHN BEHRENS
Note 1 See the letter of 6th September on p 119 of KAS1 [Back] Note 2 Miss Wilson-Barnes took me to documents at pp 258, 268, 261, 201, 250, and 229 of KAS1 [Back] Note 3 [1998] 1 BCLC 598 [Back] Note 5 [1999] 2 BCLC 352 [Back] Note 6 [1993] 2 AER 741 and [1994] Ch 350 [Back] Note 8 [2001] 2 BCLC 226 [Back]