Scottish Court of Session Decisions

In these four petitions, the Secretary of State for Trade and Industry seeks disqualification orders in respect of the Companies Directors' Disqualification Act 1986, ("the 1986  Act") against all four respondents alleging unfitness on the part of each of them to be concerned in the management of a company. The four respondents were all directors of the same company and the petitions are to all intents and purposes identical.

The respondents respectively lodged answers stating inter alia a preliminary plea to the competency of the applications on the basis of statutory time bar.

The case called before me on Procedure Roll upon the basis that those pleas would be argued. Mrs Wolffe, who appeared for the petitioner, informed me that she had understood from those instructing her, that at least one of the respondents would be present in court to argue the point but, despite some indulgence of time and a number of callings over a period an hour, no such appearance materialised. Mrs Wolffe thereupon moved me to repel the plea to competency in each process but being such, I took the position that I required to be satisfied by argument that the pleas fall to be repelled and Mrs Wolffe readily responded to that request.

The basic power, which is in fact a duty in respect of disqualification of company directors on grounds of unfitness to hold office, is to be found in Section 6 of the 1986 Act and effectively requires there to be both the presence of the element of insolvency in the relevant company, and conduct on the part of a respondent rendering him unfit. If those two elements are satisfied, the court must impose a disqualification although it has a discretion as to length of time.

Against that background, an application to obtain a disqualification in terms of Section 7(2) of the same act "shall not be made after the end of the period of 2 years beginning with the day on which the company in which that person is or has been a director became insolvent". Thus it is self evident that in any given case, the particular date has to be established to meet the phrase "day on which the company became insolvent".

To determine that matter as a matter of general law, it is necessary to turn to the Insolvency Act 1986 which provided inter alia by Section 247(2) as follows:-

This provision is in contrast to provisions relating to the commencement of a winding up of the company which are regulated by Section 129 of the same Act where the date in question in general terms is governed by the presentation of the petition for winding up.

The net result of these various provisions, Mrs Wolffe submitted, was that there was a different time element with regard to considerations of a date of insolvency when contrasted with the commencement of winding up process, which might bear, for example, upon diligences existing at that time.

In order to determine the correct definition of the date when a company became insolvent in terms of the 1986 Act, it is necessary to go to the interpretation section, which is Section 22, which in sub-section (3) it is as follows:

If the position were in any doubt, this precise question was considered by Hoffman J in re Walter L Jacob & Co Ltd 1993 BCC 512 where his Lordship determined the competing claims for the relevant date as between the commencement of the winding up on the one hand and an order of the court which pronounces the initial winding up order, and determined by reference to the statutory provisions that it was the latter date.

With this position, I am in complete agreement and I am satisfied, therefore, for the purposes of determining when time starts to run in respect of Section 7 (2) of the 1986 Act, one has to ascertain the date upon which the court pronounced the initial order in the winding up process.

However, the matter does not end there, since once the tempum punctoris has been established to commence the 2 year period, it still has to be shown that the application was "made" within 2 years of that date. In this respect, there are two competing dates, namely the date upon which the petition is presented to the court and the date of service, which may well be later.

This competition has been considered judicially, firstly, in Secretary of State for Trade & Industry v Josolyne 1990 SLT (Sh. Ct) 48 and secondly, in Secretary of State for Industry v Normand 1994 SLT 1249. In both cases it was determined that the relevant date was the date when the petition was first presented to the court.

The general line of reasoning with which I am in complete agreement is that in respect of actions initiated by summons or initial writ, there is no conjoining of parties so as to involve the Court's jurisdiction until the defender had been cited by service, which is a unilateral act effected by the pursuer upon obtaining the necessary warrant, be it from the Sheriff Court or under the Signet. However, with regard to petitions they are directly under the control of the court from the moment they are presented. A conjunction is not necessary in the sense of delaying any power of the court until such time as the petition has been served. If that were not sufficient, it seems to me in any event as a matter of statutory interpretation that when an application is "made by petition" that step is complete as soon as it is presented to the court.

In the present case the facts are not in dispute, applying the later date in respect of the issue of insolvency and the earlier date in respect of the making of the application. The initial order in the winding up process declaring insolvency was made on 23 November 1993 when an interim liquidator was appointed and the petitions were presented on 22 November 1995. Accordingly, by the narrowest of margins, these applications were not out of time.

In the foregoing circumstances, I shall grant Mrs Wolffe's motion in each case and repel the first plea-in-law relating to competency.

In the absence of any representation on the part of the respondents, I will put the case out By Order 14 days from the date of the hearing in order to determine future procedure which, in the meantime, may have been resolved by agreement. In that case, an appearance would not be necessary.