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OUTER
HOUSE, COURT OF SESSION
[2006] CSOH 153
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P1630/03
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OPINION OF LORD DRUMMOND YOUNG
in the petition of
HER MAJESTY'S SECRETARY OF STATE FOR TRADE
AND INDUSTRY
Petitioner;
for
a Disqualification Order in terms of the
Company Directors Disqualification Act 1986
in respect of
JAMES GERARD
Respondent:
________________
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Petitioner: Ross;
Biggart Baillie
Respondent: Mackenzie, Solicitor; Pinsent Masons
10 October 2006
[1] The
petitioner has raised proceedings against the respondent for a disqualification
order under section 6 of the Company Directors Disqualification Act 1986. The events that gave rise to the petition
arose out of the affairs of a company known as Oakbank (J&S) Limited. It is a matter of agreement that the
respondent was and remains a director of that company. It is further agreed that an order for the
winding up of the company was made in the Court of Session on 18 December
2001, in a
petition at the instance of the Inland Revenue.
The present petition is based upon allegations regarding the respondent's
conduct in the course of the winding up.
[2] Certain
matters of fact are agreed or not in dispute.
These are as follows. The
company, Oakbank (J&S) Limited, was incorporated on 23 April
1998. It traded as suppliers of joinery and stone
services. Its last principal trading
address was at Oakbank, Mid Calder, Livingston.
In the company's returns, 20,000 ordinary shares of £1 each were shown
as issued and fully paid. The
respondent, according to the returns, held 16,000 of those shares. One other shareholder, NWH International Limited,
was disclosed as the holder of the other 4,000 issued shares. The respondent was appointed a director of
the company on 23 April 1998 and remains in office. He was the managing director of the
company. On 18 December
2001, when
the winding up order was made, Thomas Campbell MacLennan, an insolvency
practitioner with Tenon Recovery, Chartered Accountants, 1 Royal Terrace, Edinburgh, was appointed interim liquidator of
the company. At the date of winding up
the company was insolvent. The estimated
statement of affairs prepared by the interim liquidator as at 29 January
2002 (part
of No 6/4 of process) disclosed a deficiency to creditors of £140,275. Both that statement of affairs and the
company's statutory accounts for the year ended 30 September 2000 showed
plant and equipment owned by the company to the value of £57,290.
The relevant
legislation
[3] Section
1 of the Company Directors Disqualification Act 1986 provides that, in the
circumstances specified later in the Act, a court may make a disqualification
order against a person. The effect of
such an order is that the person should not be a director of a company or,
whether directly or indirectly, be concerned or take part in the management of
a company without leave of the court. In
the circumstances specified in section 6 of the Act, the court is obliged to
make such an order. The present
application is made under section 6. So
far as relevant, section 6 is in the following terms:
"(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 ... makes him unfit to be concerned
in the management of a company.
(2) For the purposes of this section ..., a
company becomes insolvent if --
(a) the company goes into liquidation at
the time when its assets are insufficient for the payment of its debts and
other liabilities and the expenses of the winding up,
...
and
references to a person's conduct as a director of any company ... include,
where that company ... has become insolvent, that person's conduct in relation
to any matters connected with or arising out of the insolvency of that company".
Section 7 of the 1986 Act authorizes
the Secretary of State for Trade and Industry to make an application for a
disqualification order against any person if he considers it expedient in the
public interest that such an order should be made. That procedure has been followed in the
present case. Section 9 and
Schedule 1 specify certain matters that are to be taken into account in
determining whether a person's conduct as a director makes him unfit to be
concerned in the management of a company.
In particular, the court is directed, by paragraph 10 of Schedule 1, to
have regard to
"Any failure
by the director to comply with any obligation imposed on him by or under any of
the following provisions of the Insolvency Act --
...
(e) section 131 (statement of affairs in winding
up by the court);
...
(b) section
235 (duty to co-operate with liquidator, etc)".
[4] The
provisions of the Insolvency Act 1986 referred to in paragraph 210 of Schedule
1 are as follows. Section 131 imposes a
duty on inter alios directors to provide a liquidator or provisional liquidator
with a statement of affairs. In relation
to a Scottish winding up, the relevant parts are in the following terms:
"(1) Where the court has made a winding-up order ...
the [liquidator or provisional liquidator] may require some or all of the
persons mentioned in subsection (3) below to make out and submit to him a
statement in the prescribed form as to the affairs of the company.
(2) The statement shall be verified by affidavit
by the persons required to submit it and shall show --
(a) particulars of the company's assets and
liabilities;
(b) the names and addresses of the company's
creditors;
(c)
the securities held by them respectively;
(d) the dates when the securities were
respectively given; and
(e) such further or other information as may be prescribed or as the
[liquidator or interim liquidator] may require.
(3) The persons referred to in subsection (1) are
--
(a) those who are or have been officers of
the company;
....
(4) Where any persons are required under this
section to submit a statement of affairs to the [liquidator or interim
liquidator], they shall do so ... before the end of the period of 21 days
beginning with the day after that on which the prescribed notice of the
requirement is given to them by the official receiver".
Section 235 imposes a general duty on
inter alios directors to co-operate with any liquidator or interim
liquidator. In terms of subsection (1),
together with section 234(1), the section applies where a company goes into
liquidation. In relation to a Scottish
winding up, the relevant parts are as follows:
"(2) Each of the persons mentioned
in the next subsection shall --
(a) give to
the office-holder such information concerning the company and its promotion, formation,
business, dealings, affairs or property as the office-holder may at any time
after the effective date reasonably require, and
(b) attend on
the office-holder at such times as the latter may reasonably require.
(3) The persons referred to
above are --
(a) those who are or have at any time been officers of the company,
..."
"The effective date" is defined by
subsection (4) as, in the present case, the date on which the company went into
liquidation.
The parties'
contentions
[5] The
petitioner alleges that the respondent has failed to co-operate with the
liquidator of the company, and that the effect of that was to hamper the
liquidator in the discharge of his duties to identify and ingather the company's
assets and to adjudicate on and pay the company's creditors. More particularly, the petitioner contends
that the respondent failed to prepare and submit a statement of affairs, in
breach of section 131 of the Insolvency Act 1986, and failed to submit a
directors' questionnaire, despite being requested to submit those documents by
the liquidator. The petitioner further
alleges that the respondent has failed to account for the company's assets or
to answer questions posed by the liquidator to assist him in identifying and ingathering
those assets. The particular questions
related to rights of set-off in respect of one of the company's debtors, D
Bathgate Construction Limited, the clarification of the position of a Citroën
Relay van held on hire purchase from a company known as PSA Finance, and the ownership
of the company's plant and equipment. As
the proof progressed, however, it became clear that the major complaint related
to the alleged failure of the respondent to assist in identifying which of the
assets situated in the company's premises were the company's and which belonged
to the respondent.
[6] The
respondent denies those allegations. He
asserts that he was never asked to submit a statement of affairs or a directors'
questionnaire. He further claims that he
provided the liquidator with all the information that was necessary for the
purposes of the winding up, either directly or through the company's auditor.
Evidence
[7] Evidence
was led from four witnesses. Mr Lewis
Young, an insolvency manager with Tenon Recovery and Mrs Frances Wileman,
an officer with the Disqualification Unit of the Insolvency Service of the
Department of Trade and Industry, gave evidence on behalf of the
petitioner. The respondent gave evidence
on his own behalf, as did Mr David Cheetham, the chartered accountant who
was the company's auditor. In the course
of the evidence, a sharp conflict emerged between Mr Young and the
respondent. I propose first to summarize
the evidence of each witness and then, in the following sections of this
opinion, to consider the differences that arose in that evidence.
[8] Mr Young
gave evidence that he was the insolvency manager responsible for the day-to-day
work in respect of Oakbank (J&S) Limited.
In that capacity, he consulted with Mr Thomas MacLennan, the
director of Tenon Recovery who had been appointed liquidator of the
company. Mr Young had been
responsible for preparing the official report (Form D1 (Scot)) on the
respondent as director of the company.
In section 5 of that report Mr Young had summarized the case
against the respondent, in terms that are similar to paragraph [5] above. Mr Young explained that the result of
the respondent's failure to provide a statement of affairs and to provide
information about certain of the company's assets was that further cost was incurred,
both in ascertaining the further information that the respondent ought to have
provided and as a result of the consequential prolongation of the winding up.
[9] Mr Young
stated that he had spoken to the respondent at the company's premises immediately
after the date of winding up. The
respondent had informed him that the premises and plant used by the company
were not owned by it. Mr Young had
not instructed a valuation of the assets on the company's premises, but
referred matters back to the company's creditors. The respondent had informed Mr Young
that he had documentation supporting these statements. The foregoing information was recorded in the
interim liquidator's report to creditors dated 29 January
2002 (No 6/4
of process), where it is stated in paragraph 4 that "The premises, plant and
equipment have been stated not to be owned by the company". Mr Young indicated that the question of
whether assets are owned by the company is of central importance in a winding
up. In the estimated statement of
affairs asset 29 January 2002 the deficiency to creditors was
stated to be £140,275, but if the plant and equipment had been owned by the
company that would have been substantially reduced. Mr Young referred to the company's
financial statements for the year ended 30 September
2000 (No 6/6
of process). In that document, the
balance sheet and relative notes indicated that the company had title to
tangible assets valued at £57,290. Note
4 to the balance sheet further indicated that plant and equipment valued at
£40,801 had been added during the year to 30 September
2000. The same note dealt with assets held on hire
purchase, and indicated that those assets were treated for accounting purposes
as owned by the company. Mr Young
stated that, despite what was said in the financial statements, the respondent
had claimed that the assets used by the company belonged to him, and he had not
mentioned that any plant or machinery was held on hire purchase.
[10] Mr Young
then spoke in greater detail about the visit that he made to the company's
premises immediately after the liquidation, on 19 or 20 December
2001, when
he had met the respondent. Following a brief discussion about events leading to
the insolvency, Mr Young asked to view the premises, to see what was
there. At that stage the respondent
stated that the plant and machinery were not owned by the company. He did not make reference to specific items,
but merely made a blanket statement. Mr Young
had said that he would require to see the relevant documentation, but at that
stage he took the respondent's statement at face value. At that meeting Mr Young was told that
the company's accounting system, on its computer, had crashed a few weeks
earlier. This was confirmed by the
person who acted as bookkeeper. Mr Young
had had a further meeting with the respondent at the premises on 8 January
2002. When he arrived at the premises Mr Young
discovered that the computer had been removed by third parties subsequently to
the first meeting. At the second meeting
the respondent made representations regarding the plant and machinery in terms
similar to those used at the first meeting.
Once again Mr Young had stated that he would require documentation
to back up that statement, and the respondent said that that would be supplied.
[11] In
relation to the statement of affairs and directors' questionnaire, Mr Young
stated that there was no note in the file of the time when these were sent to
the respondent. Nevertheless, Tenon
Recovery had procedures in place to ensure that the documents were issued. Their practice was to send out three forms,
namely the directors' questionnaire, Form 4.4, which was the statement of
affairs to be provided by a director, and Form 4.3, which was a request for the
director to supply a completed statement of affairs. Forms 4.4 and 4.3 were taken from the
Insolvency Regulations. Mr Young
would have expected the forms to be sent out on about 8 January 2002; the information in question was required
quickly, for the first meeting of creditors; that meeting was due to take place
on 29 January 2002. Consequently
the form would have been sent out in about the first week in January. Neither the directors' questionnaire nor the
statement of affairs had been returned.
So far as the ownership of the assets was concerned, Mr Young
stated that his request for the relevant information was followed up
subsequently. He was advised by the
respondent that the relevant documentation would be produced. Despite that no proper answer has ever been received.
[12] Subsequently
a number of letters were sent to the respondent by the liquidator. The first of these (No 6/8 of process) was an
undated request to contact the liquidator.
The reference to the "liquidator" indicated that the letter was sent on
or after 29 January, when Mr MacLennan had ceased to be interim
liquidator. The second was dated 28 March
2002 (No 6/9
of process). In that letter the
liquidator asked to be updated on three issues which, it was stated, had
previously been raised with the respondent.
These were, first, the question of set off with D Bathgate Construction
Limited; secondly, a vehicle (a Citroen
van) leased to the company by PSA Finance; and, thirdly, whether the respondent had been
contacted by two named individuals regarding the remaining stone at the company's
premises. A further letter was sent to
the respondent by the liquidator on 22 April 2002 (No 6/10 of process). This letter, which I consider to be
significant, was in the following terms:
"I refer to
the above matter and should be obliged if you would supply the following
information.
1. D Bathgate Construction
Limited (Bathgate) had forwarded a list of work which was to be off set against
the invoice raised by Oakbank (J&S) Limited (Oakbank) on 26 October
2001. Would you confirm whether or not the sum
claimed by Bathgate is reasonable.
2. Would you please confirm if
you have contacted Mr Wardlaw re the vehicle from PSA Finance.
3. Please supply the completed
directors questionnaire which was sent to you previously.
4. David Cheetham & Co
[the company's auditors] have not supplied me with information relating to the
fixed assets and associated finance or ownership information. Please compile a list of the fixed assets of
the company at the date of liquidation together with any finance associated and
ownership clarification. I require you
to supply this information urgently.
5. Would you please advise
whether any contact has been made with you by Jack Ness or James McGovern
regarding the remaining stone at Oakbank.
Please
contact Lewis Young on 0131 550 4020 or 07747 621083 as soon as possible to
discuss these matters. This information
is required to be in my hands by 30 April 2002".
It is plain that that letter made
specific reference both to the directors' questionnaire and to the company's
fixed assets, including clarification of ownership.
[13] A
further letter was sent on 16 May 2002 (No 6/11 of process). This began
"I refer to
the above matter and previous correspondence to which I have received no response. The undernoted information was requested for 30 April
2002 and
should now be supplied without delay".
There followed the same list of
matters as in the letter of 22 April.
Some months passed thereafter, and a further letter was sent to the
respondent on 6 January 2003 (No 6/12 of process). This began as follows:
"I refer to
the above matter and previous written and verbal requests for information which
have not been complied with. In respect
of your conversation with Lewis Young earlier today when you agreed to provide
the information by Friday 10 January 2003, I have listed below the information
which remains outstanding".
The same five matters were listed as
in the two previous letters. In relation
to this letter, Mr Young explained that by this time he was considering
making a report to the Department of Trade and Industry regarding the
respondent's conduct. In addition, he
had still not got to the bottom of the asset situation. A further letter was sent on 20 February
2003 (No
6/13 of process), in the following terms:
"I refer to
the above matter and previous written and verbal requests for information which
have not been complied with. Your lack
of co-operation has been outlined to the Department of Trade and Industry and
further investigations may be undertaken.
The main
issue which you have to clarify is in respect of the fixed assets. David Cheetham & Co have not supplied me
with information relating to the fixed assets and associated finance or
ownership information. You are required
to compile a list of the fixed assets of the company at the date of liquidation
together with any finance associated and ownership clarification".
The letter went on to state that the
liquidator had given contact information regarding the respondent to a firm of
valuers, who would make arrangements with him to visit the premises to inspect
the machinery on site; it was indicated
that the respondent should co-operate fully with that request. Mr Young further stated that he had made
contact with David Cheetham & Company, and had received a response; nevertheless this did not help to confirm the
position in relation to the fixed assets.
[14] Before
the letter of 28 February 2003 had been sent to the respondent, Mr Young
had submitted the form D1 to the Insolvency Service. Thereafter, in September 2003,
correspondence passed among Mrs Wileman of the Insolvency Service, Mr David
Kidd, the solicitor who acted for the Insolvency Service, and the
liquidator. In a letter of 3 September
2003 (No
6/21 of process) Mrs Wileman had reported that the respondent had stated
to her that he had had only one meeting with the liquidator to discuss in depth
all issues relating to the insolvency and that he had at that time provided
everything that had been requested. Mr Young
stated that it was not correct that there had been a single meeting; at least
three meetings had taken place between December 2001 and March 2002. It was also false to assert that, by the date
of that letter, the respondent had fully explained which items were owned by
him personally and which belonged to the company. The liquidator's position had been put in a
letter to Mrs Wileman dated 9 July 2003 (No 6/20 of process) and a letter to
Mr Kidd dated 12 September 2003 (No 6/22 of process). In the first of these the liquidator
indicated that he had written to the respondent on a number of occasions over a
six-month period (the correspondence referred to above) setting out specific
points and issues that require explanation.
No response to the written correspondence was forthcoming. It was further stated that Mr Young had
spoken to the respondent by telephone a number of times, and that undertakings
to provide the necessary information and documentation were received but not
carried out. The letter repeated the
statement that the respondent had maintained that the plant and equipment
within the premises did not belong to the company. In addition, the letter indicated that, in
the absence of further funding or co-operation from the respondent it was not economically
viable to proceed with further action to resolve the position. Mr Young indicated in his evidence that
matters had never been fully resolved, and that, in the absence of evidence
from the respondent as the assets that he owned, it had not been possible to
identify the assets referred to in the company's accounts.
[15] Mr Young
then referred to three specific matters where information had been requested
from the respondent. The first of those,
which is referred to in the liquidator's letters of 28 March, 22 April and
16 May 2002 and 6 January 2003, was the question of set off in respect of
work carried out by D Bathgate Construction Limited. Mr Young stated that he had received no
response to those queries, and that the question of set off remained
unresolved. The second matter was the
question of the Citroen van leased from PSA Finance; this was referred to in the same letters. In this case the liability for the vehicle
had been taken on by the respondent at some stage during 2002; thus resolution
had been reached. The third matter was
the ownership of the fixed assets. In
this case, some information had been received from Baker Tilley in January
or February 2003. This indicated certain
items of plant which the respondent and his wife had purchased in 1998 in the
liquidation of an earlier company, William Gerard Limited. In this case Mr Young had spoken to
Baker Tilley directly, and that had resulted in the receipt of written
documentation. Despite the information
received from them, however, it was not clear which of the plant and machinery
on the company's premises belonged to the respondent and his wife and which had
been purchased by the company; the
documentation had to be related to what was on site. In addition, certain of the plant that had
existed in 1998 might have been lost to natural wastage.
[16] The
respondent had suggested that he had asked Cheetham & Co to deal with the
liquidator, and in particular to prepare the statement of affairs. Mr Young stated that he was not aware of
that, and had never been told that they were.
In the conclusion of his examination in chief, Mr Young stated that
he would have expected the information requested from the respondent to be
within his knowledge as a director of the company. The liquidator's view was that the respondent
was unfit to be a director because of his conduct during the liquidation.
[17] In
cross examination Mr Young stated that he remained uncertain as to the
ownership of the assets on site. He was
no longer supervising the site, and the assets had not been taken away by the
respondent. Mr Young further
accepted that the respondent had personally guaranteed a large part of the
company's unsecured debt, in particular its overdraft to Lloyds TSB, which
amounted to £40,000. That had been paid
by the respondent. Mr Young was
then questioned in detail about the initial meeting that he had had with the
respondent at the company's premises. It
was suggested that the respondent had said that some of the assets were owned
by him and some by the company. Mr Young
did not accept that. He did accept,
however, that the respondent had spent £250,000 of his own money on purchasing
assets, that assets worth £57,000 appeared in the company's accounts, and that
the respondent must therefore have kept his assets separate. Mr Young further accepted that the
respondent had not claimed that items such as tables and chairs and the
computer were his; he only claimed to own the plant and machinery.
[18] Mr Young
further stated in cross examination that establishing ownership of the company's
assets was essential to allow the liquidator to intromit. It was put to him that he had said to the
respondent at the initial meeting that the costs of selling the company's
assets were likely to exceed the sale proceeds.
Mr Young stated that he was certain that he would not have said
that; it would not have made sense. He was questioned at some length about the
statement of affairs and directors' questionnaire. He accepted that the latter document was more
important; failure to submit the former on its own would not be sufficient for
a form D1 report. The critical failure
in Mr Young's opinion was the failure on the respondent's part to give
information to establish the company's financial position at the outset of the
liquidation. At that stage Mr Young
had been told that the information existed, but he had not received it.
[19] Mr Young
was referred at length to two documents issued by the Insolvency Service; these were the Guidance Notes for the
Completion of Statutory Reports and Returns and chapters 9 and 10 of the
Technical Manual. It is sufficient in
respect of this part of his evidence to record that Mr Young reiterated
the fundamental basis of his complaint, namely that the respondent had failed
to provide essential information in relation to certain of the company's assets
and rights, and that that had made it impossible for the liquidator to conduct
the liquidation properly. Thereafter Mr Young
was asked about the correspondence that had passed between the liquidator on
one hand and the respondent and Cheetham & Co on the other. The liquidator had written to the respondent
as early as 5 February 2002 with a request to contact Mr Young,
but nothing had been said in that letter about ownership of assets or other problems
that had arisen. On 20 March
2002 the
liquidator had written to Mr David Cheetham with a request to provide
various documents and other information; these included a schedule of assets as the
date of the last accounts, and referred to "Any other matters which may be of
significance". Mr Cheetham had
replied on 15 April; he enclosed a copy of the last annual accounts and
related corporation tax return and corporation tax computations, and stated
that he did not hold the company's statutory books or any other records. He further stated that he was not aware of
any other matters which might be of significance. Mr Young stated that he had not followed
up that letter, but was still discussing matters with the respondent. He accepted that in correspondence with the
respondent in March, April and May of 2002 he had not mentioned the
statement of affairs, although he had requested the completed directors'
questionnaire. In addition, he had not
stated what the consequences would be if the respondent failed to reply.
[20] Mr Young
stated that during the period between the liquidator's letter of 16 May
2002 and his
letter of 6 January 2003 he had spoken to the respondent on
and off by telephone; he had not, however, received the information that he was
looking for. Form D1 had then been sent
by the liquidator to the Insolvency Service, although the liquidator had not
threatened that course of action previously.
Mr Young stated that he did not think that such a threat would have
had any effect on the basis of the respondent's reaction to previous letters
and discussions. Following the
submission of form D1, the Insolvency Service had corresponded with Mr Cheetham
about the company's fixed assets. Mr Cheetham,
in a letter dated 25 April 2003 (No 7/23 of process), had provided
copies of the fixed assets sections of his firm's files for the years ended 30 September
1999 and 30 September
2000,
together with copies of the nominal ledgers which gave details of the source of
assets. These disclosed a list of fixed
assets, including plant (No 6/7 of process).
In addition, certain documents were available that disclosed the
purchase of assets by the respondent and his wife from William Gerard Limited
in 1998 (Nos 6/15 and 6/16 of process). Mr Young
stated that these had been obtained from Baker Tilley, the accountants who had
acted in the liquidation of that company, shortly after the form D1 had been
submitted. Mr Young further
explained that he had to look for evidence of who owned the assets. He would have expected to obtain
documentation about the purchase of assets in 1998. In addition, the description of the assets in
the documentation that Baker Tilley had made available was rather general;
items were given a description such as "saw".
Consequently further information was required to identify which precise
assets were being referred to. In
addition, to the extent that assets owned by the respondent and his wife were
leased to the company, further documentation would be required, such as formal
leases and cheques or bank statements to evidence payment.
[21] In
re-examination Mr Young stated that the respondent had said that he had
the relevant documents to prove ownership, and that he would make them
available. Documentary evidence of
ownership was essential; verbal evidence
by itself would not be sufficient. It
followed that telephone calls from the respondent would never be enough. The letters sent to the respondent in 2002
and 2003 (nos 6/10-6/12 of process) had stressed the urgency of the need for
information. Furthermore, the respondent
had never said that he did not understand the references in those letters to a
statement of affairs and directors' questionnaires. Nor did he ever state that he had not
received a directors' questionnaire.
Furthermore, if the respondent was correct in his contention that he
owned at least a significant part of the assets used by the company, it was the
respondent rather than the company that should have held the evidence relating
to ownership. In the present case, a
report had been submitted to the effect that the respondent was unfit to be a
director because throughout the case there had been a lack of information. In conclusion, Mr Young stated that he
did not consider that he was being pedantic in recommending proceedings against
the respondent. Each case must be looked
at as a whole, and if information is available from other sources the lack of,
for example, a completed directors' questionnaire by itself might not be
critical. If, however, there was a lack
of information throughout, that was much more serious.
[22] Mrs Frances
Wileman gave evidence about the involvement of the Insolvency Service in the
respondent's case. That involvement
obviously came at a relatively late stage, and consequently her evidence was of
less importance than that of Mr Young and the respondent. Mrs Wileman had attended a meeting with
the respondent and others on 14 August 2003, at which time the Baker Tilley list
of assets was available. The respondent
had stated that that was the only documentary evidence that existed, but the
problem was matching the list with the assets in the premises. At that meeting
the respondent had asserted that neither the statement of affairs nor the
directors' questionnaire had been received by him. Following the meeting Mrs Wileman had
instructed that a further series of questions should be put to the respondent;
these are found in her letter to the solicitors acting for the Insolvency
Service dated 3 September 2003 (No 6/21 of process). Those questions covered inter alia the rental
agreement and copy invoices in respect of plant and machinery hired to the
company by the respondent. Mrs Wileman
stated that the letter had been followed up but there had been no response from
the respondent. A response had, however,
been received from Cheetham & Co on 13 October
2003 (06/23
of process). In that letter Cheetham
& Co had stated that the stonecutting equipment hired by the respondent and
his wife to the company was not, so far as they were aware, covered by a formal
agreement, but copies of invoices raised to the company were enclosed. I should further record that Mrs Wileman
commented that the insolvency was one that had taken a significant time to
resolve, and that the questions regarding the ownership of the assets on site
had never been fully answered.
[23] The
respondent described the history of William Gerard Limited, the company from
which he and his wife had purchased assets, and of Oakbank (J & S)
Limited. He had personally guaranteed
the overdraft of the latter company to Lloyds TSB. The company had ultimately fallen into
financial difficulty because of a PAYE debt owed to the Inland Revenue. The respondent had discovered that the
company had been the subject of a winding up order through a notice in the
Scotsman on 19 or 20 December 2002.
He had not previously received any papers in connection with a winding
up, nor a copy of the petition. He had
telephoned the liquidator's office and stated that he had seen the notice and
did not understand why no contact had been made with him. He was eventually given Mr Young's
mobile telephone number and was asked to telephone him. The respondent did so, and Mr Young
visited the company that afternoon. The
respondent introduced Mr Young to the labour force, and left him with them
to allow freedom of conversation. Mr Young
had then spoken to the respondent. He
had asked where the company's principal files were, and was told that the
information was on the computer in the office, which had crashed. The respondent had given Mr Young the
key to the office. On that occasion
there had been no specific questions about the company's assets. A further meeting had taken place on 8 January
2003. On that occasion the respondent said that the
land and buildings belonged to the company's pension scheme, of which the
company was trustee. Mr Young had
accepted that. The respondent had then
explained that the assets fell into two categories. The first consisted of the stone plant, which
was situated in the yard. None of that
belonged to the company. The second was
the assets in and associated with the joinery shop. Apart from one saw, the respondent had stated
that those belonged to the company. The
respondent and Mr Young had then walked around the premises to get a feel
for what was there. The respondent
stated in particular that everything that was seen in the joinery shop belonged
to the company.
[24] The
respondent further gave evidence that Mr Young had discovered that the bulk
of the joinery plant was subject to two hire purchase agreements. He took the view that it was not worth
retaining those contracts; if the hire purchase creditors had been paid so that
the plant could be resold, it would be necessary to dismantle it, and that
would not be profitable. A further
problem was that the main building on the site had a 40 foot container built on
to it to take sawdust from the dust extraction equipment. If the building were to be resold, that would
have to be taken out. Once again,
according to the respondent, Mr Young thought that that would be an
unprofitable exercise for the liquidation.
A further problem was that the computer had gone missing. The respondent stated that he thought that Mr Young
had taken it, but in fact he had not.
The respondent had, however, shown him the files. Mr Young had stated that the respondent
would have to be available if he had further questions, and the respondent had
said that he would be. At the meeting Mr Young
had not given anything to the respondent or asked him to fill in any forms.
[25] The
respondent was then referred to the lease agreement regarding the Citroën van
(No 7/4 of process). He stated that he
had explained to Mr Young that the van was leased. Thereafter Mr Young had been in contact
with the owners, PSA Finance; the
respondent had given him their representative's mobile telephone number. The representative sent by that company had
understood that his role was to collect their van, because he had not realized
that the respondent had guaranteed payments under the hire purchase
agreement. Thereafter PSA had enforced
the hire purchase agreement against the respondent, and the debt had been paid
off by him.
[26] The
respondent was referred to the interim liquidator's report dated 29 January
2002 (No 7/6
of process). He disagreed with the
statement in that report that the company's premises, plant and equipment were
not owned by it. He stated that he had
no idea where the information came from.
In the estimated statement of affairs appended to that report the plant
and equipment was not expected to realize anything. The respondent stated that that reflected his
discussion with Mr Young.
Thereafter the respondent had spoken to Mr Young by telephone and,
at the latter's request, visited him in his office to deal with three or four
specific points. The first of these
involved the claim by D Bathgate to offset sums against a debt due to the
company. According to the respondent, he
had told Mr Young that there was no basis for Bathgate's claim. On the same occasion the respondent and Mr Young
talked about PSA and the Citroën van.
The company's assets were not discussed on that occasion.
[27] On
20 March 2002 the liquidator had written to David Cheetham & Co. The respondent stated that he had not been
aware of that, but he was still having conversations with Mr Cheetham on
other matters. He had told Mr Cheetham
that the company's records were with either the liquidator or with Mr
Cheetham's firm. Consequently he asked Mr Cheetham
to answer any questions on his behalf.
No restrictions had been placed on Mr Cheetham's power to act in
this respect. The respondent accepted
that he had received the liquidator's letter of 20 March
2002 (Nos
6/9 and 7/9 of process). Thereafter he
had telephoned Mr Young to discuss matters. He stated, however, that he did not recall
receiving the liquidator's letter of 22 April 2002 (Nos 6/10 and 7/12 of process). In relation to the questions in that letter,
which is set out above at paragraph [12], the respondent stated that he would
have had nothing to add in relation to Bathgate and PSA Finance. He had also dealt with the fifth question,
dealing with the possible sale of the company's stock of stone. The third question dealt with the directors'
questionnaire; the respondent stated
that that did not mean a thing to him because he had not received it. In relation to the fourth question, dealing
with the company's fixed assets, the respondent stated that he would have asked
Mr Cheetham to deal with that. The
respondent also had no recollection of receiving the liquidator's letter of 16
May 2002 (Nos
6/11 and 7/13 of process). If he had
received that letter, his response would have been the same as his response to
the letter of 22 April.
[28] The
respondent was then referred to the liquidator's letter of 6 January
2003 (Nos
6/12 and 7/14 of process). That letter
referred to a conversation with Mr Young on that date. The respondent maintained that that
conversation had not been as stated in the letter. Mr Young had been asking for a list of
the stone plant and machinery, and the respondent had agreed to provide that
information by a specific date. He then
got a photocopy of a list of the stone plant, and gave it to the driver of the
firm where he now works and asked him to deliver it to the liquidator. The following week Mr Young stated that
he had not received any list. The
driver, however, had said that he had dropped it off. The respondent further stated that the list
in question, which was the same as the list of plant obtained from Baker
Tilley, was not what Mr Young had wanted, but it was all that the
respondent had.
[29] Thereafter
the liquidator returned the Form D1 to the Insolvency Service. The respondent had not been aware that the
recommendation in the form had been made; if he had been, matters would have received
his attention. In relation to the
matters referred to in the form which were said to constitute unfit conduct, he
denied having received a request for a statement of affairs; in relation to the plant and machinery
situated in the company's premises, he stated that apparently the liquidator
wanted him to prove that he owned the assets of the company, but he could not; he could only give proof of ownership of the
stone plant and machinery. The report
was also in error in stating that there were no personal guarantees; the respondent had given such guarantees. I observe that that is correct; this was a
plain error in the report.
[30] On
14 August 2003 the respondent met Mr David Kidd, the solicitor who
acted for the Insolvency Service. On
this occasion the joinery and stone plant were discussed. In the letter that followed the meeting (No
7/25 process), which the respondent accepted as a fair record, Mr Kidd
requested details of hire purchase and finance agreements in respect of the
joinery plant, and also the rental agreement and copy invoices in respect of
the plant and machinery hired to the company by the respondent. Finally the respondent referred to a series
of photographs of the company's premises, which showed the plant situated
there.
[31] In
cross-examination, the respondent was questioned at length about Mr Young's
account of his conversations with the respondent in December 2001 and January
2002. The respondent maintained that he
had not told Mr Young that none of the plant belonged to the company. He was unable to explain the statement to
that effect in the interim liquidator's report of 29 January
2002 (No 6/4
of process); he stated that he had
certainly not said that. Mr Young
had understood exactly what the respondent had told him at those meetings. The fact that in that report the company's
plant was estimated to realize nothing was a judgment made by Mr Young. It was put to the respondent that it was in
his interests to give little or no information to the liquidator, and hope that
he would thus gain the company's assets.
The respondent replied that, if Mr MacLennan was that poor a
liquidator, he should not be in the job.
I did not find that a wholly satisfactory answer. The respondent continued to maintain that he
had not received either the statement of affairs or the directors'
questionnaire.
[32] The
respondent was asked whether he had promised to send Mr Young
documentation vouching his ownership of the assets at the company's
premises. The respondent's replies to
this and the following questions were I think significant. The respondent stated that Mr Young had
wanted him to provide documentation that he owned Oakbank's assets. The respondent could not do that; such
documentation did not exist. The only
undertaking that he had given was to supply a copy of the stone machinery and
plant listing, which distinguished his plant and company's. He had supplied that. It was then put that that document had not
been delivered by the respondent but had been obtained from Baker Tilley in
February 2003. The respondent replied
that Mr Young had a copy of that document months before he had asked the
respondent for it. I observe that this
suggestion was not put to Mr Young in cross-examination. Counsel for the petitioner then suggested
that Mr Young had looked for information regarding ownership from the
outset; in particular in about January 2002 the respondent had promised Mr Young
that he would deliver documentation vouching his ownership of the assets at the
company's premises. At this point the
respondent's answers appeared to me to become very combative, drawing unduly
nice distinctions. In summary, he
asserted that Mr Young had wanted confirmation that the respondent owned
not only the assets that truly belonged to him but assets that truly belonged
to Oakbank, and the respondent was unable to do that. At this point I must observe that it would
have been manifestly unreasonable for Mr Young to take such an attitude,
and I do not believe that it is the position that he did take; on the basis of Mr Young's evidence I am
of opinion that Mr Young made perfectly clear that he was looking for
proof of ownership of such of the assets at the company's premises as were
owned by the respondent.
[33] The
respondent was asked about the liquidator's letter of 22 April
2002
(No 6/10 of process), and continued to maintain that he had not received
it. In that letter the liquidator had
asked the respondent to compile "a list of the fixed assets of the company at
the date of liquidation together with any finance associated and ownership
clarification". In relation to that
request, the respondent commented that it only covered the assets of the company,
and not his own assets. That is no doubt
literally true, but it is an example of the unduly nice distinctions that the
respondent was prone to draw during his evidence. Counsel put to the respondent that he knew
that the ownership of his own assets was in issue, and the respondent replied
that he did not know that. In my view
that cannot be correct; it was obvious on any view of the true factual position
that the question of which assets were owned by the respondent was of great
importance. The respondent maintained
that he had not received the liquidator's letter of 16 May
2002 (No
6/11 process), but accepted that he had received the liquidator's letter of 6 January
2003 (No
6/12 process). He repeated his evidence
in chief that, following that letter and a telephone conversation with Mr Young,
he had sent a copy of the Baker Tilley list to the liquidator using the driver
who worked for his present firm. Mr Young
had then telephoned the respondent to ask where the list was, and the
respondent had confirmed with the driver that it had been delivered. Counsel asked whether a fresh copy had been
sent, and the respondent replied in the negative. His explanation was that it was becoming clear
that what Mr Young was looking for was not the information in that list,
but rather information that the respondent owned Oakbank's assets. In respect of this part of his evidence, I
observe that sending a fresh copy of the list was an obvious thing to do; moreover, the reason given by the respondent
for not sending a further copy seemed contrived, and indeed evasive.
[34] The
respondent was also questioned about his dealings with David Cheetham & Co
during the liquidation. It was suggested
that he did not contact them until after the Department of Trade and Industry
had been involved and he had met Mr Kidd.
The respondent replied that he thought the evidence was to the contrary,
and that earlier letters, such as Mr Cheetham's letter to the liquidator
of 15 April 2002 (No 7/11 of process), indicated that he had been
in contact with them at that time.
Counsel suggested that that letter was a reply to the liquidator's
letter of 20 March 2002 (No 7/8 of process). The respondent accepted that; indeed the
matter is very clear from the terms of the letter of 15 April. The respondent nevertheless would not accept
that the letter of 15 April was not written on his instructions; he stated
that he thought that he had told Mr Cheetham to reply. Mr Cheetham, in evidence summarized in
the next paragraph, stated that he had told the respondent that he was
supplying information to the liquidator.
My overall impression was that the respondent was trying to elevate a
conversation of that nature into a relatively formal instruction to the
liquidator to deal with all matters on his behalf. I do not accept that he gave instructions of
the latter sort.
[35] Mr David
Cheetham described his involvement with the company. He recalled receiving the letter of 20
March 2002
(No 7/8 of process) from the liquidator.
In that letter he was asked to deal with any other matters that might be
of significance. Mr Cheetham stated
that he understood that to refer to such matters as a transfer to new
accountants, or anything of an illegal nature.
If fixed assets had been shown in the accounts at £57,000 but the
company did not own any, Mr Cheetham would have regarded that as being of
significance. Mr Cheetham was asked
if he had discussed that letter with the respondent. He replied that he certainly told the
respondent that he was supplying information.
The respondent had not expressed any concerns about the matter. Mr Cheetham further discussed his reply
to that letter, dated 15 April 2002 (No 7/11 of process). Certain further correspondence passed between
Mr Cheetham and the Insolvency Service.
With a letter of 25 April 2003 (No 7/23 of process) he enclosed
copies of the fixed asset sections of his firm's files for the years ending 30 September
1999 and 30 September 2000, together with copies of the nominal ledger
giving details of the source of the assets (No 6/7 of process). He stated that these would contain full
details of all of the assets in the balance sheet. In cross-examination Mr Cheetham
accepted that in earlier correspondence the information provided did not appear
to amount to details of the fixed assets, as in the letter of 25 April
2003. He expressed surprise at the delay in
providing this information. Mr Cheetham
further accepted in cross-examination that, if he were aware that a large
number of the assets on site were not owned by the company, he would have
regarded that as a matter of significance.
Discussion
[36] As
will be clear from the foregoing summary, the evidence disclosed a sharp
conflict on certain critical issues of fact between Mr Young and the
respondent. These related principally to
two matters: the information given by the respondent to Mr Young in relation
to the assets at the company's premises, and whether the respondent was given
and failed to complete a statement of affairs and directors' questionnaire. Of these issues, I consider that the former
is the more important. In any insolvency
it is plainly of vital importance for the liquidator or other insolvency
practitioner to establish what assets the company owns, and to realize these
for the benefit of the company's creditors.
That is elementary, and it is a point that should in my opinion be
obvious to any person who is a director of a trading company. If the liquidator is to perform this task,
however, it is clearly essential that he should obtain full information about
the assets. In cases where assets do not
belong to the insolvent company because, for example, they are held on lease or
hire purchase or subject to retention of title arrangements, the liquidator
must determine which assets belong to the company and which do not, and must
obtain the necessary information at an early stage; without such information it
is very difficult for the liquidation to progress. Because of the importance of
title to the assets, it is also necessary for the liquidator to obtain proper
documentary evidence as to ownership; vague verbal assurances are not
sufficient. Once again, I regard these
matters as elementary.
[37] Completing
a statement of affairs and directors' questionnaire, by comparison, is of critical
importance only in cases where essential information is not available from
other sources. In relation to a matter
such as ownership of assets, if full documentary evidence is available, either
from the company's own files or because it has been supplied by a director, the
statement of affairs and directors' questionnaire assume much lesser
importance. In a case of the latter sort
I would not regard failure to complete such documents as a serious breach of a
director's duties. Where, however,
critical information is not readily available from other sources, the duty to
complete those documents assumes much greater importance. In my opinion the present is such a case.
[38] On
the critical issues of fact, I prefer the evidence of Mr Young. In particular, I accept his evidence that, at
the meetings held at the company's premises on 19 or 20 December
2001 and 8 January
2002, the
respondent claimed that all of the plant and machinery on the premises belonged
to him rather than the company. I
further accept Mr Young's evidence that the respondent did not
subsequently provide documentation substantiating that claim, at least until
after the Insolvency Service became involved and then only through Cheetham
& Co. I likewise accept that a
statement of affairs and directors' questionnaire were sent or given to the
respondent, and that the respondent was asked to complete those but did not do
so. My reasons for preferring the
evidence of Mr Young are as follows.
[39] In
the first place, Mr Young's account was supported by all of the
contemporary documents. It was supported
in particular by the letters that were sent by the liquidator (but written by Mr Young;
they bore his reference) on 20 March 2002, 22 April 2002, 16 May 2002, 6 January 2003 and 20 February
2003 (Nos
6/9-13 of process). I have summarized
these at paragraphs [12] and [13] above, and have set out the terms of the
letter of 22 April at length. The
letters from 22 April onwards indicate very clearly that ownership of the
fixed assets was of critical importance and that Mr Young was looking to
the respondent to provide the necessary information. That is consistent with the account that Mr Young
gave, and clearly inconsistent with the account that the respondent gave. The letters of 22 April, 16 May and 6 January
all refer to a directors' questionnaire.
That is important for two reasons: first, it tends to support Mr Young's
statement that he had sent a directors' questionnaire for completion by the
respondent; and, secondly, it indicates that the respondent was put on notice
that he was expected to complete a directors' questionnaire. Even if the respondent had not been given a
directors' questionnaire, the statements in these letters about the document
should have alerted him to the requirement to complete such a document, and in
that event he should have indicated to Mr Young or the liquidator that he
had not received the document. The
respondent stated in evidence that he had not received the letters of 22 April
and 16 May. I deal with this matter
below at paragraphs [41] and [43].
[40] Mr Young's
evidence was further supported by the terms of the interim liquidator's report
of 29 January 2002 (No 6/4 process). In paragraph 4 this records that the
premises, plant and equipment had been stated not to be owned by the company,
and that therefore no valuation was carried out. That is clearly consistent with Mr Young's
evidence that he had been told that the respondent owned all of the plant and
equipment. The interim liquidator's
report is plainly an important document; the proposition that is stated is a simple
one; and in all the circumstances I find it difficult to believe that Mr Young
would have made a major error on this point a very short time after the
relevant meetings with the respondent.
Certain further support for Mr Young's account of matters is found
in the later correspondence after the Insolvency Service became involved,
notably in the liquidator's letters to Mrs Wileman of 9 July 2003 (No 6/20
of process) and to Mr Kidd of 12 September 2003 (No 6/22 of
process). These are consistent with Mr Young's
evidence in court, and also with the earlier documents. They are not, of course, contemporaneous with
events, and for that reason I regard them as of lesser importance than the
correspondence in 2002 and January and February 2003 and the interim
liquidator's report. Nevertheless, they
do provide some support for Mr Young's account.
[41] In
the second place, I find that the respondent's account of events is undermined
by the series of mishaps that he claims have occurred. These are as follows. First, before the winding up, the company did
not receive a copy of the petition at the instance of the Inland Revenue. Secondly, the company's computer, which might
be expected to hold critical information, crashed and then went missing in the
period between Mr Young's two meetings with the respondent. Thirdly, the respondent claims not to have
received the pro forma statement of affairs for completion. Fourthly, the respondent claims not to have
received a directors' questionnaire.
Fifthly, the respondent claims not to have received the liquidator's
letter of 22 April 2002.
Sixthly, the respondent claims not have received the liquidator's letter
of 16 May 2002. Seventhly, the respondent
claims that he sent documents to the liquidator in January 2003 using the
driver of the firm for which he now works, and that the driver confirmed that
the documents were delivered, but he accepts that the documents were not
received; the evidence is summarized at paragraphs [28] and [33] above. I find it highly improbable that all of the
foregoing mishaps occurred.
Individually, they are all no doubt possible. Cumulatively, however, I think it highly
unlikely that they could all have happened.
The last of them, the failure of the liquidator to receive the documents
sent in January 2003, is in my opinion particularly significant because
the respondent became aware shortly thereafter that the documents had been
received and made no effort to put matters right. I find his explanation for taking no further
action unconvincing: see paragraph [33]
above.
[42] When
the alleged mishaps are taken as a whole, I find that they seriously undermine
the respondent's evidence. For that
reason I have little hesitation in preferring the evidence of Mr Young
that the respondent was given a statement of affairs and directors'
questionnaire and asked to complete them in about the first week of January
2002 (see paragraph [11] above). In this
connection, Mr Young is supported by his evidence that it was his firm's
usual practice to issue such documents. He also indicated that the information
provided in the statement of affairs and directors' questionnaire would be
required for the first meeting of creditors, which was due to take place on 29 January
2002; that
provides further support for his account.
There was of course no record that the documents had been issued; that is unfortunate, and has created
unnecessary difficulties for the petitioners in the present litigation. Nevertheless, ultimately I am satisfied that
the documents were issued, at the time indicated by Mr Young. Furthermore, as indicated in paragraph [39]
above, the correspondence from the liquidator, including the letter of 6 January
2003, put
the respondent on notice about the directors' questionnaire, but he did nothing
in response to that correspondence.
[43] I
also draw the inference that the respondent received at least one of the
letters of 22 April and 16 May 2002, and probably both of them. There was no suggestion that the letters had
been sent other than in the ordinary course of business and through the
ordinary postal service. Both were
correctly addressed, according to the terms of the letters themselves. There is no reason to suppose that they would
not have been delivered. Those letters
were quite clear in their terms, and the failure to respond to them is in my
opinion clearly culpable. Apart from the
directors' questionnaire, those letters are of importance because they indicate
very clearly that further information is required about the fixed assets of the
company.
[44] In
the third place, in the whole circumstances of the insolvency, I find that Mr Young's
explanation of events at the meetings of the respondent held in December 2001
and January 2002 is itself inherently probable.
Mr Young was clearly an experienced insolvency practitioner. The solicitor for the respondent suggested
that the overriding impression that he made was of a junior member of staff who
was a "case worker", and submitted that Mr Young's evidence was of little
assistance. He was in fact a Chartered
Accountant who worked as an insolvency manager with a firm of accountants that
specializes in insolvency and associated work; I thought it clear that he had very
substantial experience in that field. In
any insolvency, it is obvious that the ownership of the assets is a matter of
fundamental importance. I have no reason
to doubt that Mr Young understood that fact, and that he would accordingly
pay close attention to whatever the respondent said to him about ownership of
the assets on site. Moreover, the
competing accounts of what the respondent said are simple. Mr Young gave evidence that the
respondent told him that none of the plant and equipment on site was owned by
the company. The respondent gave
evidence that he had told Mr Young that he owned the stoneworking
equipment, but that the company owned the joinery equipment. It is difficult to believe that Mr Young
would have had any difficulty in grasping that explanation if it had been made
to him at the initial meetings with the respondent. Indeed, when the point was put to Mr Young
in court, he had no difficulty in understanding it. I accordingly conclude that Mr Young was
told that the company did not own any of the plant and equipment on site. In reaching this conclusion I have had regard
both to the matters discussed in this paragraph and to the terms of the interim
liquidator's report of 29 January 2002 (No 6/4 of process); as indicated in
paragraph [42] above, the latter is a nearly contemporaneous document which
supports Mr Young's account of events.
I have also had regard to the matters discussed in paragraphs [41] and
[42] above, which in my opinion have the effect of undermining the respondent's
evidence generally.
[45] For
the respondent it was submitted that Mr Young must have realized from the
company's accounts that it owned substantial assets; in the balance sheet as at 30 September
2000 (part
of No 6/6 of process) fixed assets were stated at £57,290; that figure included plant and machinery
valued at £32,816. That is no doubt
so. Nevertheless, Mr Young
explained that his fundamental difficulty was obtaining proper evidence as the
ownership of what was on site; for this
purpose documentary evidence was essential.
It is easy to understand why Mr Young insisted on documentary
evidence; otherwise the directors of an
insolvent company could readily claim that everything that was there belonged
to them rather than the company. In any
event, the figures in the balance sheet were book values, and they included
additions to the company's assets after it started to trade and assets on hire
purchase. Documentary evidence was
ultimately made available, by Baker Tilley and Cheetham & Co (found at Nos
6/7 and 7/1-3 of process), although only at a fairly late stage in the
liquidation, after the Insolvency Service had become involved; the information
from Cheetham & Co was received on 25 April 2003 (No 7/23 of process),
following correspondence with the Insolvency Service that began on 5 March
2003; the other information was obtained
directly from Baker Tilley. That
information was clearly late; by the time it was received the liquidation had
been proceeding for over a year. In
addition, even when the information was received, it was clear that explanation
was required in order to relate the documentary evidence to the machinery
situated in the company's premises. It
is difficult to understand who other than the respondent could provide such an
explanation.
[46] The
solicitor for the respondent submitted that Mr Young was an unsatisfactory
witness, who had limited ability to recollect matters. He had clearly been responsible for a large
number of cases, and he had to reconstruct matters from his files. It is true that Mr Young's direct
recollection of matters was at times vague; that is perhaps hardly surprising in view of
the number of cases that he no doubt dealt with. Nevertheless, Mr Young's account was
backed up by contemporaneous documents, and for the reasons discussed above I
regard that as a matter of great importance.
Consequently I consider that Mr Young's evidence, although at times
vague on points of detail, is correct in its essentials.
Conclusions
[47] As
indicated above, I conclude that the respondent was provided with a pro forma
statement of affairs and directors' questionnaire in about the first week or
thereby of January 2002. That is
based on Mr Young's evidence summarized at paragraph [11] above, and by
the liquidator's letters of 22 April 2002, 16 May 2002 and 6 January
2003 (Nos
6/10-12 of process). It is also
supported by Mr Young's evidence about Tenon Recovery's usual practice,
and by the fact that the information was required for the first meeting of
creditors, which was due to take place on 29 January
2002. I further conclude, on the basis of Mr Young's
evidence, which was not challenged on this point, that the respondent at no
time completed the statement of affairs and directors' questionnaire.
[48] In
relation to the question of set off with D Bathgate, counsel for the petitioner
accepted that the respondent met Mr Young in March 2002 and explained that
the right of set off claimed by that company was not well founded. Mr Young had accepted in evidence that
such a meeting had taken place, and that it was concerned primarily with set
off. Consequently that complaint was
withdrawn.
[49] In
relation to the finance agreement with PSA, counsel for the petitioner accepted
that the matter appeared eventually to have been resolved. The respondent was a guarantor under that
agreement. Consequently the only issue
was whether the respondent had told the liquidator about the whereabouts of the
van at an appropriate stage in the liquidation.
In fact the matter was still outstanding in January 2003; the liquidator's
letter of 6 January (No 6/12 of process) made that clear. Counsel conceded that this was a small item,
but pointed out that a minimal effort would have been enough to resolve
matters. I agree with that
approach. Nevertheless, I think it clear
that this matter is of minor importance.
[50] The
most important matter is the information provided by the respondent about the
ownership of the assets within the company's premises. For the reasons stated at paragraphs [39],
[40], [44] and [45] I have concluded that the respondent provided inaccurate
verbal information at his initial meetings with Mr Young, in that he stated
that the company did not own any of the plant and machinery on site. I further conclude, on the basis of Mr Young's
evidence, that the respondent undertook to provide documentary evidence about
the ownership of the assets but failed to do so. This seriously held up the progress of the
insolvency, because it made it impossible for the liquidator to realize the
fixed assets. No written information was
provided about the fixed assets until well into 2003, and that information came
from third parties. The matter is made
worse by the fact that reminders relating to a list of fixed assets were given
in the liquidator's letters of 22 April 2002, 16 May 2002 and 6 January
2003 (Nos
6/10-12 of process); despite these the respondent failed to reply. Mr Young stated that he had never fully
resolved the question of ownership of the plant and equipment; in part this was
because a detailed explanation would be required from the respondent to relate
the documents that were ultimately obtained to what was on site: see paragraph [15] above. I accept that evidence. Obtaining information from third parties was
time-consuming and expensive; I accept Mr Young's evidence on that
point. I note, too, that Mrs Wileman
stated that the insolvency was one that took a significant time.
Application of Company Directors Disqualification Act 1986
[51] The foregoing conclusions lead on to the
essential question: whether the conduct of the respondent justifies
disqualification under the Act of 1986.
In my opinion it does. I have
regard in particular to the failure of the respondent to provide adequate
information regarding the ownership of the assets in the company's premises, as
summarized in paragraph [50]. In this
connection, I have regard to the importance to any company of having proper
information available about the ownership of its assets. In general, I consider that any company
director should be aware of the need for proper information about company
assets. The matter is particularly
important where, as frequently happens, the company is permitted to use assets
belonging to a director. In such a case
it is vital that full information should be given to indicate what is the company's
and what is the director's. Normally,
the director should keep proper records of what is his, and the basis on which
the company is allowed to use the assets should normally be properly
documented. In the present case the
information about the assets owned by the respondent was ultimately
