Scottish Court of Session Decisions

OUTER HOUSE, COURT OF SESSION

[2015] CSOH 128

P820/15

OPINION OF LORD DOHERTY

In the petition of

HER MAJESTY’S SECRETARY OF STATE FOR BUSINESS, INNOVATION AND SKILLS

Petitioner;

against

STEWART RUSSELL

Respondent:

For a disqualification order under the Company Directors Disqualification Act 1986

Petitioner:  D M Thomson;  Shepherd & Wedderburn LLP

18 September 2015

[1]        Her Majesty’s Secretary of State for Business, Innovation and Skills (the petitioner) seeks a disqualification order in terms of section 6 of the Company Directors Disqualification Act 1986 in respect of Stewart Russell (the respondent).  The present application comes before me unopposed, as the respondent has not lodged answers.  I am satisfied that the petition has been duly served and that the application is properly before me.

[2]        The respondent was the sole director of Rusler Engineering Limited (“the company”) from 7 March 2006 until the company went into liquidation.  He was also the sole member of the company.

[3]        The company is insolvent for the purposes of s. 6 of the Act.  The Advocate General for Scotland on behalf of the Commissioners for her Majesty’s Revenue and Customs (“HMRC”) petitioned the Court of Session for the company to be wound up on the ground that it was unable to pay its debts.  On 7 August 2013 an interim liquidator was appointed.  The liquidator was subsequently nominated and appointed by resolution at the first meeting of creditors held on 16 September 2013.  The liquidator received claims from creditors amounting to a total of £144,965.98 of which £128,794.52 was a claim by HMRC.  The remaining claim (£16,171.46) was by HSBC Bank, the company’s bankers.  The liquidator has managed to make realisations totalling only £16,897.44.

[4]        The principal activity of the company was the provision of consultancy services to the oil industry.  The company has been registered for VAT since 2006.

[5]        The company had a statutory duty to account to HMRC on a monthly basis for Pay As You Earn income tax (“PAYE”) and National Insurance Contributions (“NIC”) due in respect of employee earnings paid by the company.  It also had duties to account to HMRC for Corporation Tax (“CT”) and Value Added Tax (“VAT”).

[6]        In the period between 5 April 2011 until the date of the liquidation the company was obliged to make payments to HMRC in respect of PAYE, NIC, CT and VAT (and associated penalties) totalling £177,602.16. Payments of only £50,470.85 were made.  The balance due and outstanding to HMRC at the date of the liquidation was £127,131.31.

[7]        During the period that substantial liabilities to HMRC had accrued and were accruing the company generated more than enough funds to meet those liabilities but chose not to meet them.  Between 6 January 2012 and the date of liquidation a total of £351,635.02 was paid into the company’s bank account. In the same period £419,070 was withdrawn from the bank account.  Of that sum £307,159 was paid directly to the respondent (dividends of £278,534 and wages of £28,625) but only £26,727.58 was paid to HMRC.

[8]        The company was a one-man company.  It was under the complete control of the respondent. He cannot but have been well aware of the company’s obligations to HMRC. In the period from 7 March 2012 HMRC issued several reminders to the company by letter and by telephone seeking payment of the sums due to it.  Despite this knowledge the respondent chose not to pay the sums which were due.  This was not a case where the sums owing were retained within the company in order to allow it to continue trading.  The respondent decided to take very large dividends which could not be justified having regard to the company’s outstanding liabilities.  In proceeding as he did he must have been fully aware that he was acting to the prejudice of the company’s creditors, including HMRC, by removing large sums of money from the company which on any responsible view ought to have been used to meet its very significant liabilities.

[9]        In the whole circumstances I have no hesitation in concluding the respondent’s conduct as a director of the company makes him unfit to be concerned in the management of a company; and that it is expedient in the public interest that a disqualification order should be made.

[10]      The remaining issue is the appropriate period of disqualification.  Having considered Mr Thomson’s submissions together with the petition, the productions and the authorities to which he referred me (In Re Sevenoaks Stationers (Retail) Ltd [1991] Ch. 164; Mithani, Directors’ Disqualification, (2^nd ed.), Vol. 1, paras. [695] - [710], [715A] - [715B], and [1537], and the cases discussed therein) I have concluded that the respondent’s misconduct falls at the bottom end of the middle bracket discussed by Dillon LJ in Sevenoaks (at p. 174E-G).  In my opinion a disqualification of less than 6 years would fail to mark adequately the seriousness of the case.  Accordingly, I shall grant the prayer of the petition, order that the respondent be disqualified for a period of 6 years, and find him liable to the petitioner in the expenses of the application.