Scottish Court of Session Decisions

OUTER HOUSE, COURT OF SESSION

[2015] CSOH 152

P985/15

OPINION OF LORD DOHERTY

In the petition of

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

Petitioner;

against

OLUSEGUN OLAYINKA ADEDAPO also known as SEGUN ADEDAPO

Respondent:

for a disqualification order under the Company Directors Disqualification Act 1986

Petitioner:  DM Thomson;  Shepherd & Wedderburn LLP

6 November 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 (as amended) in respect of Olusegun Olayinka Adedapo also known as Segun Adedapo (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 Bendith Engineering Limited (“the company”) from 1 August 2006 until the company went into liquidation.  He held eight of the ten issued shares in the company.

[3]        The principal activity of the company was the provision of consultancy services to the oil industry.  The company has been registered for VAT since 1 October 2008.  The respondent was the company’s sole employee.  The company was the vehicle through which the respondent provided his services to customers.

[4]        The company ceased trading in or around September 2012.  It is insolvent for the purposes of section 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 10 September 2013 an interim liquidator was appointed.  The liquidator was subsequently nominated and appointed by resolution at the first meeting of creditors held on 22 October 2013.  The liquidator received claims from HMRC of £76,664.20 for VAT, surcharges and interest;  and £3,175.60 for deductions for National Insurance Contributions (“NIC”) and Pay As You Earn income tax (“PAYE”) and interest charges thereon.  The sums due to HMRC at the date the company ceased to trade were £59,560.20 in respect of VAT and £2,623.60 in respect of NIC and PAYE.  For the purposes of the present application the petitioner proceeded on the basis that the relevant debt to HMRC was the total sum outstanding at the date of cessation of trade, namely £62,183.80.

[5]        The company had a statutory duty to account to HMRC on a monthly basis for PAYE and NIC due in respect of employee earnings paid by the company.  It also had duties to submit VAT returns to HMRC and to remit the appropriate sums in respect of its VAT liability.

[6]        The company did not lodge any Corporation Tax returns and no assessments to Corporation Tax were imposed upon it. In the absence of returns having being made the petitioner accepts that it is not possible to say whether any Corporation Tax was due by the company.

[7]        In respect of PAYE and NIC the company submitted P35 forms for the tax years 2009/2010, 2010/2011, and 2011/2012 showing a total of £7,356.72 to be due for payment by the company to HMRC.  It made payments towards that sum of £5,776.  With the addition of interest, penalties and surcharges a total of £3,175.60 remained outstanding by the company at the date it entered liquidation.

[8]        In respect of VAT the only payment which the company made to HMRC between 19 February 2010 and the date of the liquidation was a payment of £2,167.94 on 22 May 2012.

[9]        The debts to HMRC began to accrue, at the latest, by April 2009.  During the period that the debts were accruing the company generated more than enough funds to meet them but the respondent chose not to.  Between 19 February 2010 and 26 September 2012 a total of £317,833.37 was paid into the company’s bank accounts.  In the same period £139,761.94 was paid from the accounts directly to the respondent and £172,857.70 was paid indirectly to him.  During that period the only payments made to HMRC were the said £2,167.94 in respect of VAT and £3,176.17 in respect of PAYE/NIC. 

[10]      The company was effectively a one-man company which the respondent controlled.  He must have been well aware of the company’s obligations to HMRC.  In the period from November 2009 HMRC issued several reminders to the company by letter, setting out the company’s obligations and seeking payment of the sums due by it from time to time.  Despite this knowledge the respondent chose not to ensure that the company paid the sums which were due.  The sums owing were not retained within the company in order to allow it to continue trading.  The respondent paid almost all of the sums generated by the company to himself, directly or indirectly.  That was a course 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 HMRC by removing large sums of money from the company which on any responsible view ought to have been used to meet its significant liabilities.

[11]      The respondent also caused the company to submit false accounts to Companies House.  On 20 July 2009 and 15 July 2011 he signed dormant accounts for the years ending 30 June 2009 and 30 June 2010 and declared that the company was entitled to exemption under section 480 of the Companies Act 2006 in respect of those years.  Those accounts and declarations were false because the company was trading and was not dormant during those periods.  Mr Thomson indicated that HMRC had not acted in reliance upon the false accounts.

[12]      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.

[13]      The remaining issue is the appropriate period of disqualification.  I agree with Mr Thomson that the present case is similar to Secretary of State for Business, Innovation and Skills v Stewart Russell [2015] CSOH 128 in some respects.  There is, of course, the additional element of the false accounts, but in circumstances where HMRC were not in fact misled by the accounts I am inclined to attach much more weight to the respondent’s knowing failure to comply with the company’s obligations to account for tax to HMRC.  The debt to HMRC was significantly higher in Russell than it was here. 

[14]      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, paragraphs. [695] - [710], [715A] - [715B], and [1537], and the cases discussed therein;  and Stewart Russell (supra) I have concluded that the respondent’s misconduct falls at the very top of the bottom bracket discussed by Dillon LJ in Sevenoaks (at p. 174E-G).  In my opinion disqualification for five years is appropriate.  Accordingly, I shall grant the prayer of the petition, order that the respondent be disqualified for a period of five years, and find him liable to the petitioner in the expenses of the application.