Conduct during directors’ disqualification proceedings earns director increased period of disqualification (Secretary of State for Business, Energy and Industrial Strategy v Al-Safee)

Conduct during directors’ disqualification proceedings earns director increased period of disqualification (Secretary of State for Business, Energy and Industrial Strategy v Al-Safee)

The defence presented during director’s disqualification proceedings and at trial was untrue. Mark Baldwin of Howes Percival LLP, who represented the successful claimant, considers the attitude that the court took to this when setting the period of disqualification.

Re Exotic Global Ltd; Secretary of State for Business, Energy and Industrial Strategy v Al-Safee [2018] EWHC 509 (Ch), [2018] All ER (D) 211 (Mar)

What are the practical implications of this case?

The main practical point of this case is that defendants in proceedings brought under the Company Directors’ Disqualification Act 1986 (CDDA 1986) can expect a higher period of director’s disqualification if they pursue a defence which is patently untrue. The decision applied Court of Appeal’s approach in Re Howglen Limited; Secretary of State for Trade and Industry v Reynard [2002] EWCA Civ 497, [2002] 2 BCLC 625.

What was the background?

Mr Al-Safee was a director of Exotic Global Limited (Exotic), which went into creditors’ voluntary liquidation on 3 June 2015.

The Secretary of State had initially sought a period of 10 years disqualification in the sent under CDDA 1986, s 16 to Mr Al-Safee, prior to the issue of proceedings. Post-liquidation, Mr Al-Safee had barely engaged with the liquidator or the Secretary of State’s investigation into the conduct of the company’s directors, replying only by way of a handful of emails.

The Secretary of State issued proceedings against Mr Al-Safee seeking a director’s disqualification order on the basis that Mr Al-Safee had failed to maintain and preserve or deliver up adequate accounting records for Exotic. The lack of accounting records meant that the following matters, among others, could not be verified or explained:

  • why Exotic had not accounted for the import VAT on 14 high end motor vehicles imported by Exotic
  • whether the 14 vehicles had been disposed of by Exotic, and
  • the disposal of another 45 motor vehicles and two cherished number plates acquired by Exotic

Mr Al-Safee was the sole registered director of Exotic between 29 October 2013 and the date of liquidation.

Mr Al-Safee’s defence was simply that his identity had been stolen and he was not the Mr Al-Safee who had been the director of Exotic. Mr Al-Safee also claimed not to speak English and attended the trial with a McKenzie friend and an Arabic interpreter.

Mr Al-Safee had produced an Iraqi passport as proof of his identity during the proceedings. The details in that passport corresponded with the details in UK passports issued for Mr Al-Safee and with copies of his driving licence, which had been produced to two banks and HMRC during the life of Exotic.

Mr Al-Safee maintained his case that he was not the director at the trial and during his cross-examination of the Secretary of State’s witnesses. However, Mr Al-Safee declined to be submitted to cross-examination during the trial, and accepted in closing submissions that the driving licence and British passport were his, but they had been stolen in April 2014 when he had applied for a replacement passport. This date was after they had been produced to the banks.

The liquidator gave evidence that the man before the court was the Mr Al-Safee that he had met on two occasions in June 2015 during the process of placing Exotic into liquidation.

What did the court decide?

Insolvency and Companies Court Judge Jones had little hesitation in finding that Mr Al-Safee was lying and that he was the director of Exotic. He also accepted that the Secretary of State’s allegation was made out as no accounting records had been delivered up to the liquidator despite numerous requests.

Judge Jones found that in addition he ought to take account of Mr Al-Safee’s conduct in the course of proceedings and stated at para [84] ‘In my judgment his lies are to be analysed as an attempt to pervert the course of justice concerning his dealings as a director of the company’. He therefore invited further submissions as to the period of the disqualification when the judgment was handed down. Mr Al-Safee did not attend that subsequent hearing.

Judge Jones therefore concluded that the case fell within the top bracket identified in Re Sevenoaks Stationers (Retail) Limited [1991] Ch 164—a period of disqualification of between 11 and 15 years. Following the Secretary of State’s submissions, Judge Jones disqualified Mr Al-Safee for a period of 13 years, having at one point considered disqualifying Mr Al-Safee for the maximum permitted period of 15 years.

While it may be obvious that fabricating a defence is unlikely to find favour with the court, this decision confirmed the principle that conduct within the proceedings themselves can be taken into account in determining the period of disqualification. In this case Mr Al-Safee’s conduct significantly increased that period.

Case details

Court: High Court of Justice, Business and Property Courts, Insolvency and Companies Court

Judge: Insolvency and Companies Court Judge Jones

Date of judgment: 14 March 2018

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

Further reading

If you are a LexisPSL subscriber, click the links below for further information:

How can a director be disqualified as a company director? (Subscriber access only)

What is prohibited for a disqualified director?

(Subscriber access only)

Not a subscriber? Find out more about how LexisPSL can help you and click here for a free trial of LexisPSL Restructuring and Insolvency.

First published on LexisPSL Restructuring and Insolvency 

Related Articles:
Latest Articles:
About the author:

Neeta started her legal career at Allen & Overy in 2008 in the midst of the global financial crisis and the collapse of Lehmans where she gained most of her paralegal experience.

Neeta also did a short stint in litigation at the Revenue and Customs Prosecutions Office in 2006. Neeta graduated with a 2:1 honours degree from University of London, Queen Mary College and went on to obtain a distinction from the College of Law in the Legal Practice. She has been working at Lexis Nexis since April 2013.