Exploring permission to act under Company Directors Disqualification Act 1986, s 2—Re Liberty Holdings Unlimited

How did the court approach an application for permission to act where a disqualification arose from section 2 of the Company Directors Disqualification Act 1986 (CDDA 1986)? Omar Ensaff, a barrister at No5 Chambers, explains that the court decided to approach the application for permission under CDDA 1986, s 2 as they would approach any other application.

Original news

Re Liberty Holdings Unlimited; Re Copperidge Developments Ltd; Subnom Owen v Secretary of State for Business Inovation and Skills [2015] Lexis Citation 244, [2015] All ER (D) 119 (Oct)

The Companies Court allowed the applicant’s application for permission under CDDA 1986, s 17, to be involved in the management of two companies, notwithstanding that he had at that time been subject to a disqualification order for a period of seven years for falsifying accounts. The court held that, in the exceptional circumstances of the case, permission would be granted.

What was the background to this case?

The applicant was subject to a seven year disqualification order arising out of CDDA 1986, s 2 following his guilty plea to three counts of falsifying accounts. As well as the disqualification order that had been made against him, he had also been sentenced to three years’ imprisonment and he had, in addition, been subject to a £3,000,000 confiscation order. The background that gave rise to that disqualification, imprisonment and confiscation order was that while he was a director of a company, he had allowed or caused that company to supply eggs that were purportedly free range or organic, but in fact were eggs that came from caged hens.

What was the application that the Registrar was asked to rule upon?

The applicant sought the court’s permission, pursuant to CDDA 1986, s 17, to be involved in the management of two companies (one of which was an unlimited company) as a project manager of each. The first company was, for want of a better term, a property development company, while the second was a construction company.

What were the specific issues that arose in this case?

There was one main issue and a subsidiary issue.

The main issue was how the court dealt with an application for permission to act where the disqualification the applicant arose from CDDA 1986, s 2 (disqualification on conviction of an indictable offence), and whether the court’s approach in those circumstances is different from the approach it adopts in considering permission where there has been a disqualification under, for example, CDDA 1986, s 6 (disqualification for unfitness). The Secretary of State for Business Innovation and Skills (the Secretary of State) appeared to approach the application based on a blanket policy that merely because it was a CDDA 1986, s 2 disqualification then permission should not be granted. Relating to this was the interplay between the purpose of the criminal proceedings and the purpose of the permission to act regime.

The subsidiary issue was the issue of ‘need’ and whether it is a threshold requirement and the role of ‘need’, in a permission to act application, in respect of the rehabilitation of people who had been convicted of offences.

What did the Registrar decide on each issue, and why did he reach his conclusions?

On the main issue, it was decided that an application for permission that arises from a CDDA 1986, s 2 disqualification should be treated like any other application for permission. The court would not adopt the Secretary of State’s blanket policy. In short, had Parliament intended such a blanket policy then Parliament could have legislated for an exclusion from CDDA 1986, s 17 applications where there had been a CDDA 1986, s 2 disqualification, but it had not. Moreover, the court had to be careful to distinguish between the purpose of the criminal proceedings (which are essentially penal) and the purpose of the disqualification regime (which is primarily concerned with public protection) though the court was to have regard to the deterrent function of disqualification. Even though the same approach is to be adopted when seeking permission in relation to a CDDA 1986, s 2 disqualification, such applications are highly fact-specific and so the seriousness of the offence giving rise to the disqualification is plainly a factor that the court takes into account.

On the subsidiary issue—confirmation that ‘need’ was not a threshold requirement. In addition, as part of the ‘need’ requirement, the need to rehabilitate people who had been convicted of offences was relevant.

What should practitioners acting for either side take away from this judgment regarding applications brought following disqualification under CDDA 1986, s 2 or any form of allegation of dishonesty leading to disqualification?

For the Secretary of State

Do not adopt a policy of opposing a permission to act application simply because it is a CDDA 1986, s 2 disqualification or simply because the disqualification arose from dishonest conduct.

For applicants

The evidence in support of any permission to act application is critical and needs to address the relevant issues. Even if the disqualification arose from a conviction or from dishonesty, that does not mean a CDDA 1986, s 17 application is doomed to failure. However, as just stated, the evidence is the key to success.

What should practitioners acting for either side take away from this judgment with regard to how the ‘need’ of the applicant is being dealt with in applications in practice?

Although need is not a threshold requirement, the practical reality is that it still has to be addressed in the evidence in detail.

Omar Ensaff specialises in the fields of insolvency law and construction disputes with directors’ disqualification work being a major aspect of his insolvency practice. In Liberty Holdings Unlimited, Omar acted for the claimant.

Interviewed by Kate Beaumont.

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 link below for further information:

Applications for leave to act as a director, under section 17 of the Company Directors Disqualification Act 1986—principles behind leave being granted

Applications for leave to act as a director under s 17 Company Directors Disqualification Act 1986—jurisdiction, parties and the application procedure

Applications for leave to act as a director under section 17 of the Company Directors Disqualification Act 1986—possible conditions attached to leave

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First published on LexisPSL Restructuring and Insolvency

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