In Secretary of State for Business, Energy And Industrial Strategy v Barnsby  EWHC 971 (Ch) ICC Judge Barber imposed a seven year disqualification period on the defendant arising out of his conduct as a director of Pure Zanzibar Ltd. Her latest judgment in the same case ( EWHC 2284 (Ch)) deals with the Secretary of State’s claim for a compensation order under section 15A Company Directors Disqualification Act 1986. It is only the second such claim reported, the first having resulted in the well known judgment of ICC Judge Prentis in Re Noble Vintners Ltd  EWHC 2806 (Ch).
Pure Zanzibar had traded as a travel operator, providing safari holidays in Africa. The defendant was the sole director and held 80% of the company’s shares. The company held an Air Travel Organiser’s Licence issued by the Civil Aviation Authority. As is well known, ATOL is a statutory scheme operated by the Civil Aviation Authority under the Civil Aviation Act 1982 and the Civil Aviation (Air Travel Organisers’ Licensing) Regulations 2012 which provides financial protection for air package holidays sold by travel businesses based in the UK and certain flight bookings. Regulation 69 of the 2012 Regulations makes it a criminal offence to undertake certain activities without a valid ATOL in place. (ICC Judge Barber’s judgment contains a comprehensive description of the ATOL regime.)
In this case, the company’s ATOL had expired on 31 March 2017. The defendant failed to renew it in spite of having been alerted by the CAA to the need to do so and warned of the consequences of failing to do so. From 1 April 2017 the company had illegally taken new bookings and payments from customers who should have been ATOL protected. Their booking forms had included the ATOL logo and the company’s old ATOL number, suggesting that the company was ATOL licensed at the time. The company had also failed to refund a customer deposit which had been paid in February 2017 for a holiday which, following the expiry of the company’s ATOL licence, the company could no longer lawfully provide; and it had taken a further payment from a customer for his holiday on 13 October 2017, the same month in which it had approached an insolvency practitioner for advice, and after which it had gone into creditors’ voluntary liquidation on 19 December 2017.
The estimated deficiency as regards creditors was £517,638; none of the company’s customers received any refund of the monies they had paid, they did not receive the holidays they had paid for, and no dividend was paid to them in the liquidation.
Unsurprisingly, ICC Judge Barber largely followed the approach taken in Re Noble Vintners Ltd, citing extensively from ICC Judge Prentis’s judgment. After reviewing the conduct relied on by the Secretary of State, she went on to consider whether it had caused loss to creditors, if so which creditors, and in what sum. She then dealt with the question of causation. Here she questioned whether the same approach that was taken in Re Noble Vinters was appropriate in all directors’ disqualification compensation cases, regardless of the nature of the conduct giving rise to the disqualification order:
“Where, for example, the ground of unfitness is based on negligence/s 174 [Companies Act 2006] or, to use a phrase often employed in disqualification cases, ‘incompetence to a marked degree’, it is difficult to see why, as a matter of principle, foreseeability should not play a role when considering the issue of causation. In this regard I note that the editors of Mithani on Directors Disqualification consider that common law principles of remoteness may have a role to play in certain cases.”
Ultimately, however, she decided that this was not a factor to which she needed to have regard on the facts of the case before her, as “the loss suffered by the Customers was plainly a reasonably foreseeable consequence of the Defendant’s conduct,” and “no persuasive case of contributory negligence was articulated or made out on the evidence […] It follows that even if common law principles of remoteness were to be applied in this case, the result, on the evidence before the court, would be the same.”
On the facts, the judge was satisfied that it was appropriate to exercise her discretion to grant a compensation order.
She helpfully summarised her conclusions:
- This was a case of “woefully reckless and incompetent conduct on the part of a sole director of a company operating in … a highly regulated framework” which put customers’ money at significant risk.
- The defendant’s wrongful conduct clearly caused quantifiable loss to each of the customers concerned.
- The defendant had made no financial contribution in recompense for his conduct.
- The customers had no other means of making any recovery, the company having now been dissolved with no distribution to any creditors.
She went on to make a compensation order in the sum of £81,405 plus interest at 1.5% per annum from the date of liquidation.
ICC Judge Barber’s judgment is an impeccable application of the law governing the compensation scheme to the facts of the case before her. It nonetheless underlines the reservations about the scheme held by many insolvency professionals. The regime goes behind the class nature of insolvency processes, potentially giving preferential advantage to some creditors over the general body of creditors. In this case it seems questionable from the judgment whether the defendant could even satisfy the order: he had offered £10,000, claiming inability to pay more. And that leads one to ask whether it is right, at a time where there is almost no legal aid, to use public money to vindicate the rights of a small number of individuals.