4 years ago the pre-existing Company Director Disqualification legislation (CDDA) was amended to enable the government, in cases of public interest, to obtain a ‘compensation order’ against directors who they have banned where the directors’ actions have caused loss to the creditor(s).
The court sets the quantum, the money can then be paid to the creditors generally or one creditor.
With there being something like 1,500 disqualifications a year, it’s probably quite surprising that it was not until November 2019 that the first order was made by the courts.
Noble Vintners Limited had traded as a wine broker for wealthy wine investors / customers but went into liquidation in June 2017, with £1.7 million said to be owed to such investors. The court was told that some customers paid for wine they did not receive, others sold their wine but did not receive the sales proceeds.
In December 2018 the Secretary of State issued proceedings against the director seeking his disqualification and a compensation order for the £0.56m.
In May 2019, the director was banned for 15 years. In November 2019 the Judge ordered that £0.46m be paid to the Secretary of State to pay on to 28 named creditors as they suffered the most direct loss, and the rest (£0.1m) be paid to the company’s liquidator as a contribution to the Company’s assets generally – this will undoubtedly almost all be used up in his costs, the rest of the creditors of £1.2m will get very little. In addition the director was ordered to pay the Secretary of State’s costs of almost £30k, all in all coming to £0.6m bar a few pence…
Why do I find this case interesting?
There are several reasons….
Firstly, the fact that some creditors can be repaid in full under this law before others of equal ranking seems to go against the principle of a long established principle of UK insolvency law that of pari passu where all creditors of the same genre are treated equally. Quite how this relatively new law sits alongside insolvency practitioners’ independent actions against miscreant directors and whether it could encourage fewer directors to accept disqualification undertakings (as directors might resist such undertakings with more vigour given the potential personal liability) remains to be seen.
Secondly, whether the creditors actually receive any money remains to be seen, the director does not appear to have got involved in either the disqualification or contribution proceedings and appears to be creating a new life for himself in Cyprus, a long way from the clutches of the Secretary of State and the Liquidator. Quite why the Secretary of State spent £30k + of taxpayer’s money to pursue someone who’s not within the jurisdiction is a bit of a mystery to me.
Thirdly, my view is it’s likely to be used more where, as in this case, there was a large number of Joe and Joanne Public creditors and the IP did not have the funds to take action himself. Is this the start of a policy from the government of using taxpayer money to hold accountable the directors of companies that deal with the public, leaving them short in order to send our a message that directors must do more to protect the public? Whether the Secretary of State is so interested when the creditors are business creditors remains to be seen, he might well take the view that they can look after themselves. Are the days of directors ‘doing a good job, leaving nothing in a company for a liquidator to use to fund an action against them gone?’, I doubt it.
If you would like to read the decision in detail, click here.