Omar Ensaff Successfully Defends Director From Disqualification Proceedings

Mon, 23 May 2016

Omar Ensaff has successfully defended a director, Edward Langford, from disqualification proceedings brought by the Secretary of State for Business, Innovation and Skills under section 6 of the Company Directors Disqualification Act 1986 following a trial at Bristol County Court. Judgment was handed down on Friday 20 May 2016.

Director disqualification proceedings are known to be difficult to defend with only a handful of cases being successfully defended a year. One such recent successfully defended case was that brought against Mr Langford. The allegation made by the Secretary of State against Mr Langford was that 90 minutes before he was due to have a meeting with an insolvency practitioner he caused the company which he was the director of (Pamata Distribution Limited (“Pamata”)) to lend £40 000 to an associated company (Fixology Limited (“Fixology”)) at a time when he knew or ought to have known that Pamata was insolvent.

Although the case was defended on several points, two points were critical.

Firstly, on a proper analysis, the relevant issue was whether the borrower (i.e. Fixology), as opposed to the lender (i.e. Pamata), was insolvent or unable to able to repay the debt (and whether for example, Mr Langford had failed to carry out any due diligence in respect of whether Fixology could repay the debt). However, that was not part of the allegation or evidence advanced by the Secretary of State. The charge or allegation made by the Secretary of State related to the lender’s insolvency not the borrower’s.

Secondly, Mr Langford had obtained professional advice from an accountant as to whether Pamata could carry out the loan transaction. Mr Langford was advised by the accountant that it could and so Mr Langford was able to rely upon the taking of that advice as a ground for successfully resisting the disqualification proceedings.

The case demonstrates two things. Firstly, the importance of a careful analysis of the charge levelled against the director. If it has not been formulated correctly, then that, in of itself, can be used to seek to successfully defend a disqualification claim. Secondly, the importance of understanding why the director did what he did and if there is any evidence of any advice that he sought and relied upon at the time. Again, depending on the nature of the advice, this can be used as a basis to successfully defend a disqualification claim.

Omar Ensaff regularly advises, and appears at hearings, in respect of directors’ disqualification proceedings. His insolvency profile (which includes his directors’ disqualification work) can be seen by clicking here.

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