The Secretary of State for Business, Enterprise & Regulatory Reform v Meade [2011] EWHC 4091 (Ch)

Case No 7570/2008[2011] EWHC 4091 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Venue Royal Courts of JusticeDate Tuesday, 2 August 2011
Strand
London WC2A 2LL
Before
GEORGE BOMPAS QC(SITTING AS A DEPUTY JUDGE OF THE HIGH COURT)
Between
THE SECRETARY OF STATE FOR BUSINESS, ENTERPRISE & REGULATORY REFORMClaimantMEADEDefendant
Digital Transcript of Wordwave International, a Merrill Communications Company165 Fleet Street, 8th Floor, London, EC4A 2DYTel No: 020 7422 6131 Fax No: 020 7422 6134Web: www.merrillcorp.com/mls Email: mlstape@merrillcorp.com(Official Shorthand Writers to the Court)
MISS L WILSON-BARNES (Instructed by Messrs Howes Percival) appeared for ClaimantMR S ADAIR (Instructed by Messrs Decherts LLP) appeared for Defendant
JudgmentTuesday, 2 August 2011MR GEORGE BOMPAS QC:
[1]On 19 July this year I made a disqualification order on an application by the Secretary of State under section 6 of the Company Directors Disqualification Act 1986. This order is that for two and a half years the defendant, Mr Meade, should not be a director of a company, act as a receiver of a company's property or in any way, whether directly or indirectly, be concerned or take part in the promotion, formation or management of a company unless in each case he had the leave of the court and that he should not act as an insolvency practitioner.[2]Mr Meade now applies under section 17 of the Company Directors Disqualification Act 1986 for leave to act as a director of a single company, Hadleigh Partners Limited, that company being the holding company of a group of companies.[3]In his affidavit made in support of his application Mr Meade said that he applies also for an order that the disqualification order which I made should not take effect until either(a) 21 days after the date of the hearing of his application, that is if his application under section 17 should be successful, and(b) 60 days after the date of the hearing of the application, if his application should not be successful.[4]I have not heard any arguments addressed to me on behalf of Mr Meade as to the reasons why the disqualification order should be postponed in taking effect. It is due to take effect next week, I believe on about 12 August.[5]Furthermore, the Secretary of State in a written argument submitted by the Secretary of State's counsel, Miss Lucy Wilson-Barnes, pointed out that a stay of the operation of a disqualification order should only be made where leave under section 17 cannot achieve justice. For this she relied on what was said by Morritt LJ (as he then was) in Secretary of State v Bannister 1995 BCLC 271 to 275D.[6]In the circumstances I am not prepared to make an order postponing the operation of the disqualification order, but I will consider simply the section 17 application.[7]I have been referred to four authorities to assist me with the approach I should adopt towards Mr Meade's section 17 application. These are Re Tech Textiles Limited [1998] 1 BCLC 259, Re Stream Haven Limited [1998] 2 BCLC 64, Re Dawes and Henderson Agencies Limited [1999] 2 BCLC 317 and Re TLL Realisations Limited [2000] 2 BCLC 223.[8]What I draw from these authorities is the following, where the court has made a disqualification order in the terms that I have read out. There are a number of purposes at which the order is aimed. One of particular importance in the protection of the public from a repetition of the conduct which gave rise to the order in the first place and otherwise from risks which might be associated with activities of the disqualified person acting as a director, being concerned in the management of a company, and so on. Another, in my judgment, is the deterrent purpose to be served by a disqualification order. With this in mind the onus is on the applicant for section 17 permission to satisfy the court that in the particular circumstances leave should be given. For this the applicant should satisfy the court that the purposes I have just mentioned are not simply negated and there is a sufficient reason for leave to be granted.[9]The reasons for granting the section 17 leave have been expressed in terms of needs which it is legitimate for the court to seek to protect. For example, the need of the disqualified person to protect his own legitimate interests, such as a need to earn a living, and the need also of some company or third party to have the assistance of a disqualified person acting as a director or being concerned in the management of a company.[10]I accept, however, that in an appropriate case it may be sufficient if what are put forward as reasons for granting the requested leave are not that the leave is necessary but merely that it is desirable. Ultimately, as is so often the case, the court is engaged in a balancing exercise.[11]In the present case Mr Meade seeks leave which would allow him to continue to be the director of the holding company of a group of companies. As I have mentioned, this is a group now headed by Hadleigh Partners Limited. The group of companies, I am told, employs some 420 people, according to Mr Meade's evidence.[12]Mr Meade has also given evidence, however, in the disqualification proceedings that he owns, through holding companies, companies which together employ some 800 people. The balance of the employees over and above the 420 employed in the Hadleigh Partners group are employed in overseas companies, held ultimately by an overseas holding company, all these being companies which fall outside the scope of the Company Directors Disqualification Act for the reason that they are not companies which could be wound up by this court. I have been told nothing about these overseas companies, whether about Mr Meade's involvement in these companies or about their activities or their financial position. Significantly, it is not suggested that in the absence of the requested permission under section 17 Mr Meade will be unable to earn his living.[13]Turning to Hadleigh Partners Limited, that company was formed in 2009. In 2010 it became the holding company of the present group of companies. That, as far as I can gather it, is the time when Hadleigh Partners Limited started business. I am told that it is purely a holding company and does not trade. This point was put in the skeleton argument submitted on behalf of Mr Meade by his counsel, Mr Adair, who made the proposition that "Hadleigh is merely a holding company and does not trade".[14]Mr Meade exhibited to his affidavit in support of his present application the most recent audited accounts of Hadleigh Partners Limited and its subsidiaries, these accounts having been signed off by Hadleigh Partners Limited's directors on 18 April 2011. The directors' report indeed is signed, as far as I can judge, by Mr Meade. According to Hadleigh Partners' own balance sheet, set out in the report and accounts, it has fixed assets of £6.5 million, it has current assets, consisting primarily of debtors, amounting to £2.25 million and it has creditors, that is to say amounts falling due within a year, amounting to £10 million odd, giving it a deficiency of net assets (in other words net current liabilities) of £7.75 million. The bulk of the creditors are group companies, or at any rate related undertakings which I take to be group companies. These debts amount to £8.7 million according to the accounts. The bank loans and overdrafts shown in Hadleigh Partners Limited's own accounts amount to £8,000.[15]Hadleigh Partners Limited has three principal operating subsidiaries. These are Meyer Timber Limited, Panelco Limited and Bolton Aerospace Limited. The consolidated balance sheet of Hadleigh Partners Limited with its subsidiaries shows total net assets of £4.7 million, with net current assets shown at £4.2 million and total assets less current liabilities of just over £7 million. According to the consolidated balance sheet the creditors, consisting of amounts falling due within one year, amount to £41.5 million and of that the bank loans and overdrafts amount to just under £15 million, that is to say £14.975 million. The other single largest item is trade creditors, amounting to £14.39 million approximately.[16]Hadleigh Partners Limited has a board of directors which of course includes Mr Meade. There is a non-executive director, a Mr David Caddy, who is a chartered accountant and as a chartered accountant had a distinguished career. He is now retired as a chartered accountant but holds positions as a non-executive director of several companies, or at any rate he has held such positions. There are three other directors, all of whom are executive directors, that is to say they are employed within the group in an executive capacity. Of these, two, a Mr John Cameron and a Mr Demis Ohanojanian, both hold qualifications as accountants, one being a chartered accountant, the other being a chartered management accountant.[17]Mr Meade, according to these accounts (and as I would have expected from the way in which he appears to have conducted business, according to the evidence in the disqualification proceedings) is an executive officer of Hadleigh Partners Limited. In this context I note that, according to note 34 of the Hadleigh Partners Limited audited accounts, Mr Meade, trading as Hadleigh Assets, had charged the group £1 million for consultancy services. He has explained in his fourth affidavit, and I shall come back to this, that the functions that he performs for Hadleigh Partners Limited are of considerable importance for that company and its subsidiaries.[18]The Hadleigh Partners operating subsidiaries, which I referred to a moment ago have at the moment boards which are shortly to be reorganised, if they have not already been. In the case of one, Bolton Aerospace, Mr Meade is to retire as a director and he will be replaced by Mr Caddy, the other directors being Dennis Ohanojanian and Gary Young. They are to be joined by or have just been joined by another individual, a Mr Miles Anderson. In the case of Meyer Timber Limited the board has or is about to have added to it Mr Richard Lazenby. Mr Meade will be stepping down and Mr Caddy will be becoming a director. The remaining directors will be Mr Mark Stokes, Mr Chris Rudd, Mr Darren Barnett and Mr Phil Ellis. Mr Barnett, I am told, is the finance director of that company and he is also to be the finance director of Panelco Limited. The remaining directors of that company will be Mr Caddy, Mr Stokes, Mr Rudd and Mr Ellis, the last three being its present directors.[19]In support of his application for section 17 permission Mr Meade relies on two principal matters. The first one concerns the position with the group's bankers. I have already indicated that, according to the consolidated accounts, the borrowing from the bank at the year-end, that is to say the ten months to the end of 2010, was approximately £15 million. I have been provided with management accounts of the group of companies over the succeeding months. The bank requirement has at one stage reached something in the order of £30 million in borrowing from the bank. Mr Meade's evidence is that the group had facilities from the banks of £57 million. What he said in his fourth affidavit in support of the application is as follows:
"At the moment the group banks with the Royal Bank of Scotland, RBS, and HSBC. They provide various facilities amounting in aggregate to approximately £57 million. We are in the course of renegotiating the facilities, as a result of which HSBC will become the main and possibly the only finance provider. The banking facilities are working capital facilities. None of them are term loans. They are all repayable on demand and supported by guarantees by Hadleigh [that is to say Hadleigh Partners Limited and I shall refer to that from now on as 'Hadleigh']. Through my various companies I have been a customer of each of HSBC and RBS for many years and I believe I have a strong relationship with each bank. "
HSBC is aware of these proceedings. As an indication of its support for me it was willing to allow one of its employees, Mary Ravenscroft, to give evidence on my behalf in the proceedings. I believe it is very important for me to remain a director of Hadleigh in order to obtain HSBC's continued support for the group. I believe that the bank will continue to support the group if I continue to be a director of at least Hadleigh. If I am not able to continue as a director of that company there is a risk, in my judgment a high risk, that the group will not be able to maintain its current bank facilities."[20]Then there is reference to the difficulty obtaining alternative facilities. Mr Meade continued to say that if the group loses its bank facilities he believes that it is inevitable that some or all of the businesses will have to be sold or closed. He went on to make the obvious point that without the facilities the group could not continue for very long.[21]13. This evidence was supplemented in a letter dated 26 July 2011, sent by Messrs Decherts LLP, Mr Meade's solicitors, in response to a letter from the solicitors for the Secretary of State, Howes Percival. Howes Percival had asked for further information about the evidence which I have just read and in particular had wanted to explore with Messrs Decherts what it was that had been told to each of HSBC and RBS and asked for some evidence as to the knowledge of the banks about the present proceedings and as to their willingness to continue to support the group, and in particular whether that support was dependent upon Mr Meade remaining a director of Hadleigh. Mr Meade's solicitors answered as follows:
"Mr Meade has not yet told either of the banks concerned of the outcome of these proceedings [that is to say of the fact that a disqualification order had been made]. This is obviously a matter which needs to be handled with some tact and Mr Meade would much prefer to explain the position to the banks with the confidence of being able to say that despite the disqualification order he can remain a director of Hadleigh."
[22]It will be noticed, I interpose here, that nothing was said in this answer about RBS being aware of the existence of the proceedings and it was confirmed to me this morning that RBS had not been told of the fact that the proceedings had been brought.[23]Decherts’ letter continues:
"It is in the public interest that these companies should survive. If the banks give their support despite the disqualification order then the public interest will be served. If, contrary to Mr Meade's assessments, the banks withdraw their support, then the company will suffer the fates which are described in Mr Meade's fourth affidavit. However, in Mr Meade's judgment it is not prudent to tempt the banks to withdraw their support by asking the questions you have posed, bearing in mind that he is the sole owner of these companies and is entitled to express his view on this critical issue. For the reasons we have given Mr Meade is unwilling to approach the banks on the basis which you have suggested."
[24]Consistent with this, there has been no document produced by Mr Meade which evidences any of the dealings between Hadleigh Partners or its subsidiaries and either of these banks, whether as regards the disqualification proceedings or indeed as regards the facilities which the banks offer to the companies.[25]I would add just one more point in relation to Decherts’ letter. The clear inference to be drawn is that Mr Meade and his company had no intention of approaching either of the banks about the position (that is to say the position consequent upon the disqualification proceedings) until he had had a decision on his present application.[26]What I do note, in considering Mr Meade's evidence about the bank lending, is that the consolidated accounts of Hadleigh Partners and its subsidiaries as at the end of 2010, signed off in April 2011, had a clear audit report. That is to say the auditors, KPMG, considered that the financial statements gave a true and fair view of the companies' affairs at 31 December 2010 and had been properly prepared in accordance with UK generally accepted accountant principles and had been prepared in accordance with the requirements of the Companies Act. The accounts, needless to say, were prepared on a going concern basis and the accounting policies set out in the report and accounts confirm that the accounts had been prepared on such a basis and: Further, the directors have a reasonable expectation that the company has adequate resources to continue in operation and existence for the foreseeable future."[27]16. The directors' report, to which I have already referred, signed apparently by Mr Meade, contained the statement under the heading "Disclosure of Information to Auditors":
"The directors who held office at the date of approval of this directors' report confirmed that, so far as they are each aware, there is no relevant audit information of which the companies' auditors are unaware and each director is taking all the steps that he ought to have taken as a director to make himself aware of any relevant audit information to establish that the companies' auditors are aware of that information."
[28]My purpose in referring to these financial statements of Hadleigh Partners is that if there had been a risk of the bank facilities being withdrawn consequent upon a disqualification order being made, that would have been a risk which would unquestionably have impacted upon the going concern status of the group. The point is made under that caption of "Going Concern" that:
"The directors have a reasonable expectation that the company has adequate resources to continue in operation and existence for the foreseeable future."
[29]Nevertheless, there is no emphasis of matter statement in the audit report or other indication in the directors' report or the accounts that the outcome of pending disqualification proceedings could impact adversely on the availability of the financial resources. As it seems to me, that is an indication that the bank facilities could reasonably have been expected to continue, and indeed were expected to continue, notwithstanding the possibility of an adverse decision against Mr Meade in these proceedings. It is to my mind inconceivable that the existence of the proceedings can have been overlooked, or that the possibility of an adverse order being made against Mr Meade can have been wholly discounted, when the accounts were being prepared. 30 I was told during the course of Mr Adair's submissions this morning that there have been discussions on foot with HSBC in the course of which HSBC has been told not merely of the fact that a disqualification order has been made, but also that this present application is pending, and that HSBC has indeed given a facility letter offering facilities to the companies in the Hadleigh Partners group and that those facilities would be sufficient to replace RBS with effect from 12 August so that, whatever view RBS may take as to its relationship with the group following the disclosure to it of the fact of these proceedings, there will still be facilities available from HSBC. However, what I was also told was qualified to this extent. It was qualified in that I was told that the Credit Committee of HSBC will wish to review the position following the present application. As I have mentioned, I have not been given or shown any document to support what was told to me by Mr Adair. But what I was told is consistent with the basis on which the Hadleigh Partners accounts were prepared, in that the withdrawal of facilities consequent upon Mr Meade’s disqualification seems remote.[31]My conclusion on this point is that the continued presence of Mr Meade as a director of Hadleigh has not been shown to me to be critical to the continued survival of Hadleigh Partners and its subsidiaries and to the continued lending by HSBC to the group of companies. The point has been urged upon me that Mr Meade has been successful in his management of the operating subsidiaries of Hadleigh Partners and that they are trading profitably. In the circumstances it would be remarkable if HSBC would now withdraw facilities simply because Mr Meade can no longer be a director of Hadleigh Partners for the period of two and a half years for which he has been disqualified.[32]I should just add as a footnote to this point, that I am presently minded to allow Mr Meade to have a short period of time during which he will have section 17 leave to continue as a director of Hadleigh while he makes appropriate arrangements with HSBC and for Hadleigh to continue without him as a director. I will hear submissions as to the period when I have concluded this judgment; but my present view is that the period should be for no longer than until the end of August or just possibly to the middle of September, and at all events a short period.[33]The second ground on which Mr Meade relies for his section 17 application comes under the heading of "Strategy". That is how it has been put by Mr Meade. Essentially the point here is that Mr Meade considers, and it is probable that there is a degree of force in this point, that he has been the driving force in putting together what is now the Hadleigh Partners group, and that the group can attribute to him the measure of success that it has had. However, it does not follow from that that it is appropriate for him to remain as a director of Hadleigh, having been disqualified on an application under section 6 of the Company Directors Disqualification Act 1986.[34]In this context I have in mind the following. Mr Meade clearly has it in mind that he on behalf of the group will be involved in arranging finance for the group; that he on behalf of the group will be involved in arranging insurance; that he will be one of the people who will be considering detailed management reporting and financial controls from the subsidiaries; and, in short, that he will be doing things which were very similar to the things that he had been doing in relation to Lincoln Castings Limited, the company as regards which he was disqualified, and which led in due course to the particular act which gave rise to the disqualification proceedings.[35]In short, my perception of Mr Meade is that he is a dominant personality. He certainly was that in relation to Lincoln Castings Limited. I see no reason to think that the same is not the case in relation to Hadleigh Partners. In my judgment there must be a risk that he will become involved with the subsidiaries and as a result be in the same sort of position that he was in in relation to Lincoln Castings Limited.[36]For this reason I do not regard it as a case in which there is virtually no risk of something happening against which the disqualification order is intended to provide a measure of protection.[37]I will therefore give Mr Meade a section 17 permission as regards Hadleigh Partners Ltd for a limited period, as I have indicated.[38]There is one final matter in relation to that limited permission which I will give him. I will hear submissions as to whether or not he wishes the permission to be wider than simply being a director of Hadleigh Partners Ltd and in particular whether he should be have some permission as to his involvement in the management of the Hadleigh Partners group generally for the short period of time.