The Secretary of State for Business and Trade v Aurel Stan [2026] EWHC 1164 (Ch)

[2026] EWHC 1164 (Ch)Case No CR-2024-006173
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INSOLVENCY AND COMPANIES LIST (ChD)
IN THE MATTER OF ADS14 LTD
AND IN THE MATTER OF THE COMPANY DIRECTORS DISQUALIFICATION ACT 1986
Venue Royal Courts of Justice, Rolls Building, Fetter Lane, London, EC4A 1NLDate 18/05/2026
Before
CHIEF INSOLVENCY AND COMPANIES COURT JUDGE BRIGGS
Between
THE SECRETARY OF STATE FOR BUSINESS AND TRADEClaimantAUREL STANDefendant
SARAH WALKER (instructed by Government lawyers) for ClaimantFAIZEL NADEM (instructed by direct access) for DefendantHearing Hearing dates: 29 April 2026
Approved JudgmentThis judgment was handed down remotely at 10.30am on 18 May 2026 by circulation to the parties or their representatives by e-mail and by release to the National Archives..............................CHIEF INSOLVENCY AND COMPANIES COURT JUDGE BRIGGS

Chief ICC Judge Briggs:

[1]This judgment concerns a trial brought by a CPR Part 8 claim form, as modified by the Directors Disqualification Proceedings Practice Direction, where the Secretary of State seeks a disqualification and compensation order brought pursuant to ss.6 and 15A of the Company Directors Disqualification Act 1986 (the “Act”).[2]The primary questions for the court are: 2.1. Whether the conduct of the Defendant, in his capacity as a director of an insolvent company, is such as to render him unfit to be concerned or take part in the promotion, formation or management of a company; 2.2. If unfit, what period is the appropriate period for which the Defendant should be disqualified; and 2.3. Upon disqualification should the Defendant be ordered to pay compensation for any losses he caused to a creditor.[3]A subsidiary question to 2.2 above arose during the course of argument. That is, where the Secretary has not pleaded dishonesty or fraud, how should the court have regard to a submission that the Defendant knowingly or recklessly carried out an activity that bears upon findings of misconduct.

Background

[4]There is little between the parties as to the background of the pleaded misconduct. The ADS 14 Ltd (the “Company”) was incorporated on 30 August 2013 and commenced trading shortly after. The nature of the business was painting and decorating office spaces. Having heard the Defendant I understand that the business carried out painting and decorating as well as redesign and maintenance of office spaces.[5]The Defendant was the sole director of the Company from 30 August 2013 until 4 July 2016. On 4 July Alexandru Stan, the Father of the Defendant, became the sole shareholder in the Company and was appointed as a second director and remained so until liquidation.[6]In the first seven years of trading the Company generated most of its work acting as a sub-contractor for a larger company known as “Connect 2 Services” (“C2S”).[7]It is common ground that the Company traded with a profit until 2020 although the profits were not sizable.[8]In March 2020, the COVID-19 pandemic caused national lockdowns. This resulted in a significant reduction in office use and a dramatic decrease in the amount of work available for the Company. The Defendant, Mr Stan, said in cross-examination that, although the office spaces were empty, the Company was not able to carry out work. Three reasons were given. First, at least initially, the doors had been locked by landlords, preventing a leaseholder and its agents from entering. Secondly, leaseholders or owners of offices chose to abandon decorating plans made before the pandemic to cut costs. Thirdly, when access was available and the green light given for work to commence, personal protective equipment was required before work could be undertaken, which was an upfront cost to the Company.[9]In or around early 2020 the directors of C2S decided to retire and transferred the office maintenance contracts to the Company. I use the word “transferred” lightly since there is no evidence of assignments and, in cross-examination, the Defendant explained that painting contracts were obtained by word of mouth and agreed orally from time to time. Nevertheless, the joint liquidators record that the business was able to continue with essential work.[10]In this period the Defendant fell ill with COVID-19 and continued to suffer from long COVID for the next six months. The incapacity of the Defendant is said to have put a lot of strain on the business and some of the “transferred” clients moved to different service providers. Efforts were made to secure new contracts and two new contracts were agreed; however, the continued pressure of the COVID-19 pandemic meant that these contracts never began.[11]It was also in this period that the Defendant completed an online application to obtain a government-backed loan (the “Bounce-Back Loan”). The application was made to HSBC UK Bank PLC (“HSBC”) on 15 July 2020. On the information provided in the application HSBC provided a Bounce-Back Loan of £50,000, which was drawn down on 8 September 2020.[12]The Company ceased to trade in October 2021. On 1 May 2022 the Defendant approached Leonard Curtis for advice about the Company’s financial position. Following the advice he gave instructions to Richard Pinder and Phil Deyes of Leonard Curtis to assist in placing the Company into liquidation. The deemed consent process was sent to creditors on 21 November and the appointment of the joint liquidators took place on 29 November 2022.[13]In their report to creditors, the joint liquidators explained that the Company operated a single bank account with HSBC, was overdrawn by £39, subject to interest and charges, and it owed £49,832 in respect of the Bounce-Back Loan.[14]The report to creditors states that in the twelve months preceding liquidation the Company had not entered into any material transactions that were not in the ordinary course of the business of the Company. The Secretary of State does not challenge this statement.[15]The Defendant’s evidence is that, in addition to suffering from long COVID in this period, he experienced a traumatic breakdown of his marriage, which began in 2017. It ended with his wife leaving the country with a new partner and his child in or around 2023.

The Bounce-Back Loan

[16]In response to the COVID-19 pandemic in 2020, the UK Government implemented various schemes. One of these schemes was the Bounce-Back Loan, which was launched in May 2020 to help smaller businesses quickly access finance that may be required to support them through the pandemic.[17]Anyone applying for a Bounce-Back Loan on behalf of a business was required to declare (among other things) that: 17.1. The business was not in the process of applying for or had not already received a Bounce-Back Loan (unless the Bounce-Back Loan was to refinance the later in full); 17.2. The business was engaged in trading or commercial activity at the date of the Bounce-Back Loan application; 17.3. The business had been carrying on a business on 1 March 2020 and had been adversely affected by the Coronavirus pandemic; 17.4. The Bounce-Back Loan would only be used to provide economic benefit to the business and not for personal purposes; and 17.5. That the borrower understood the costs associated with the repayment of the Bounce-Back Loan and that they were able and intended to complete timely repayments in the future.[18]In his affidavit in support of an order for disqualification Mr Rout, an Investigation Manager within Insolvent Investigations North which is part of the Investigations & Enforcement Directorate of the Insolvency Service, an Executive Agency of the Department of Business and Trade explains:
“Businesses were eligible to borrow between £2,000 and £50,000, up to a maximum of 25% of the business's turnover (if the business was established after 01 January 2019 the 25% limit was applied to its estimated annual turnover from the date that the business started). Businesses that borrowed less than the maximum amount available to them were eligible to top-up their original loan. Businesses applied for BBLs to an accredited lender, but the loans themselves were 100% guaranteed by the government. The repayment term for BBLs was 6 years with no repayments being due during the first 12 months. The BBL scheme closed on 31 March 2021.”
[19]The Department for Business and Trade entered into guarantees with all banks offering Bounce-Back Loans. It guaranteed the obligations under the Bounce-Back Loan scheme in the event of default by the borrower.

The pleaded case and defence

[20]These proceedings were commenced in accordance with the procedure required by the Insolvent Companies (Disqualification of Unfit Directors) Proceedings Rules 1987. As proceedings are issued by a CPR Part 8 claim, no particulars of claim are served and no particulars of defence are pleaded by a defendant.[21]Mr Rout produced two affidavits, the second making minor corrections to the first. The case of the Secretary of State is summarised in paragraphs 8 and 9 of the first affidavit under the heading “Statement of matters determining unfitness”:
“[8] With regard to the affairs of ADS the following are the matters by reference to which Aurel Stan is, in the opinion of the Secretary of State, unfit to be concerned in the management of a limited company: - [9] Aurel Stan (Mr Stan) caused ADS14 Limited (ADS) to apply for a Bounce Back Loan (BBL) of £50,000 on 15 July 2020 using overstated turnover figures in the BBL application form. Consequently, ADS received more monies than it was entitled to from the BBL scheme, in that: 9.1 Businesses could apply for a loan of between £2,000 and £50,000 subject to a maximum of up to 25% of turnover in the calendar year 2019. 9.2 ADS was incorporated on 30 August 2013. 9.3 On 15 July 2020 Mr Stan applied for a BBL of £50,000 on behalf of ADS declaring that its estimated turnover was £225,000. 9.4 Bank Records show that ADS's turnover in YE 31 December 2019 was £119,966. 9.5 On 08 September 2020 ADS received the £50,000 BBL. 9.6 The amount of BBL that Mr Stan could have applied for was at most £29,992. ADS therefore received at least £20,078 more than it was entitled to under the BBL scheme. 9.7 On 29 November 2022 ADS entered Creditors Voluntary Liquidation with total liabilities of £49,871 of which the entirety relates to the outstanding BBL.”
[22]The “Statement of matters determining unfitness” is expanded upon in paragraphs 31 to 54. The material paragraphs are 31-40:
“31. In response to the Coronavirus pandemic in 2020 the UK Government implemented various schemes, including loans, overdrafts and asset finance, to support businesses that had been affected by the pandemic. 32. One of these schemes was the Bounce Back Loan scheme which was launched in May 2020 to help smaller businesses quickly access finance that may be required to support them through the Coronavirus pandemic. 33. Anyone applying for a BBL on behalf of a business was required to declare that: • the business was not in the process of applying for or had not already, received a BBL or any other support loan (unless the BBL was to refinance the later in full), • the business was engaged in trading or commercial activity at the date of the BBL application, • the business had been carrying on business on 1 March 2020 and had been adversely affected by the coronavirus pandemic, • the loan would only be used to provide economic benefit to the business and not for personal purposes, • that the person applying on behalf of the business understood the costs associated with repayment of the loan and that the business was able and intended to complete timely repayments in future. 34. Businesses were eligible to borrow between £2,000 and £50,000, up to a maximum of 25% of the business's turnover (if the business was established after 01 January 2019 the 25% limit was applied to its estimated annual turnover from the date that the business started. Businesses that borrowed less than the maximum amount available to them were eligible to top-up their original loan. Businesses applied for BBLs to an accredited lender, but the loans themselves were 100% guaranteed by the government. The repayment term for BBLs was 6 years with no repayments being due during the first 12 months. The BBL scheme closed on 31 March 2021. 35. Mr Stan caused ADS to apply for a BBL of £50,000 via an online application to HSBC Bank on 15 July 2020. The application stated ADS's turnover to be £225,000. 36. ADS had been in existence since 30 August 2013 and accounts signed by Mr Stan on 31 May 2020 showed that turnover in YE 31 August 2019 was £89,854. 37. Bank Records show that ADS's income in the calendar year ending 31 December 2019 was £119,966. 38. On the basis of its bank records the amount of BBL that Mr Stan could have applied for on behalf of ADS was at most £29,922. 39. By stating ADS's turnover was £225,000 for calendar year ended 31 December 2019, Mr Stan caused ADS to receive £20,078 more than it was entitled to receive. 40. On 29 November 2022 ADS entered Creditors Voluntary Liquidation with total liabilities of £49,971 of which the entirety relates to the outstanding BBL.”

The Defence

[23]I infer from the way the defendant’s affidavit is written that he was acting in person at the time it was produced. He says that he did not cause the need for the Bounce-Back Loan: the Company needed the Bounce-Back Loan due to the restrictions imposed by the Government during the pandemic. Ms Walker helpfully summarised the main points of defence, which I gratefully adopt: 23.1. The public interest in such proceedings is to protect the public, creditors and economy from misconduct, negligence and fraudulent activities. He has not been engaged in any of those activities (paras 3-4); 23.2. He is not a risk to the business community and to disqualify him in the circumstances of the Company receiving c.£20,000 more than it should is disproportionate and unfair (paras 9 and 30); 23.3. HSBC assessed his application based on the available reliable finance data, which included a 4-hour long phone assessment (paras 17 and 25). He also states:
“At the time the application was accepting turnover and FORECAST of upcoming income. I have made the maths based on the new clients and being sure that business will resume shortly but it hadn't” (para 23); 23.4. He did not cause the business to apply for the Bounce-Back Loan. It was a force majeure situation which forced him to apply for a loan to settle a part of the uncertainties (paras 13 and 18); and 23.5. He would repay any sums that the Company received in excess of the allowance. This is likely to be a response to the section 16 letter sent in October 2023 by which the Secretary of State warned the Defendant that it was prepared to commence proceedings and was invited to provide a “compensation undertaking”
. This appears evident from the caveat provided by the Defendant: “as I understand without a disqualification order there is no compensation order” (para 27).[24]In his skeleton argument Mr Nadem, for the Defendant, stated that the interview with HSBC was 30 minutes and not 4 hours. Due to the late filing of Mr Nadem’s skeleton I infer that(i) he was instructed late and(ii) by addressing “dishonesty”, which is not raised in the Secretary of State’s affidavit, he had sight of Ms Walker’s skeleton before drafting his own. The argument presented is as follows:
“D’s conduct during the application process militates against any finding of dishonesty. Unlike the rapid self-certification typical of many BBL applications, the Defendant engaged in a protracted two-month approval process with HSBC. This included a detailed 30-minute telephone interview with the bank's representatives regarding the Company’s finances. D reasonably understood this to be a rigorous assessment of his eligibility; his full cooperation and transparency during this process reinforce his position that he believed, in good faith, that the financial basis of his application was being validated by the lender.”

Cross-examination

[25]The Defendant had no questions for Mr Rout. I shall accept his evidence.[26]The Defendant was sworn in and asked a series of questions. First he was taken through the accounts of the Company. He accepted the position as stated in the Company’s accounts. Next he was taken through each of the questions in the application form for the Bounce-Back Loan followed by the signed declarations.[27]The Defendant accepted that he was responsible for completing the application and that it was his responsibility to understand the borrowing terms. He accepted that, in doing so, he caused the Company to borrow monies to which it was not entitled.[28]The Defendant was taken to the specific terms:
“You can apply for a loan which is up to 25% of your turnover in calendar, year, from a minimum of £2,000 up to maximum of £50,000. If your business was established after 1 January 2019, you should apply the 25% limit to your estimated annual turnover for the date you started your business” “What is your annual turnover, or if your business was established after 1 January 2019, what is your estimated annual turnover?”
[29]The Defendant accepted that the Company had been established prior to 1 January 2019 and acknowledged that he entered £225,000. He also accepted that this figure could not be justified by reference to the Company’s accounts or by reference to an analysis of money coming into the Company’s bank account.[30]Mr Stan accepted that the application form he completed asked to borrow the maximum sum of £50,000.[31]He ticked a box confirming that the £50,000 was “equal to or less than 25% of annual turnover for 2019 or your estimated annual turnover”.[32]As for the declarations he also confirmed the following:
“I/We understand that the lender will not conduct any form of credit or affordability check and accepts no responsibility, whether arising in contract, tort (including negligence) or otherwise, for my/our decision to borrow.” “I/We recognise that by providing information that is inaccurate or incomplete in any material particular, I/we may be regarded as attempting gain, or gaining, a financial advantage dishonestly and as such will be liable to criminal prosecution for fraud under the Fraud Act 2006 (or equivalent law in Scotland) (for which the penalties include imprisonment or a fine or both), as well as to the forfeiture of all loan proceeds together with interest and court costs. I/We confirm that the information provided in this application is complete and accurate.”
I/We confirm that the information provided in this application is complete and accurate.”[33]He was challenged on his claim of a four-hour call with HSBC. He quickly accepted it lasted about 30 minutes. He said HSBC called while he was driving and he pulled over; after security questions, the caller went through the application form with him. He understood (contrary to the declaration) that HSBC was checking the information, and he confirmed the form was correct. He was told they would “look into it”, and the loan was paid into the Company’s account shortly afterwards.[34]The Defendant accepted that he had procured a loan exceeding the Company’s entitlement. Mr Stan explained that he was not seeking to cheat the system, but had made an error by forecasting turnover. His forecasting, for which he had retained no supporting documentary evidence, was based on the 6 or 7 contracts the Company had received from C2S.[35]He agreed that the overstated turnover resulted in the Company receiving just under £20,000 to which it was not entitled.

The boundaries of the case

[36]The affidavit filed by the Secretary of State is in the form of a pleading, or at least it performs the function of a pleading insofar as it should provide a statement setting out the allegations of unfitness. It is not just an opportunity for the claimant to set out the facts upon which it seeks to rely; it is a necessity. The twin requirements of pleading the case and setting out the facts upon which the factual case to support the allegations rests have been commented on many times. In Re Pinemoor Ltd [1997] BCC 708, 710 Chadwick J said: “It would be preferable, for the future, if those preparing and swearing affidavits in support of applications under this Act were careful to distinguish between facts which they are able to establish by direct evidence, the inferences which they invite the court to draw from those facts, and the matters which are said to amount to unfitness on the part of the respondent. If those distinctions were observed, it might lead to respondents concentrating more closely on those factual matters to which they actually need to respond by affidavit evidence under r.6”.[37]This leads to how the issue set out in paragraph 3 above. Where the misconduct complained of is of a serious nature, that is misconduct that may be deserving of a disqualification period of greater than 5 years, the affidavit in support of the claim must carefully describe the circumstances. In my judgment the claimant should at a minimum: 37.1. state clearly that the alleged misconduct is serious; 37.2. where dishonesty is alleged particularise the dishonesty; 37.3. where fraud is alleged, particularise the fraud; 37.4. in respect of any other serious misconduct particularise what was done or omitted to be done and explain why such misconduct is serious.[38]I am not the first judge to determine directors’ disqualification claim where the Secretary of State alleges that a defendant has knowingly or recklessly done or failed to do a thing. In Secretary of State for Trade and Industry v Swan [2003] EWHC 1780 Laddie J observed [23]:
“…I think it is clear that the more serious the allegations made against the director, the more important it is for the case against him to be set out clearly and with adequate particularity. In my view this does not apply only to cases of fraud. It applies in all cases where serious wrongdoing is alleged, particularly where it is asserted that the director knew his acts were wrongful or improper.”
[39]It is likely that the wise words of Laddie J have been lost in the mists of time, but they are as important today as they were nearly 25 years ago. This is especially the case with the proliferation of claims concerning an abuse of the Bounce-Back Loan system where the underlying misconduct is obtaining a loan by fraudulent misrepresentation or deceit. I accept entirely that there is a range of misconduct within the Bounce-Back Loan scheme. The most serious is likely to be where the maximum sum was borrowed by a non-trading company or newly incorporated company, the directors had no intention to use the loan sum for business use and the money was paid away for the personal expenditure of the directors and/or shareholders. As there is a range of misconduct even within Bounce-Back Loan cases, the court and the defendant must understand with material particularity the nature and extent of the allegation.[40]The allegations set out in the affidavit of Mr Rout are: [9] Aurel Stan (Mr Stan) caused ADS14 Limited (ADS) to apply for a Bounce Back Loan (BBL) of £50,000 on 15 July 2020 using overstated turnover figures in the BBL application form. Consequently, ADS received more monies than it was entitled to from the BBL scheme [35] “Mr Stan caused ADS to apply for a BBL of £50,000 via an online application to HSBC Bank on 15 July 2020” [39] “Mr Stan caused ADS to receive £20,078 more than it was entitled to receive”

[39] “Mr Stan caused ADS to receive £20,078 more than it was entitled to receive”

[41]There is no allegation that Mr Stan acted dishonestly, acted deceitfully, fraudulently misrepresented or knowingly caused or was reckless in causing the overstatement. The Secretary of State’s case accepts that the Bounce-Back Loan was used for legitimate purposes.[42]Nevertheless, the Secretary of State’s case at trial is that the Defendant acted knowingly or recklessly as to the truth when completing the Bounce-Back Loan application [skeleton argument 46.2 and 47.7]: [47.2] “D’s argument that he has not been engaged in negligent or fraudulent activities is to be rejected. The basis of C’s application is that he negligently or fraudulently filled out the BBL application causing the Company to claim more than it was entitled to under the scheme. Indeed, the judgments set out above consistently state the seriousness of incorrectly filling out and certifying the contents of the BBL applications.” [47.9] “In the premises, D certified the Company’s turnover on the basis of an estimation when that had clearly (and on multiple occasions in the form) been stated to only apply if a Company had started trading after January 2019. D did so knowingly or reckless as to the truth of his statement. That figure was higher than the Company’s actual turnover which D knew or ought to have known was between c.£90,000 and £120,000, Moreover, whilst never permissible in the first place, D has provided no real justification for the proposed estimated turnover actually relied upon.”[43]The Secretary of State’s position appears to be that, because other bounce‑back loan cases have turned on whether the defendant made the application knowingly or with reckless disregard for the truth, the same test should be applied when assessing this Defendant’s fitness. Reliance is placed on the declarations made on the application form.[44]The court’s task is to determine the issues that the parties have chosen to place before it. It is neither permissible nor fair for a judge to decide the case on a basis that was not pleaded or otherwise clearly articulated in advance. The parties are entitled to know the case they must meet, and a determination founded on an unpleaded issue offends both procedural regularity and the adversarial structure within which the court is required to operate. To put it another way, the losing party must have a fair opportunity to meet the case made against him, and that opportunity is denied where a new issue emerges too late for evidence to be called or tested: Jacobs v Chalcot Crescent (Management) Company Ltd [2024] EWHC 259 [65]; Al-Medenni v Mars UK Ltd [2005] EWCA Civ 1041 [21–25]; Sainsbury's Supermarkets Ltd v MasterCard Inc [2020] UKSC 24, [242]:
“In the adversarial system of litigation in this country, the task of the courts is to do justice between the parties in relation to the way in which they have framed and prosecuted their respective cases, rather than to carry out some wider inquisitorial function as a searcher after truth.”
[45]That does not mean that a Judge possesses no discretion to permit a departure from a pleaded case where it is just, but the proper course is to amend. The general rule is that the court must not decide a case on a point that is not pleaded.[46]The Defendant was cross‑examined on the footing that he had completed the HSBC application knowing the information was false. No application was made to amend Mr Rout’s affidavit to advance such a case.[47]Counsel for the Defendant did not object to the Secretary of State’s line of cross-examination, but submitted that the Defendant’s understanding of his actions in July 2020 differs from his understanding six years later after taking legal advice: he did not knowingly declare a turnover of £225,000 in order to obtain the maximum loan, but used that figure taking account of the 6 or 7 contracts said to have been assigned to the Company by Connect 2 Services Limited.[48]The Defendant closed his case by asserting that he had been under considerable pressure when completing the finance application form and had simply misread the guidance. For his part, the Secretary of State disavowed any reliance on dishonesty or fraud.

Unfit conduct

[49]A court may disqualify a person from being a director of a company, acting as a receiver of a company, or being concerned or taking part in the promotion, formation or management of a company without the permission of the court: sections 6, 8ZF and 9A of the Company Directors’ Disqualification Act 1986. Pursuant to section 6 of the Act, the court shall make a disqualification order against a person on an application where it is satisfied that the person is or has been a director of a company which has at any time become insolvent (including entering liquidation at a time when its assets were insufficient for the payment of its debts, liabilities and expenses of the winding-up) and that his conduct as a director of that company makes him unfit to be concerned in the management of a company.[50]As to the meaning of unfitness, in Re Sevenoaks Stationers (Retail) Ltd [1991] Ch. 164 at 176B-C, the Court of Appeal explained:
“The test laid down in section 6 … is whether the person's conduct as a director of the company or companies in question "makes him unfit to be concerned in the management of a company." These are ordinary words of the English language and they should be simple to apply in most cases. It is important to hold to those words in each case.”
[51]In Re Structural Concrete Ltd [2001] BCC 578 at 586E-G, Blackburne J held that consideration of the issue of unfitness involved a three-stage process. First, do the matters relied upon amount to misconduct? Secondly, if they do, do they justify a finding of unfitness? And lastly, if they do, what period of disqualification, being not less than 2 years should result?[52]In Re Grayan Building Services Ltd [1995] Ch 241 at 253E, Hoffman LJ (as he then was) observed:
“The court is concerned solely with the conduct specified by the Secretary of State or official receiver under rule 3(3) of the Insolvent Companies (Disqualification of Unfit Directors) Proceedings Rules 1987. It must decide whether that conduct, viewed cumulatively and taking into account any extenuating circumstances, has fallen below the standards of probity and competence appropriate for persons fit to be directors of companies.”
[53]There is an considerable authority for the proposition that a director falls below the standards of probity and competence appropriate for persons fit to be directors of companies where the director has given an inflated turnover when applying for a Bounce-Back Loan and, in some circumstances, where the loan obtained under the Scheme had not been used for the purpose for which it had been made: Re DEEA Construct Ltd [2023] EWHC 2084 (Ch); Re Tundrill Ltd [2023] EWHC 3241; Re St Aimie’s Sports Academy Community Interest Group [2024] EWHC 3137; and Re UK Dream House Ltd [2025] EWHC 98.[54]The rationale behind these cases is readily identifiable. First, the Government imposed restrictions that prevented freedom of movement. The restrictions, which were time limited, put businesses in jeopardy. Secondly, the availability of a Government-backed loan on a self-certification basis was intended to provide businesses with sufficient resource to weather the temporary restrictions. Thirdly, speed of delivery was prioritised over traditional credit-risk controls. Fourthly, it was evident from the application form that there would be no external checks on the information provided by businesses to lenders when applying for a Bounce-Back Loan.[55]It follows that, as eligibility and loan size were determined through borrower declarations rather than lender assessment, the Government reposed trust in and relied on business honesty to deliver funds quickly.

The conduct of Mr Stan

[56]It is not disputed that it was Mr Stan who applied for the Bounce-Back Loan on behalf of the Company. It is not disputed that he had a responsibility to ensure that he read the loan application form, understood the form and signed the declarations having read and understood the terms with honesty. Mr Stan stated in cross-examination that he either read the application form in haste or had not fully understood it. He said that he took responsibility.[57]It was objectively and abundantly clear on the face of the application form that, where a business had been established by 1 January 2019, as it was in this case, the maximum amount that a company could borrow was 25% of its turnover for the 2019 calendar year (or £50,000 if lower). On any measure the Company was not entitled to £50,000.[58]The Company is insolvent and it failed to comply with the terms of the Bounce-Back Loan in that it obtained more than it was entitled to and did not repay the loan.[59]The Secretary of State’s case is that Mr Stan caused the Company to obtain a greater loan than it was entitled and thus Mr Stan’s conduct fell below the standards of competence appropriate for a person fit to be a director of a company.[60]The core purpose of the Act is to promote and raise standards amongst those who manage companies with the benefit of limited liability. A corollary of the core purpose is protection of the public. In my judgment, given Mr Stan’s admission that he made an error, the error was serious and compounded by the declarations he signed, the disparity between the Company’s actual turnover and that represented on the application form, and his procurement of a Bounce-Back Loan in excess of the Company’s entitlement at a time of exceptional pandemic conditions, his conduct renders him unfit to be concerned in the management of a company.[61]The consequence is straightforward: a disqualification order is mandatory, and the minimum period is two years.

Period of disqualification

[62]The period of disqualification is fact sensitive, dependent on the misconduct found by the court. In Sevenoaks Stationers (supra) Dillion LJ endorsed the break down of periods into three categories [174]:
“I would for my part endorse the division of the potential 15-year disqualification period into three brackets … (i) the top bracket of disqualification for periods over 10 years should be reserved for particularly serious cases. These may include cases where a director who has already had one period of disqualification imposed on him falls to be disqualified yet again. (ii) The minimum bracket of two to five years' disqualification should be applied where, though disqualification is mandatory, the case is, relatively, not very serious. (iii) The middle bracket of disqualification for from six to 10 years should apply for serious cases which do not merit the top bracket.”
[63]The Secretary of State claims that the misconduct of Mr Stan falls the middle bracket because the misconduct is serious but does not merit the top bracket. The submission made by the Secretary of State is that the period should follow similar cases where misconduct is founded on Bounce-Back Loan abuse. The period should be 10 years.[64]This is not a case where the Bounce-Back Loan was used for personal benefit. Nor is it a case where it can be claimed that Mr Stan knowingly or recklessly abused the Bounce-Back scheme to the detriment of tax payers.[65]In my judgment there is a distinction between cases where the misconduct is caused by mistake or a failure to take care and those cases where the misconduct is caused knowingly or recklessly. Knowing or reckless misconduct almost always places a director in the middle or top bracket of disqualification. This is because knowing or reckless misconduct will usually consist of dishonest behaviour, a conscious decision to ignore statutory and/or common law duties or a reckless indifference. Misconduct consisting only of mistake, error or failure to take care generally falls in the lower bracket or bottom of the middle bracket. This distinction is in my view grounded in the Sevenoaks Stationers categories.[66]I accept Mr Stan’s evidence that following the Bounce-Back Loan application there was a delay before the Company received the loan. I accept that the monies were paid by HSBC following a phone call he received whilst driving. It is more likely than not that the caller from HSBC asked Mr Stan if the application form was correct and he responded “yes”. I do not accept Mr Stan’s interpretation that HSBC had conducted an external check on the Company.[67]Nevertheless, I have no doubt that Mr Stan fell into error. In my judgment he failed to take care when completing the Bounce-Back Loan application and used the wrong metric: he forecasted the turnover of the Company by reference to the new business that was likely to materialise from Connect 2 Services Ltd.[68]The period must reflect Mr Stan’s culpability having regard to the Secretary of State’s case.[69]In my judgment, the proper characterisation of the conduct is decisive. The evidence establishes that Mr Stan did not act with any conscious disregard of his duties, nor with the reckless indifference that would justify placement in the middle or upper Sevenoaks brackets. His error lay in a failure to take proper care when completing the Bounce‑Back Loan application, and in adopting an impermissible basis for calculating turnover. That was a serious lapse, involving a material misstatement in an application for public funds, and it cannot be dismissed as trivial. However as the Secretary of State does not allege, and the evidence does not support, any knowing or reckless misconduct, the case must fall within the lower bracket. Within that bracket the period must still reflect the gravity of the misstatement and the need to protect the public from directors who, even without dishonesty, fail to exercise the basic standards of accuracy and diligence required of them. A disqualification of four years properly marks that level of culpability and meets the protective purpose of the regime.

Compensation

[70]Section 15A of the Act provides the court with a discretion to make a compensation order against a person if it is satisfied that:70.1 the person is subject to a disqualification order under the Act; and70.2 conduct for which the person is subject to the order has caused loss to one or more creditors of an insolvent company (insolvent company having the same meaning as in section 6 of the Act) of which the person has, at any time, been a director.[71]A compensation order under s.15A is a distinct statutory cause of action, and where the court considers such an order appropriate, s.15B(3) requires it to have particular regard to the amount of loss caused, the nature of the disqualifying conduct identified in s.15A(3)(b), and any other recompense already made. The jurisdiction serves two purposes: first, to allow creditors to obtain financial redress from a director whose misconduct has caused identifiable loss not otherwise met through the insolvency process; and second, to counter the perception that wrongdoing goes unaddressed and thereby strengthen confidence in the insolvency regime: Secretary of State v Genov [2025] EWHC 2012 (Ch), [75]–[80].[72]Subject to one qualification, I accept the Secretary of State’s submission that, where the court finds misconduct sufficient to warrant a disqualification order, it should, as a general proposition, also be satisfied that the misconduct caused loss to creditors. The qualification is that this general proposition operates only as a starting or point of departure and does not constitute a default position. Section 15A confers a discretion which must be exercised judicially, and which is unfettered.[73]On the evidence, causation is established. The inflation of the Company’s turnover caused it to receive £19,752 more than it was entitled to receive. That sum has been lost.[74]In any event Mr Stan accepted in cross-examination that he had caused loss to the Bank. In closing Mr Nadem asked the court to make an order that afforded Mr Stan time to pay. I agree with Ms Walker that there is a difference between liability to pay and ability to pay.[75]In my judgment the compensation to be paid by Mr Stan, and which accurately reflects the loss, is £19,752 plus interest at a rate of 2.5% p.a. from 29 November 2022.[76]I am grateful to counsel for their assistance in this case and invite them to agree an order.