Background
Mr Taylor was a qualified independent financial adviser and one of five directors of Quintillion Asset Management Limited (the “Company”). By the time the Company entered insolvent liquidation in August 2012 he was one of only two directors. In April 2014 the Insolvency Service (“IS”) wrote to Mr Taylor explaining that the Secretary of State for Business, Innovation and Skills (“SOS”) considered he should be disqualified from acting as a director or being involved in the management of a company for a period of 12 years. An undertaking for a period of 11 years was offered by Mr Taylor, and accepted by SOS in August 2014.
On 24 April 2014 the IS had written to Mr Taylor pursuant to Section 16 of the Company Directors Disqualification Act (“CDDA”) to notify him that the Official Receiver (“OR”) intended to apply to the Court for a disqualification order pursuant to section 6 CDDA (“the Section 16 Notice”). The Section 16 Notice briefly summarised the matters of conduct which, in the opinion of the OR, made Mr Taylor unfit to be concerned in the management of a limited company. The IS subsequently provided the draft evidence in support of the application on a confidential basis which included allegations that Mr Taylor caused or allowed the Company to misappropriate client funds by making inappropriate investments without authorisation, and failed to keep adequate books and records. The Section 16 Notice informed Mr Taylor that he may wish to seek independent legal advice. On 14 May 2014, Mr Taylor replied to the draft evidence provided by the OR stating that:
“Unfortunately due to the time constraints imposed and the fact that I am no longer in the UK, I have been unable to obtain legal advice on this matter.”
On 22 May 2014 the IS wrote to Mr Taylor asking if he required further time in order to obtain legal advice. He responded quickly by e-mail on 1 June 2014 attaching further representations and refuting the allegation that he caused or allowed the unapproved movement of client monies to happen, which transactions he claimed were carried out by his fellow director, a Mr Silva-Peake. He ended by saying that it would be unjust to disqualify him. The SOS’s solicitors responded to that letter indicating that it was still the intention to bring proceedings and again suggesting that he may wish to seek legal advice.
Mr Taylor had secured a post as an independent financial adviser in Switzerland and, claimed that because of financial difficulties brought about by the demise of the Company, he was unable to afford legal advice. He wrote to the IS on 5 August 2014 saying that he had no option but to give an undertaking and one was sent to him by the SOS’s solicitors who informed him that if he signed the undertaking before 13 August 2014 no costs would be sought against him. Mr Taylor gave the undertaking. Mr Silva-Peake also gave an undertaking for 11 years.
Subsequently the disqualification received some publicity and the Cumberland News and Star contacted Mr Taylor’s new employers. Soon thereafter his employment was terminated and from September 2014 he claimed he was unable to obtain employment as a financial adviser.
Key Facts
By a claim form issued in December 2014, Mr Taylor requested that the period of the undertaking be reduced from 11 years to between 2 and 5 years pursuant to Section 8A CDDA which provides:
“(1) The court may, on the application of a person who is subject to a disqualification undertaking:
(a) reduce the period for which the undertaking is to be in force, or
(b) provide for it to cease to be in force.
(2) On the hearing of an application under subsection (1), the Secretary of State shall appear and call the attention of the court to any matters which seem to him to be relevant, and may himself give evidence or call witnesses.”
The hearing of the application before Registrar Briggs lasted 5 days and the deponents were cross-examined on their evidence. In the leading authority in this area, Re INS Realisations Ltd, Secretary of State for Trade and Industry v Jonkler and Spencer-Jonkler [2006] 1WLR 3433, Hart J held that the court should only interfere with an undertaking where “special circumstances” exist being “…..where circumstances have subsequently arisen which, by reason of their type or gravity, were not circumstances which were intended to be covered or ought to have been foreseen at the time the undertaking was given.” Hart J also stated “There will be many cases in which the director will be able to plead that he only gave the undertaking because he could not afford legal advice and assistance. There may also be many cases where undertakings are given for periods in excess of those subsequently found appropriate by the court in relation to other directors involved in the same insolvency and the same misconduct. I agree with the Secretary of State that the jurisdiction should only be sparingly exercised where the application is based on arguments of that general kind”.
Mr Taylor argued that he had not envisaged when he gave his undertaking that it would lead him to lose his job and to be unable to find employment as an independent financial adviser and if he had, he would not have given the undertaking in the form that he did. He further argued that he did not “cause” the misappropriation of the client funds. He also argued that circumstances of the “general kind” were present.
Mr Taylor did not, on the giving of his undertaking, inform his regulator (the FCA) or his employer, notwithstanding that the Section 16 Notice warned that the IS may seek to publicise the undertaking and that it may affect his membership of his professional body.
Judgment
The Registrar found that Mr Taylor knew or should have been aware of the ramifications of the undertaking on his work in the financial sector. In his judgment, the Registrar did not find these circumstances special and found that Mr Taylor ought to have been foreseen at the time of the undertaking that were it to be disclosed to his employers he may lose his contract.
The Registrar disapproved of the suggestion that a failure to take legal advice, when advised to do so, could give rise to the exercise of the Section 8A discretion and stated that “the court will be strained to find that after the undertaking was entered into, there arose a circumstance of a quality and nature that was not intended to be covered or foreseen.” He did not regard Hart J’s dictum in relation to circumstances of a “general kind” as establishing a different category to “special” circumstances.
Mr Taylor was concerned to show that he personally had not misappropriated the client monies and the Registrar was prepared to find that he did not cause but allowed this. However, he concluded that “this is not a rare case where circumstances of a general kind and other circumstances amalgamate in such a way to preclude offending the principled approach to the exercise of discretion. There is no new event that could not have been foreseen. The undertaking is not expressed to allege causing only. It is expressed in the alternative. The finding of ‘allowing’ and not ‘causing’ the high-risk investments are insufficient in terms of its type or gravity when weighed against all the background.”
The Registrar also concluded that the OR had been entitled to accept an undertaking using “caused or allowed” in circumstances where Mr Taylor and Mr Silva-Peake had given conflicting versions of events.
Conclusion
The decision shows that the Court is loathe to intervene in the bargain reached between the OR (or SOS) and directors embodied in an undertaking and that a failure to take legal advice prior to offering an undertaking will not, of itself, amount to a special circumstance justifying a reconsideration of the period.
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