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Disqualification proceedings were commenced against Mr E, a tax and accountancy professional who was a director of companies in the B group, in 1992. Mr E defended the proceedings and sought judicial review of the secretary of state's decision to make the disqualification application. When making the order adjourning the disqualification proceedings pending the judicial review, the judge required Mr E to agree to give a disqualification undertaking if his judicial review application was unsuccessful. The application for judicial review failed. Mr E then applied for the disqualification proceedings to be dismissed on the basis that the proceedings had taken an excessive length of time. At a hearing in 2001, the judge rejected the application. Mr E applied for permission to appeal this decision, and was refused twice. The disqualification proceedings were stayed in May 2001 to allow Mr E to enter into a disqualification undertaking for 4 1/2 years. Mr E then applied to the European Court of Human Rights (ECHR) for relief on the basis that the disqualification proceedings violated his right to a fair trial because they had taken too long (art 6 European Convention on Human Rights). In July 2004, the ECHR upheld his complaint and awarded him compensation for his legal costs in establishing the violation. Mr E then applied to have the undertaking set aside on the basis that the ECHR's finding meant that there could not have been a fair trial. Although the undertaking expired on 31 December 2005, Mr E argued that it continued to prejudice him in his career because the professional bodies of which he was a member would institute disciplinary proceedings against him if the undertaking was not set aside. The Court of Appeal rejected his application for a number of reasons, which can be summarised as follows: » the ECHR found that Mr E's right to a fair trial had been violated because of the length of time that the proceedings had taken. It did not find, and it could not be implied, that there could have been no fair trial of the disqualification application despite the delay (Attorney General's Reference (No 2 of 2001) [2004] 2 AC 72); » at the 2001 hearing of Mr E's application to dismiss the disqualification application, he did not contend that a fair trial was not possible because of the length of the proceedings. There was no evidence that a fair trial would not have been possible in May 2001 when Mr E gave the undertaking. In any event, any such breach of Mr E's convention rights was waived by him when he gave the undertaking and there were no public interest reasons on the facts of the case to prevent the waiver; » Mr E was represented throughout the proceedings by solicitors and sometimes by counsel as well. He understood the effect of the undertaking and was not forced to give it. He benefited from it by avoiding the cost and publicity of a trial; and » Mr E had not given sufficient evidence to show that the length of time the proceedings had taken (as opposed to the fact that he was disqualified, which will inevitably prejudice a professional person) had caused him substantial enough prejudice to warrant dismissing the proceedings. Whether his professional bodies thought that disciplinary proceedings were necessary was for them to decide, looking at the reasons for Mr E’s disqualification. It was not a matter for the court to consider. The Court of Appeal also stated that the court's power to set aside a disqualification undertaking is not contained in r 7.47(1) IR 1986, as this only applies to orders made in the court's exercise of its insolvency jurisdiction. |
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Application to set aside disqualification undertaking following breach of director’s right to a fair trial See CLM: ¶3072, ¶7393+ |
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Eastaway v Secretary of State for Trade and Industry [2007] EWCA Civ 425 |
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RECENT CASES |
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The Court of Appeal has confirmed that: » a good faith restructuring and repayment of indebtedness does not constitute financial assistance; and » even if it did, a lender who loaned the money to make the repayment would still be able to enforce the terms of its loan agreement (and any related guarantee and security). In this case, an unsecured inter-company loan between AP Ltd and its parent was restructured as part of the sale of AP Ltd’s entire issued share capital. The terms of the restructuring reduced AP Ltd’s indebtedness by £30 million and in return AP Ltd gave security to the parent for repayment of the remaining £15 million. The Court held that just because the restructuring made AP Ltd a more attractive target and smoothed the path to the acquisition, it did not follow that this amounted to financial assistance. The restructuring had been carried out in good faith. The reason for it was to sell AP Ltd’s shares but that did not make the purpose that of giving financial assistance to the buyer. Three months after the sale, AP Ltd took out a loan from TFB Ltd at a high rate of interest to repay the indebtedness earlier than required. The Court confirmed that the repayment of lawful indebtedness is not financial assistance. The Court also decided that the high cost of the borrowing, which reduced AP Ltd’s assets, did not convert the repayment into unlawful financial assistance. However, the Court accepted that in some cases the early repayment of indebtedness so as to benefit the buyer could amount to financial assistance. In this case, the Court accepted that there were good faith reasons why AP Ltd wanted to repay early (so that it and the buyer could obtain further finance at favourable rates). The Court then considered whether the loan by TFB Ltd would have amounted to an illegal contract if financial assistance had occurred. In this case, TFB Ltd knew that the loan would be used to repay the restructured indebtedness. The Court found that the terms of the loan did not require AP Ltd to act illegally. TFB Ltd was therefore entitled to assume that it would use the funds without breaking the law. The fact that TFB Ltd knew of AP Ltd’s unlawful purpose (assuming that the repayment would have been unlawful financial assistance) was not sufficient; “active participation” on the part of TFB Ltd was required. What amounts to active participation varies from case to case keeping in mind the public policy basis of the law in this area. Here, the Court decided that it would not be in the interests of public policy to invalidate a contract which was not unlawful in its terms and which a reasonable person in TFB Ltd’s position would have seen as an ordinary innocuous commercial transaction. The principle that ignorance of the law is no defence did not stretch that far. This decision upholds the order of Peter Smith J in the High Court ([2006] EWHC 258 (Ch)). |
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Financial assistance – Loan to repay indebtedness See CLM: ¶5572, ¶5631+ |
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Anglo Petroleum Ltd v TFB (Mortgages) Ltd [2007] EWCA Civ 456 |