Mrs A. Thompson –v- Scancrown Ltd, trading as Manors In a case that received widespread…
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The ‘controlling mind’ behind a property investment company that went into liquidation with an estimated deficiency of more than £70 million has been banned from being a company director for 12 years. In making the order under the Company Directors Disqualification Act 1986, the High Court ruled that whatever the businessman’s formal position within the company, his influence over its activities had been pervasive.
The company carried on a so-called ‘land bank’ business in which small parcels of land were marketed to investors in the hope that planning consent would be granted for their development. The business employed a workforce of up to 80 people and sold about 5,000 plots before the Financial Services Authority concluded that it was operating a collective investment scheme without lawful authority.
Although the businessman argued that he had resigned as a director of the company prior to those unlawful activities being embarked upon, the Court ruled that he had plainly been in a fiduciary position and his direct involvement in financial decisions was probably substantially unfettered by his formal resignation, which had been ‘more a matter of form than substance’.
Although noting that the investment scheme had been carefully devised after taking legal advice, the Court observed that the businessman had used the company ‘as a bank’ and that the dividends he was paid were not justified by the company’s financial position. His departures from the standards to be expected of him made him unfit to be involved in the management of a company.
Ruling that a disqualification order was ‘mandatory’, the Court decided that a 12-year ban was justified by the seriousness of the businessman’s conduct, his sustained efforts to disguise his role as the company’s principal directing mind, the very substantial amounts of money lost by investors and the large number of complaints received by the liquidators of the company from third parties.
A person may be considered to be a director of a company if the company is used to acting on their direction. Whether they hold the title of director or not is immaterial.
For advice on directors’ rights and responsibilities, contact John Keeble.