Causation and compensation order applications

The director in this case was the sole director of Pure Zanzibar Limited, a travel agency. He was disqualified for seven years after the court concluded he had caused or allowed the company to operate in breach of the Civil Aviation (Air Travel Organiser’s Licensing) Regulations.

Among other matters, customers paid for and placed bookings after an ATOL license had expired, despite warnings from the CAA not to accept further orders.  

The court accepted his conduct was honest, but woefully reckless and incompetent nevertheless. The Secretary of State also sought a compensation order under Section 15A for the losses suffered by five identified customers. The company went into voluntary liquidation in December 2017 and had already been dissolved by the time the disqualification proceedings were issued with the liquidator having recovered only £224.14 against a potential creditor claims exceeding £500,000.

Under Section 15A(3), one of the conditions for a compensation order is that the conduct has caused loss to one or more creditors. In Re Noble Vinters, a compensation order had been ordered where a director had misappropriated funds. In that case, the court concluded that the test to apply was similar to the test for equitable compensation, and that the court should apply “hindsight and common sense, but without considering foreseeability” to the question of whether the misconduct caused the particular loss. The present case was not one of misappropriation, and so ICCJ Barber did question whether a foreseeability test should apply to “incompetence to a marked degree”.

However whether it did not made no different in this case. Unlike the trade creditors, five customers suffered identifiable losses as their bookings were not ATOL protected. If they were ATOL protected, they would  have been refunded in full through the ATOL scheme. Furthermore the director had been told by the CAA not to take any further bookings and his conduct was nothing short of defiant. This in particular was sufficiently serious conduct which did merit a compensation for the full amount.

This is the second recent reported decision under Section 15A shedding some light on how the regime operates. It also illustrates the marked difference from claims advanced by an office holder. The outcome of this application is that five identified creditors now have the benefit of an order entitling them to payment. That has put them in a better position than if a liquidator had been able to advance a claim based on identical facts for breach of duty given the proceeds of that claim would have been paid into the estate.

Secretary of State for Business and Trade v Barnsby [2023] EWHC 2284 (Ch)

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