Disqualification of non-executive director

Under section 6 Company Directors Disqualification Act 1986 the “court shall make a disqualification order against a person in any case where… it is satisfied (a) that he is or has been a director of a company which has at any time become insolvent (whether while he was a director or subsequently), and (b) that his conduct as a director of that company… makes him unfit to be concerned in the management of a company.”

In its treatment of the duties of directors, the CDDA makes no distinction between executive and non-executive directors. However, it is well settled that while a director can delegate his functions, he remains under a duty to supervise that delegation and to assess its product.

In this case the NED, B, had no involvement in the day to day running of the company but was a director throughout its trading life. His role was to leverage his contacts and reputation to attract investors and delegated the active operations of the company to the other directors.

The court found that B delegated HMRC enquiries into the company’s substantial liabilities for VAT and possible VAT fraud to another director, despite the enquiries being addressed to B by HMRC and despite HMRC complaining to B that they were not receiving satisfactory responses from the company. B also failed to investigate or understand the rapid expansion of the company’s turnover and profit which was caused by deals that were manifestly not genuine commercial transactions. Each of these failings was an abrogation of his duty.

B’s reliance on the founders of the company was so complete that, even after the Insolvency Service outlined the disqualification case against him, B responded that one of the directors was dealing with it. Consequently, B was found unfit to be a director and disqualified for four years.

The three executive directors were disqualified for between 11 and 14 years.

Secretary of State for Business, Energy and Industrial Strategy v Selby [2021] EWHC 3261 (Ch)

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