HER MAJESTY'S SECRETARYOF STATE FOR BUSINESS INNOVATION AND SKILLS FOR A DISQUALIFICATION ORDER IN TERMS OF THE COMPANY DIRECTORS DISQUALIFICATION ACT 1986 IN RESPECT OF CRAIG THOMAS WHYTE
OUTER HOUSE, COURT OF SESSION
[2014] CSOH 148
P137/14
OPINION OF LORD TYRE
In the Petition of
HER MAJESTY’S SECRETARY OF STATE FOR BUSINESS, INNOVATION AND SKILLS
Petitioner;
for
a disqualification order in terms of the Company Directors Disqualification Act 1986 in respect of Craig Thomas Whyte
Petitioner: D Thomson; Ledingham Chalmers LLP
30 September 2014
Introduction
[1] This application under section 6 of the Company Directors Disqualification Act 1986 was successfully served upon the respondent, on whose behalf answers were lodged on 28 April 2014. Those answers were skeletal and contained no response of substance to any of the averments in the petition. Thereafter the respondent’s agents ceased to act for him and the petitioner has been unable to discover his whereabouts in order to serve notice of the fixing of a hearing of the petitioner’s motion to the court to grant the prayer of the petition. On 1 August 2014, I ordered service to be effected by way of advertisement in The Herald and The Times newspapers. That has been done and has attracted media attention. Despite this, there has still been no contact with the respondent and no attempt by him to re-enter the process. In my opinion, the appropriate procedural steps have been taken to attempt to bring the matter to the respondent’s attention, and it is proper for me now to hear and determine the application in his absence. The averments in the petition were vouched by contemporaneous documentation and I am satisfied that the facts relied upon by the petitioner have been proved to the requisite standard.
[2] The petitioner founds upon the respondent’s conduct as a director of two companies. The first of these is the company that was known prior to 31 July 2012 as The Rangers Football Club plc (“Rangers”). The respondent was appointed as a director of Rangers on 6 May 2011 and resigned on 1 June 2012. The company was placed in administration on 14 February 2012 and was ordered to be wound up on 31 October 2012. The second is a company about which little is known called Tixway Limited, which was incorporated in 2007 and went into liquidation on 2 July 2012. The respondent was appointed as a director on 1 April 2008 following the expiry of the period of disqualification referred to below. The petitioner bases this application upon the respondent’s conduct as a director of Rangers and of Tixway cumulatively.
[3] The respondent has previously undergone a period of seven years’ disqualification, imposed by the Companies Court in London on 13 June 2000, in connection with the insolvency of a company called Vital UK Limited.
Rangers
[4] In relation to Rangers, the petitioner founded upon a number of aspects of the respondent’s conduct as demonstrating unfitness. The first of these aspects concerned the agreement entered into by Rangers with Ticketus LLP, immediately after its acquisition by Wavetower Limited, a company ultimately owned and controlled by the respondent. This agreement provided for the sale by Rangers to Ticketus of the right to sell season tickets for the next three years: put bluntly, Rangers sold the right to receive a significant proportion of its income for the next three years in exchange for a sum of £24 million. It is clear from the documentation to which I was referred that not only did the respondent not inform the members of Rangers’ independent board committee who were tasked with negotiating the sale of the company to him that he was entering into an agreement with Ticketus, but also that he misrepresented to them that the funds for purchase of the company were to be provided from his own resources and from the commercial activities of a company incorporated in the British Virgin Islands called Liberty Capital Limited, which he also owned. Those misrepresentations occurred prior to the respondent’s appointment as a director of Rangers and are not therefore directly relevant to my assessment of his conduct as a director. They do, however, as counsel submitted, provide context for what followed.
[5] What is of direct relevance is that immediately upon his appointment as a director of Rangers, the respondent caused Rangers to enter into the Ticketus agreement, for the sole or main purpose of facilitating his acquisition of Rangers by providing finance which was lent by Rangers to Wavetower, which in turn used it to repay Rangers’ external debt, notably to Lloyds Banking Group. In effect, a significant proportion of Rangers’ prospective income for the next three years was used to pay the bank and thus to fund the respondent’s acquisition of the club. On the basis of the material placed before me, it seems to me that there is a strongly arguable case that this amounted to financial assistance prohibited by section 678 of the Companies Act 2006, and accordingly constituted an offence. In any event I am satisfied that the Ticketus agreement was entered into by Rangers, under the direction of the respondent, for the benefit of the respondent and not the company, and accordingly constituted a deliberate breach of his fiduciary duty as a director. The fact that this was done, knowingly, in breach of the express terms of the Share Purchase Agreement enhances the reprehensible nature of the respondent’s actings.
[6] The second aspect founded upon was the respondent’s management of the affairs of Rangers after his appointment. It was submitted that he deliberately and dishonestly concealed the Ticketus agreement from other Board members until its existence was discovered by the company’s financial controller from an independent source. I am satisfied on the evidence that the allegation of dishonesty is established. Moreover, the respondent held no Board meetings and provided no information to other directors regarding the company’s financial affairs, thereby rendering it impossible for them to fulfil their own duties as directors.
[7] The third aspect was the sale for around £224,000 of shares which Rangers held in Arsenal Football Club. Although this sale took place at a time when Rangers was in severe financial difficulty, the respondent did not give instructions for the transfer of the sale proceeds to Rangers when they were being held by a company of stockbrokers, with whom he was also connected, and which subsequently went into administration. This resulted in a loss to Rangers of 50% of the proceeds of sale of the Arsenal shares.
[8] The fourth aspect was the failure of the respondent to exercise certain rights, granted by Wavetower to Rangers at the time of the share purchase, to receive payment on demand of sums required to meet playing squad costs and also to pay a sum due to HMRC in what has been referred to as the Small Tax Case. In connection with this aspect there is again an element of dishonesty on the part of the respondent, in that a letter sent on his behalf in January 2012 contained certain untrue statements concerning funds available to Rangers.
[9] The fifth aspect was the failure of Rangers, while owned by the respondent, to meet its obligations to HMRC in respect of PAYE, national insurance contributions and VAT. Acting to the exclusion of other directors, the respondent caused Rangers to stop making payment when due in respect of these liabilities from 7 September 2011. By February 2012, when HMRC presented its petition for an administration order, a sum of around £10.5 million had accrued in respect of unpaid tax and unapplied interest.
Tixway
[10] In relation to Tixway, the petitioner founded firstly upon the company’s failure to maintain and preserve adequate accounting records and to deliver them up to the liquidator. Information is so sparse that the liquidator has been unable to discover what business, if any, Tixway carried on. The only relevant documents on the Register of Companies are unaudited abbreviated annual accounts. It is clear from Tixway’s bank statements that the company held funds. Entries in those statements strongly suggest that some of those funds were applied to meet personal expenditure of the respondent. Tixway is estimated to have a deficiency of liabilities over assets of around £3 million. In the absence of adequate records it is impossible to know how this deficit accumulated.
[11] The petitioner also founded upon the respondent’s failure to fulfil his duty to co-operate with Tixway’s liquidator. The respondent failed to make any substantive reply to requests for information by the liquidator in correspondence, and has now ceased to reply altogether.
Decision
[12] It is well established by the authorities to which I was referred that the question whether a person’s conduct makes him unfit to be concerned in the management of a company is one for the judgment of the court, as applied to the facts of the case, and that no elaboration of the statutory wording is necessary or appropriate. I am entirely satisfied that the statutory test is met in the present case. Through his actings at the time of and after acquisition of Rangers, the respondent demonstrated a reckless disregard for the interests of the company to which he owed fiduciary duties. His conduct of the business was characterised by dishonesty, in relation to disclosure of the true source of the funds used to purchase the company and repay the bank debt, and by wilful disregard for his duties to the company and to the other members of the board. In relation to the acquisition of Rangers and also the sale of the Arsenal shares he placed his own interests before those of the company. He knowingly permitted the company to trade using money owed to HMRC. In relation to Tixway, he demonstrated a wilful disregard for the duties of a director with regard to record-keeping and co-operation with the liquidator. Again it is well established that the latter are serious matters because they have a direct effect upon the ability of creditors to establish and maintain their claims against the company. Taking all of these aspects cumulatively, as I am required to do, the case for imposition of a period of disqualification is overwhelming.
[13] I turn then to the period of disqualification. Counsel submitted that, having regard in particular to the previous imposition upon the respondent of seven years’ disqualification, a period within the top bracket of the three brackets identified in In re Sevenoaks Stationers (Retail) Ltd [1991] Ch 164 was appropriate: in other words a period of 10 to 15 years, reserved for what Dillon LJ termed “particularly serious cases”. I agree. In my assessment, the conduct of the respondent in the present case consists of a combination of dishonesty, disregard for the interests of the companies to which he owed duties and of the creditors of those companies, use of Crown debts to finance trade, misappropriation of company funds (at least in the case of Tixway) for private purposes, and wilful breach of a director’s administrative duties, the effect of all of which is that the case can be regarded as quite out of the ordinary. Having regard to the fact that the respondent has previously undergone a lengthy period of disqualification which seemingly has resulted in no improvement in his attitude to conduct as a company director, I am of the opinion that the appropriate course of action is to impose as long a period of disqualification as I am statutorily empowered to do.
[14] I therefore, in terms of section 6 of the 1986 Act, disqualify the respondent, without leave of the court, from being a director of a company, or in any way being concerned or taking part in the promotion, formation or management of a company, for a period of 15 years beginning 21 days from the date of this order. I also find the respondent liable to the petitioner in the expenses of the petition.