Liquidation and Directors' Disqualiication - Kotonou v Secretary of State for Business, Enterprise & Regulatory Reform [2010] EWHC 19 (Ch)

Mr Justice Norris (pictured) has handed down his decision in Kotonou v Secretary of State for Business, Enterprise & Regulatory Reform [2010] EWHC 19 (Ch) (15 January 2010). The case concerns some interesting points around the liquidation procedure, directors' disqualification and the not infrequent issue of litigants in person before the Chancery courts. The case involved a group of IT companies, a director named Kotonou, and indebtedness to the tune of over £1.7 million. As the learned judge notes, "Of this deficiency over £570,000 was due to HMRC in respect of unpaid PAYE and NIC, and £19,347 was due to trade creditors."

Directors Disqualification Elements

In the context of directors disqualification, and in particular how one defines "unfitness" the case is instructive as it outlines some conduct that the caused the Secretary of State to commence proceedings for the disqualification of Mr Kotonou under CDDA 1986. In summary the charges were:

"(a) That Mr Kotonou caused Olympic to trade at the risk and to the detriment of the Crown from (at the latest) July 1999 at a time when it was loss making, and balance sheet insolvent, leading to a deficiency on liquidation that was (ignoring intra group liabilities) 97% attributable to the Crown:

(b) That Mr Kotonou caused Olympic to pay him remuneration from 1999 that Olympic could not reasonably afford and that he received £166,069 in the nine months preceding Olympic's liquidation:

(c) That in breach of his fiduciary duty to Olympic Mr Kotonou caused Olympic to fund another group company called Netsiren Limited ("Netsiren"), even though Olympic was failing to pay its debts when due and Netsiren itself was insolvent, so that on liquidation Netsiren owed Olympic £800,000, none of which was recoverable:

(d) That in breach of his fiduciary duty to Olympic Mr Kotonou caused Olympic to incur the costs (amounting to £310,000) of significant improvements to a property interest that belonged to Holdings:

(e) That Mr Kotonou had allowed Resources to trade to the detriment of the Crown and to incur a tax liability of £577,000 (representing 99% of Resources' third party liabilities at the date of liquidation):

(f) That there were sundry failures to file accounts and returns."

At first instance Mr Registrar Jaques found Mr Kotonou unfit to be a director and disqualified him for a period of eight years. Mr Kotonou appealed the decision. He was not succesfull. Mr Justice Norris notes, ' it is plain that Mr Kotonou still does not understand that he has done anything that falls below the normal standards of commercial probity or warrants the description of serious misconduct. In the light of that I am by no means satisfied that Mr Registrar Jaques did not have the measure of the man with whom he was dealing when it came to the period of disqualification. I can well understand why the view might be held that the protection of the public required an eight year period. For these reasons I will dismiss the appeal against the period of disqualification also."

Registrar's Conduct in dealing with litigants in person

In his first instance judgment (which was the subject matter of the appeal before Mr Justice Norris) Mr Registrar Jaques described Mr Kotonou as "blustering", "not lacking in imagination", making "extravagant assertions" and indulging in "an attempt…to rewrite history". As Mr Justice Norris notes, "Mr Jacob submits that this is not legal reasoning, it is abuse." Mr Justice Norris goes on:

"I do not regard that criticism as fair, especially where the judge has not been invited to deliver a supplemental judgment to address matters upon which it is said that his reasoning is not understood. The judge had conducted a trial spread out over a protracted period with a litigant in person who would not accept the rulings of the court. The case had taken over five years to come to trial (because of many applications for adjournments by Mr Kotonou). The judge produced his judgment with commendable speed: and he produced it for the parties. It was not directed at the general reading public or an appeal tribunal who would have to consider it in wholly different circumstances. Perhaps with a little distance between the conclusion of the trial and the delivery of judgment some of the descriptions might have been toned down. But the collection of them together in Mr Jacob's skeleton argument does not present an accurate picture of the judgment read as a whole...I certainly do not accept that there is an absence of legal reasoning...He did so with perhaps greater brevity than I would regard as ideal. But the reasons do emerge. "

Olympic Association?

Finally, the case gives rise to an interesting point regarding company names. This issue is not discussed in the case, but it relates to the name of the company, Olympic Central Services Limited, and the Companies Act 2006, section 54, which notes:

"54 Names suggesting connection with government or public authority

(1) The approval of the Secretary of State is required for a company to be registered under this Act by a name that would be likely to give the impression that the company is connected with–

(a) Her Majesty's Government, any part of the Scottish administration [, the Welsh Assembly Government]¹ or Her Majesty's Government in Northern Ireland,

(b) a local authority, or

(c) any public authority specified for the purposes of this section by regulations made by the Secretary of State."

The company name does smack of association with the upcoming sporting event in the east end of London, but this was of no relevance to the facts under discussion.

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