Secretary of State for Trade and Industry v Hollier [2006] EWHC 1804 (Ch)

The Secretary of State sought disqualification orders against directors and alleged de facto directors of Amba companies and Nextime. The court analysed what constitutes a de facto director, finding that Jayson Hollier was not a de facto director despite assisting his father's business, but that Adrian Hollier and Mrs Hollier were de facto directors whose conduct rendered them unfit.

Facts

The Secretary of State for Trade and Industry brought proceedings under section 8 of the Company Directors Disqualification Act 1986 against six defendants in relation to the management of Amba Rescue Limited, Amba Claims Services Limited, Amba Group International plc (collectively ‘Amba’), and Nextime.com plc. Three defendants (Dennis Hollier, Mr Clarkson, and Mr Bell) gave disqualification undertakings. The remaining defendants were Jayson Hollier (Dennis’s son), Adrian Hollier (another son), and Barbara Ann Hollier (Dennis’s wife).

The Amba companies operated a vehicle accident management and breakdown recovery service. Rescue commenced business in April 1999 but experienced severe financial difficulties from the outset, with cheques being dishonoured as early as August 1999. By January 2000, Rescue was at least £245,000 in debt. Nextime was incorporated in February 2000 to supply vehicles to members of the Freeserve Motorist Club but quickly encountered financial difficulties and was wound up in November 2000.

Issues

Principal Legal Issue

Whether Jayson, Adrian, and Mrs Hollier were de facto directors of the relevant companies and, if so, whether their conduct rendered them unfit to be concerned in the management of a company.

Definition of De Facto Director

The court considered when a person who has not been formally appointed as a director should nonetheless be treated as a de facto director for the purposes of the 1986 Act.

Judgment

Principles for Identifying a De Facto Director

Etherton J conducted a thorough review of the authorities and summarised the applicable principles:

(1) The touchstone is whether the defendant was part of the corporate governing structure. (2) Inherent in that touchstone is the distinction between someone who participates, or has the right to participate, in collective decision making on corporate policy and strategy and its implementation, on the one hand, and others who may advise or act on behalf of, or otherwise for the benefit of, the company, but do not participate in decision making as part of the corporate governance of the company. Accordingly, the test is not satisfied by someone who was at all times and in all material decisions subordinate to the de jure directors. (3) The defendant may have been a de facto director even though he or she did not have day to day control of the company’s affairs, and even though he or she was only involved in part of the company’s activities (4) The issue is to be determined objectively on the basis of all relevant facts.

Jayson Hollier

The court found that Jayson was not a de facto director of any of the Amba companies or Nextime. Despite providing assistance including book-keeping facilities through his own company CIA Insurance, instructing solicitors on certain matters, and negotiating a lease, the court concluded:

He was never part of the corporate governance of those companies, although he assisted the business of those companies in giving advice and providing facilities by CIA personnel. He never had any financial interest of any kind in the companies, and I am satisfied that he was at all times solely motivated by a wish to assist his father in his father’s business venture without ever wishing, intending or acting so as to participate in strategic or policy decisions or their implementation on a par with any other directors of those companies.

Adrian Hollier

The court found Adrian was a de facto director of Amba. Evidence showed he had total control of day-to-day running from September 1999, dealt with financial affairs, gave instructions on a wide range of matters, and was treated by third parties as having authority. The court found unfitness established through permitting trading when there was no reasonable prospect of paying creditors, knowledge of deceptive marketing practices, unexplained payments to himself and family members, and failure to cooperate with the DTI inquiry.

Mrs Hollier

The court found Mrs Hollier was a de facto director of Nextime from the outset. She signed Form 288a, was recorded in the register of directors, signed banking documentation as chairman, and from June 2000 took overall control including changing the bank mandate, stopping payments, and making all important decisions. The court found unfitness established through permitting trading in breach of minimum share capital requirements, continuing to trade despite serious financial difficulties with no realistic prospect of investment, encouraging Lloyds to believe Jayson would become chairman when she knew he would not, and failing to cooperate fully with the DTI inquiry.

Implications

This case provides important guidance on the distinction between de facto directors and those who merely assist a company. The judgment emphasises that the touchstone is whether a person was part of the ‘corporate governing structure’ rather than merely being influential or helpful. A person providing significant assistance, even through their own resources, may not be a de facto director if they remain subordinate to the actual directors and do not participate in collective decision-making on policy and strategy. The case also confirms that family loyalty in providing assistance does not automatically make someone a director, but equally does not provide immunity if the person does in fact assume directorial functions.

Verdict: The case against Jayson Hollier was dismissed. Disqualification orders were to be made against Adrian Hollier and Barbara Ann Hollier, with the period of disqualification to be determined at a subsequent hearing.

Source: Secretary of State for Trade and Industry v Hollier [2006] EWHC 1804 (Ch)