The High Court declined to disqualify two directors of Chercrest Limited after it was struck off the companies register while insolvent, finding that the circumstances did not justify disqualification or restriction orders.
In a judgment delivered on 23 July 2014, Mr Justice Barrett said the Director of Corporate Enforcement had established the statutory basis for possible disqualification of both respondents. The court nevertheless exercised its discretion not to make such orders, citing the directors’ reliance on professional advice and their otherwise good conduct.
Chercrest had experienced financial difficulties. The first respondent, Michael Slattery, put additional capital into the company using personal borrowings. An accountant advised the directors to seek an outside investor rather than place the company in liquidation, and they followed that advice. The judgment records that the company was struck off on 11 November 2012 after failing to file annual returns.
The judge said a strike-off can prejudice creditors because remaining assets are not necessarily applied according to the statutory order of priority. He stressed that strike-off is not an alternative to liquidation. The court found the statutory condition for possible disqualification was met, but said the respondents’ reliance on professional advice in a small family company, alongside the absence of other misbehaviour brought to its attention, weighed against disqualification.
The court also considered whether to make restriction declarations under section 150. It found no issue concerning either respondent’s honesty and concluded that their conduct, including failure to file returns and apparent acquiescence in the strike-off, was reproachable but did not amount to irresponsible conduct. The judge said he did not need to decide the contention that the second respondent had been a passive director. He added that, on the evidence, he saw no “real moral blame” on her part.
The application also concerned Riverstown Industrial Estate Management Company Limited, of which only the first respondent was a director. The company was incorporated around 4 April 2007, never traded or filed annual returns, and was struck off on 22 February 2009. The court criticised the apparent casualness surrounding its formation and closure but found neither disqualification nor a restriction declaration was warranted.
The court made no order under section 160 and no declaration under section 150 against either respondent in relation to Chercrest, or against the first respondent in relation to Riverstown.