Morris Peacock, Head of our Insolvency Service Department, reviews the decision in Secretary of State for Business Energy and Industrial Strategy v Eagling  EWHC 2806 (Ch) where the court made the first compensation order pursuant to Sections 15A and 15B of the Company Directors Disqualification Act 1986 (CDDA)
Sections 15A and 15B CDDA were introduced by the Small Business, Enterprise and Employment Act 2015 and empowered the Secretary of State to make an application for a compensation order in respect of conduct which caused loss to creditors after 01 October 2015. An application can be made up to two years after the date of the disqualification order or disqualification undertaking.
In this case, the proceedings seeking a disqualification order and a compensation order were issued on 19 December 2018. The allegation of unfitness made against Mr Eagling, the sole director of Noble Vintners Limited (the Company), was that: -
“between 02 November 2015 and 18 October 2016 Mr Eagling caused the misappropriation of company funds totalling £559,484 from (The Company)”
The Company offered to buy, sell and store fine wines on behalf of customers as investments. Very little of the monies received into the Company after 02 November 2015 were used for this purpose, with the vast majority (£559,484) being paid to a connected company, which was subsequently struck off and dissolved on 02 May 2017. The Company was placed into creditors’ voluntary liquidation on 22 June 2017 with an estimated deficiency of £1,678,614.
Mr Eagling had moved to North Cyprus by the time the proceedings were issued and on 14 May 2019 he was disqualified on an uncontested basis for a period of 15 years. Directions were then given in respect of the compensation application, which came before the court on 02 October 2019, with the judgement being delivered on 01 November 2019.
ICC Judge Prentis found the loss caused to the creditors by the misconduct that had been alleged to be the total sum that had been misappropriated, which was £559,484.
As to the division of this sum, the judge agreed that 28 creditors identified by the Insolvency Service, whose debts totalling £460,067 which had accrued after 02 November 2015, should receive the following: -
- £188,222 being the proceeds of wine owed to 9 creditors whose wine had been sold by the Company but who had not been paid;
- £271,846 being monies paid to the company by 24 creditors (5 of whom were in the first category as well) to make specific purchases of wine. The judge eschewed any consideration of whether profit or loss might have been made on the intended purchases.
As to the balance of the £99,147 misappropriated, the Judge ordered that this should be paid to the general body of creditors. Any recoveries below the full amount were to be paid pro rata between the specific and general body of creditors.
The interesting points in this first instance judgment are: -
- This is the first Court application under the new compensation order regime.
- The judge made an order in favour of specific identified creditors and then the general body of creditors. Whilst the Secretary of State is to collect the monies, she is to pay the monies recovered on behalf of the general body of creditors to the liquidator for distribution (the liquidator could benefit from recoveries if made)
The decision is hot on the heels of the judgement in re BHS Limited & Others on 14 October 2019 which also highlights the need for directors to carefully consider and document financial transactions, particularly where a company is in financial difficulty.