Scottish Court of Session Decisions

OUTER HOUSE, COURT OF SESSION
	[2014] CSOH 89
P1283/12	OPINION OF LORD WOOLMAN in the Petition of THE SECRETARY OF STATE FOR BUSINESS, INNOVATION AND SKILLS Petitioner; For a disqualification order under the Company Directors Disqualification Act 1986 in respect of THOMAS BANKS HAMILTON Respondent: ________________

Act: Duthie; Shepherd and Wedderburn LLP

Alt: Party

5 March 2014

[1] Until it went into administration in 2010, Ascot Care Homes Ltd ('Ascot') operated four residential care homes in Scotland and one in England. It was a wholly owned subsidiary of Ascot Care Homes Holdings Ltd ('Holdings'). Between 2008 and 2010, Mr Hamilton was a director of Ascot. He also owned 50 per cent of the issued share capital of Holdings.

[2] The care homes were leased from Endless Investments LLP, which was part of the Endless Group of companies. Mr Hamilton had a long term business relationship with the principal of that group, David Newett. They had done many 'handshake' deals over the years. Between 2008 and 2009 the Endless Group lent about £190,000 to Ascot. In return, Ascot granted a debenture comprising fixed and floating charges over its assets in favour of Endless. It appears that Endless got into financial difficulties. On 22 December 2010 and acting under the debenture, it appointed joint administrators to Ascot and Holdings. Both administrators were partners in KPMG.

[3] In these disqualification proceedings, the petitioner contends that during Mr Hamilton's period as a director of Ascot, he misappropriated funds in breach of his fiduciary duty. In particular, the petitioner founds on two matters. First that Mr Hamilton caused Ascot to pay to him sums totalling £158,843.68, which he used either for his own personal benefit or for the benefit of persons connected to him. Mr Hamilton accepts that he received the money, but contends that the payments had been authorised.

[4] Second, that Mr Hamilton wrongfully retained Free Personal Care payments made by local authorities in respect of residents within Ascot's care homes. The petition states that at the date of the administration, Ascot owed a total of £80,406.19 to 28 residents and the estates of 27 deceased residents. As unsecured creditors, they received nothing in the administration. Mr Hamilton states that he had no personal knowledge of these payments and that all Ascot's debts were dealt with in the same manner.

[5] The petitioner raised these proceedings in December 2012 and Mr Hamilton subsequently lodged extensive answers. The petitioner considered them to be largely irrelevant and sought a debate. In May 2013, the court fixed a debate to take place in September 2013 and ordered the petitioner to provide a full note of argument to Mr Hamilton. The petitioner complied with this direction in June 2013. The debate was, however, discharged in August in order to allow Mr Hamilton an opportunity to obtain legal representation. Although he secured the services of a firm of solicitors for a short period, the pleadings were not revised and the firm withdrew from acting shortly before the debate.

[6] The present diet of debate was fixed on 9 October 2013 and took place on 5 March 2014. At the outset of the hearing, Mr Hamilton made two motions. First, he sought to sist the process to enable him to lodge a petition challenging the validity of the administration. He maintained that the companies were solvent on the date that the administrators were appointed. I refused that motion on the basis (a) that it came too late; (b) that it would yield no practical advantage, given that the administrations are at an end and the companies were dissolved in January of this year; and (c) that the new petition did not disclose a prima facie case.

[7] Secondly, Mr Hamilton sought to lodge a minute of amendment, together with two lever arch files of productions. He had only intimated these materials to the solicitors for the petitioner at about 10 PM the previous night and Mr Duthie only saw them for the first time on the morning of the debate. The petitioner opposed receipt of the minute on the basis that he wished an opportunity to answer it. In the exercise of my discretion, I refused Mr Hamilton's motion. No explanation was offered as to why he tendered it so late. Having regard to the need to make progress, the interests of justice strongly militated against discharging a second diet of debate in these circumstances.

[6] When the debate itself commenced, Mr Duthie adopted his written note of argument. But he made one important qualification. He indicated that he no longer sought decree de plano. Instead he submitted that the positive averments in the answers should be excluded from probation. He reiterated that they were irrelevant and that if Mr Hamilton was entitled to lead evidence on all of them, the proof would be "wholly unwieldy".

[7] During the course of the debate, the issues narrowed. Initially, Mr Hamilton argued that he should be entitled to lead evidence in respect of five broad areas:

a.    whether Ascot was insolvent at the date of the administration

b.    whether the administration had been conducted properly

c.    whether the financial predicament and conduct of the Endless Group had a bearing on Mr Hamilton's conduct

d.    whether he had been authorised to receive the funds from Ascot which the petitioner said amounted to misappropriation

e.    whether Free Personal Care payments made by local authorities for the benefit of residents in the Ascot care homes had been improperly retained by him to use as working capital for the company

[8] Mr Hamilton then conceded that the question of the validity of the administration was no longer an issue, given my refusal of his motion to sist the proceedings. He accepted that solvency was also therefore not an issue which should be the subject of evidence. He was right to take that approach. Unless or until the appointment of administrators is set aside, it is not permissible to embark upon an enquiry as to the validity of their appointment: Mithani Directors Disqualification vol 1 para 90; Secretary of State for Trade & Industry v Jabble [1998] BCC 39, per Millett LJ at pp 41-42.

[9] In my view, the conduct of the administration is also irrelevant. These proceedings concern Mr Hamilton's conduct in the period prior to the appointment of the administrators. What they did or did not do has no bearing on the discharge of his duties as a director. That is the central issue that must be determined.

[10] By contrast, in my opinion, the other three matters may have a bearing on the issues before the court. Accordingly, I shall remit them to probation. Because the evidence is yet to be evaluated, I wish to say little about them at this stage.

[11] Mr Hamilton is strongly of the view that the Endless Group deliberately put Ascot and Holdings into administration. While it is not clear at this stage how that bears upon his own conduct, it is part of the context against which matters should be judged. The other two matters - authorisation and the treatment of the Free Personal Care payments - are in my opinion relevant to the core issues founded on by the petitioner.

[12] I shall therefore exclude the irrelevant averments from the answers and allow a proof before answer on those which remain.