Wood & Anor v Mistry

Factual and Procedural Background

This case concerns an application for a disqualification order under the Company Directors Disqualification Act 1986 ("the CDDA") against the Defendant, Mr Mistry, who was not a company director but acted as liquidator for numerous personal service companies ("PSCs") connected with the Safe Solutions Companies tax-saving scheme. The application was brought unusually by the Claimants, who are liquidators of the relevant companies, rather than the Secretary of State or Official Receiver.

Mr Mistry, a qualified insolvency practitioner and partner in an insolvency practice, became liquidator or administrator of 92 PSCs between August 2003 and July 2004. These companies were involved in a tax scheme employing individuals through PSCs, which were liquidated in batches. The Safe Solutions Companies controlled the PSCs and were major creditors.

Mr Mistry’s insolvency licence was restricted and withdrawn in 2004-2005 for reasons unrelated to the PSCs, but he regained an unrestricted licence in 2006. The Claimants were appointed liquidators of many of these PSCs around 2006, replacing Mr Mistry and others. Mr Mistry was made bankrupt in 2011, surrendered his insolvency licence, but his bankruptcy has since been discharged.

The case involves allegations of fraudulent conduct by Mr Mistry in his role as liquidator, particularly concerning payments made by the PSCs to a company controlled by a third party and then on to an offshore company controlled by Mr Mistry, as well as failures to take proper steps to recover monies owed to the PSCs.

Legal Issues Presented

1. Whether a disqualification order can be made under section 4 of the CDDA against a liquidator who has committed fraud or breached duties in winding up companies.
2. The scope and seriousness of misconduct required to justify disqualification under section 4(1)(b) of the CDDA.
3. Whether the Claimants, as liquidators, have standing to bring the disqualification application under section 16(2) of the CDDA.
4. The proper application of the standard of proof and evaluation of evidence in disqualification proceedings involving allegations of fraud.

Arguments of the Parties

Defendant's Arguments

• Serious misconduct is required for disqualification; not every breach of duty justifies such an order.
• The Claimants lack standing as they have no genuine interest in the relief sought and the application should be restrained.
• The payments of £750 to IIAS were for additional work legitimately performed by Mr Williamson.
• The offshore payments to Dreamcast were unrelated to the PSCs and originated from legitimate consultancy agreements.
• Mr Mistry was unaware of any connection between the payments to IIAS and Dreamcast.
• He was overworked, inadequately trained, and inexperienced, which partially explains any failings.
• There were gaps and deficiencies in the evidence against him, including missing documents and incomplete investigations.
• He should not be judged with hindsight, given the circumstances and the involvement of reputable accountants.

Claimants' Arguments

• Mr Mistry dishonestly caused payments to be made from the PSCs to IIAS and then to Dreamcast, which he controlled, for his own benefit.
• Mr Williamson acted as a conduit for these diverted funds, and the fees paid to IIAS were not legitimately earned.
• Mr Mistry failed to take adequate steps to recover monies owed to the PSCs by the Safe Solutions Companies, including tax and National Insurance Contributions.
• The Claimants, as liquidators, have standing to bring the application under section 16(2) of the CDDA and act in the public interest.
• The payments were made out of the PSCs’ assets, regardless of any funding by the Safe Solutions group, and were improper.
• The conduct warrants a disqualification order due to its seriousness and dishonest nature.

Table of Precedents Cited

Court's Reasoning and Analysis

The court carefully analysed the statutory framework, noting that section 4 of the CDDA allows disqualification of liquidators for fraud or breaches of duty but requires serious misconduct to justify exercising the court’s discretion. It distinguished this from mandatory disqualification provisions applicable to directors.

Regarding standing, the court acknowledged prior authority casting doubt on non-creditor applicants’ standing but concluded that liquidators do have standing under section 16(2) of the CDDA, given their public interest role and the support of HM Revenue and Customs (HMRC) as a creditor in this case. The court rejected arguments that a financial interest was necessary for liquidators to apply.

On the evidence, the court found Mr Mistry to be an unreliable witness who tailored his evidence to fit the case against him and knowingly gave untruthful testimony. The court discounted hearsay evidence from Mr Williamson due to concerns over its reliability and possible complicity.

The court examined payments made by the PSCs to IIAS and then to Dreamcast, concluding these payments were not for legitimate additional work but were diverted for Mr Mistry’s benefit. The court found that Mr Mistry knowingly approved false invoices and dishonest payments, with sums totaling £27,000 improperly diverted.

It also found that Mr Mistry failed to take proper steps to recover monies owed by the Safe Solutions Companies, despite clear indications that the claims by those companies were implausible and that the PSCs should not have become insolvent. The court held that Mr Mistry breached his duties by not challenging these claims or seeking assistance from HMRC.

The court considered the submissions about missing evidence and potential hindsight bias but found the overall evidence sufficient to reach fair and reliable conclusions. It rejected the suggestion that expert evidence was necessary, relying instead on established insolvency practice standards and witness testimony.

In sum, the court concluded that Mr Mistry’s conduct was grossly improper, dishonest, and sufficiently serious to warrant a disqualification order under section 4 of the CDDA.

Holding and Implications

The court ordered a 12-year disqualification against Mr Mistry under section 4 of the Company Directors Disqualification Act 1986.

The order prohibits Mr Mistry from acting as a director, being involved in company management, or acting as an insolvency practitioner without court leave for the duration. The length of the disqualification reflects the seriousness and extended nature of the misconduct.

No broader precedent was established beyond affirming that liquidators have standing to bring such applications under section 16(2) of the CDDA and that serious misconduct, including dishonest diversion of company funds and failure to investigate recoveries, justifies disqualification. The decision directly affects Mr Mistry’s professional status and ability to practise in insolvency roles.