Petition of the Secretary of State for Business and Trade for a disqualification order under section 6(1) of the Company Directors Disqualification Act 1986 against Garry Pettigrew (Court of Session)

Factual and Procedural Background

The Petitioner sought a disqualification order under section 6(1) of the Company Directors Disqualification Act 1986 against the Respondent concerning his conduct as a director of Company A. Company A was wound up after its liabilities exceeded its assets by £15,424,568.22. [1][2][3]

The Respondent had been a director of Company A from its formation until the winding-up order. The first statutory requirement was admitted; the dispute concerned whether his conduct made him unfit to participate in company management. [3]

The proceedings began in a sheriff court and were remitted to the Court of Session. The court heard six days of proof and one day of submissions. [4]

The case concerned transactions undertaken between October and December 2018, including the transfer of shares, declaration of a £2,498,000 dividend, transfers of assets and directors’ loan accounts, and further asset transfers between Company A and related companies. [5][6][7][8][9][10][11][12]

Legal Issues Presented

1. Whether the Respondent’s conduct as a director of an insolvent company made him unfit to be concerned in company management under section 6(1) of the Company Directors Disqualification Act 1986. [2][3]
2. Whether, when the transactions were entered into, the Respondent was required to consider the interests of Company A’s creditors and breached that duty. [13][14][15]
3. What period of disqualification was appropriate if unfitness were established. [16][17]

Arguments of the Parties

Petitioner’s Arguments

• The transactions put assets beyond creditors’ reach and breached fiduciary duties when the Respondent knew, or ought to have known, that Company A faced contract losses, regulatory restrictions and impending insolvency. [13]
• The Respondent should have acted in the interests of creditors as a whole once insolvent liquidation was imminent or probable, applying BTI 2014 LLC v Sequana SA. [13]
• The transactions benefited the Respondent and his wife, deprived Company A of assets and trading capacity, and were undertaken without the consent of its secured bank. [13]

Respondent’s Arguments

• Company A was solvent on both balance-sheet and cash-flow bases, so insolvent liquidation was not probable and the creditor-interest duty did not arise. [18]
• The transactions reduced liabilities by amounts corresponding to the assets transferred, did not extract value or prefer related parties, and were not intended to prejudice creditors. [18]
• The Respondent relied on continued trading, debt recovery, efforts to sell the business, retained permits and possible alternative operating sites as showing that liquidation was not inevitable. [18]
• The Petitioner was said to rely impermissibly on hindsight, and the bank’s failure to challenge the transactions was said to support their acceptability. [18]

Table of Precedents Cited

Court’s Reasoning and Analysis

The court held that the causes of Company A’s insolvency were not relevant to the petition. The relevant question was whether Company A was in an insolvent or near-insolvent state when the transactions occurred; the reasons for that condition could not make otherwise unacceptable transactions permissible. [24][25][26][27]

The Respondent knew of serious regulatory problems at the Normanton site, including excessive and improperly stored waste, enforcement notices and the prospect of permit suspension. He rejected proposed remedial arrangements and accepted that the site would not be restored to compliance by the required date. [28][29][30][31][32]

The court found that, by 2 October 2018, the Respondent knew that partial suspension of the Normanton permit was imminent and would make fulfilment of contractual obligations difficult. Claims for breach of contract or repayment by NHS bodies would therefore have materially harmed Company A’s finances. [33][34][35]

The court accepted evidence that the transactions were intended to “protect” Company A’s assets from creditors, a liquidator or an administrator. The Respondent’s alternative explanation, involving provision for his wife, was rejected as inconsistent with the contemporaneous records and the stated purpose of protecting and later returning the assets. [36][37][38][39][40]

The transfer of approximately 70% of Company A’s plant, machinery and vehicles deprived it of the ability to operate some sites and fulfil contracts. Although the assets remained physically on site, Company A no longer owned them and had no assured right to use them. The court concluded that liabilities would inevitably accumulate and that insolvent liquidation or administration was bound to follow. [41][42]

The transactions also breached the agreement with the secured bank. The bank’s decision not to litigate was regarded as a pragmatic response to the circumstances, not acceptance of the transactions. [43][44][45]

Later payments, debt-recovery efforts and an indicative offer to purchase the business did not displace the court’s findings about the Respondent’s motive or establish solvency. [46][47][48][49]

The court treated the deliberate prejudice to creditors as an egregious fiduciary breach. It also considered the sustained breaches of environmental permit requirements, across multiple sites and despite enforcement action, to be conduct tending to show unfitness. [21][50][51]

Holding and Implications

DISQUALIFICATION ORDER MADE. The court held that the Respondent’s conduct made him unfit to be concerned in the management of a company. The relevant conduct comprised the breach of fiduciary duty in relation to the transactions and causing Company A to remain in breach of its environmental permits. [52][16]

The Respondent was disqualified for nine years. The period reflected the deliberate and flagrant prejudice to creditors, denial of the breach, contempt of court involving witnesses, and his role as the principal architect of the transactions. [17][53][54][55][56][23]

The direct effect was that the Respondent could not participate in company management for nine years. No broader implications beyond the application of the statutory principles to the Respondent’s conduct were identified, and no new precedent was set. [16][23]