Case No: A3/2000/6313/0540
Neutral Citation Number: [2001] EWCA Civ 1237
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE CHANCERY DIVISION
MR PW SMITH QC (SITTING AS A DEPUTY HIGH
COURT JUDGE)
Royal Courts of Justice
Strand, London, WC2A 2LL

Monday 30th July, 2001 

B e f o r e :

THE VICE-CHANCELLOR
LORD JUSTICE MUMMERY
and 
LORD JUSTICE LONGMORE
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	WARREN ALAN GOLDBERG	Appellant	
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	THE SECRETARY OF STATE FOR TRADE AND INDUSTRY	Respondent	

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(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 190 Fleet Street
London EC4A 2AG
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Mr Adrian Davies (instructed by Fenwick & Co  for the Appellant)
Mr Christopher Harrison [Nicholas Cox on 30th July] (instructed by the Wragge & Co for the Respondent)

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Judgment
Lord Justice  Mummery: 

1.	This is an appeal by Mr Warren Goldberg against a disqualification order made against him under the Company Directors Disqualification Act 1986 (the 1986 Act) by Mr Peter Smith QC, sitting as a deputy High Court Judge on 30 November 1999.  The order disqualifies Mr Goldberg for a period of 9 years.  The order was made on allowing the appeal of the Secretary of State for Trade and Industry (the Secretary of State) against the order of 18 February 1999, by which Mr Registrar Jaques dismissed an Originating Summons issued by the Secretary of State on 20 December 1996.
2.	On the appeal Mr Adrian Davies appeared for Mr Goldberg and Mr Christopher Harrison for the Secretary of State.  
Preliminary Matters
3.	There are two preliminary matters.
	a)	An application was made on behalf of Mr Goldberg for permission to adduce fresh evidence on the appeal. It mainly consists of affidavits and experts’ reports used in earlier proceedings for preference against Mr Goldberg and others. Those proceedings were settled.  Shortly before the hearing of the Originating Summons by the Registrar an unsuccessful attempt was made to obtain permission to use that evidence in the disqualification proceedings.  The application was dismissed by Mr Registrar Simmonds. There was an unsuccessful appeal to Lloyd J. No further avenue of appeal was pursued. The fresh evidence does not satisfy the requirements for granting permission to adduce fresh evidence. The principles laid down in Ladd-v-Marshall remain relevant to the exercise of the court’s discretion under the Civil Procedure Rules. This evidence was available to Mr Goldberg before the disqualification proceedings were heard. It was not used in the court below because permission was sought and refused at a late stage. (Mr Goldberg blamed  the poor judgment of his then solicitor for not renewing the application before the  Registrar and the judge.) In those circumstances there are no valid grounds for allowing it to be used on this appeal. The application was not pursued.
b)	Mention should also be made of the unusual fact that this appeal is brought against two judgments of the same judge on the same point. This was not the fault of the judge and he is not to be criticised for the circumstances in which this occurred. Indeed, the fact that he produced two judgments, the second dealing  mainly with criticisms of the first,  was the result of commendable efforts on his part to be as fair as possible to Mr Goldberg. When the Secretary of State’s appeal from the Registrar’s order came on for hearing on  29 June 1999 Mr Goldberg was neither represented nor present. Mr Harrison then took the court through all the evidence, including that filed on behalf of Mr Goldberg, at the end of which the  judge produced what is described on the face of it as a “ Draft Judgment” (delivered on 2 July 1999) , explaining his reasons for allowing the appeal and for imposing a 9 year disqualification order.
4.	Mr Goldberg then made an application for the review of that decision.  Another full day hearing, at which Mr Goldberg was represented, took place before the same judge on 15 November 1999.  It is clear from the second judgment, delivered on refusing the application for review, that a large part of the hearing was taken up with submissions on behalf of Mr Goldberg criticising the  reasons given in the earlier “ Draft Judgment” for allowing the appeal.  There are no grounds on which Mr Goldberg could possibly impugn the fairness of the procedure adopted by the judge. With the benefit of hindsight, the better course might have been for the judge  to rule that he was satisfied that Mr Goldberg was entitled to be heard, to withdraw the first judgment and to proceed to re-hear the appeal as if there had been no prior hearing and as if no judgment had ever been  delivered by him on the appeal.
The General Background
The Companies
5.	From 22 February 1988 onwards Mr Goldberg was a director of  Priorswalk plc. It was incorporated on 11 November 1985 and carried on business as   both a wholesaler and a retailer of videos, cassettes, CDs and computer games.  Priorswalk ceased to carry on the wholesale business in October 1994 in circumstances mentioned later.  From March 1985 Mr Goldberg was also a director of Braveworld, the parent company of Priorswalk. Another company, Greenlawns Management Services Limited, was used as a vehicle for the payment of remuneration to Mr Goldberg. He caused yet another company called Realman Limited to be incorporated for the purposes of taking a transfer of the wholesale business of Priorswalk in October 1994.
6.	On 29 November 1994  Priorswalk transferred the wholesale part of its business to Realman Limited, which then carried it on and still carries it on under the name “ That’s Entertainment Wholesale “ (TEW).  The transfer had the effect of reducing by about 45% the turnover of Priorswalk, which retained the retail part of the business and carried it on under the name “That’s Entertainment”.
7.	The consideration for the transfer from Priorswalk to Realman was the assumption by Realman of responsibility for a debt of £337,672.01p owed by Priorswalk to Braveworld.
8.	Priorswalk had encountered trading difficulties as early as 1992/1993. In particular, it suffered heavy losses in  1993 on the closure of its shop in Oxford Street.  It had long term loans from Mr Goldberg and from Braveworld. 
9.	The last  audited  accounts of Priorswalk  for the year ended June 1993 were signed off by Mr Goldberg on 27 April 1994.They showed a net loss of £236,300 and an accumulated deficiency on the profit and loss account of £236,507.The company accountants advised Mr Goldberg that Priorswalk could trade provided that he could pay the debts on time.
10.	During  1994 Priorswalk had an overdraft of £450,000 with Barclays Bank plc. Between May 1994 and August 1994 Priorswalk regularly exceeded its overdraft. In the autumn of 1994  Mr Goldberg negotiated an overdraft with the Royal Bank of Scotland. The relevant account manager at the Royal Bank of Scotland  was  Mr George Meakin.  The overdraft of £400,000 was secured by  a fixed and floating charge over the assets of Priorswalk, by personal guarantees from Mr Goldberg and by a cash deposit from a family trust made by him with the bank in the sum of £350,000.
11.	Over Christmas 1994 there was a price war in the  video and computer games market. On 3 January 1995 Mr Goldberg had a meeting with Mr Meakin and informed him of his proposal for a creditors’ voluntary arrangement.  Mr Meakin’s reaction was to withdraw the overdraft facilities from Priorswalk on 3 January 1995.  Despite the price war in the market and depressed sales the overdraft was completely cleared.
12.	On  23 January 1995 an administration order was made against Priorswalk. This was followed by  a creditors’ voluntary liquidation on 22 May 1995. Mr David Pallen was appointed as one of two joint liquidators. According to the statement of affairs made by Mr Goldberg there was an estimated deficiency as large as £1.2m. Over £900,000 was owed to suppliers and trade creditors. 
13.	Braveworld Limited was the subject of a compulsory winding up order on 23 July 1997 and Greenlawns on 18 March 1998.
The Decision of the Registrar
14.	The hearing before the Registrar took place between 24 and 27 November 1998. Mr Goldberg gave evidence for 2½ days. The Registrar formed a favourable view of his evidence. This is an important point when considering an appeal against his decision in so far as there is a challenge to his findings of primary fact based on his perception of Mr Goldberg’s credibility.
15.	The Registrar concluded that Mr Goldberg was trading through Priorswalk in the reasonable expectation of making a profit over the Christmas 1994 period and also in the reasonable belief that Priorswalk had the security of  an overdraft facility of £400,000 with the Royal Bank of Scotland, backed by a cash deposit of £350,000.  This conclusion led the Registrar to reject the Secretary of State’s charge of insolvent trading on the part of Mr Goldberg by causing Priorswalk to finance trading after he should have known that there was no prospect of avoiding insolvent liquidation at the expense of the creditors.
16.	Another charge of the Secretary of State alleged that Mr Goldberg had caused Priorswalk to transfer the wholesale business to Realman in October 1994, with the intention of placing Braveworld in a better position than it would have been in  when Priorswalk went into insolvent liquidation.The Registrar concluded that the transfer had a good commercial reason as a remedy for the unsatisfactory situation of Priorswalk trading as both wholesaler and retailer.  The transaction had been first mooted in late 1993, following adverse comments by wholesale customers.  The transaction was carried out after obtaining professional advice, solicitors having prepared the documents and the price being based on an independent professional valuation. The Registrar held that it was not Mr Goldberg’s intention that Braveworld should be better off as a result of the transfer of the wholesale business.
17.	The Secretary of State had made further allegations against Mr Goldberg in respect of the payment of debts by Priorwalk.  The Registrar held that it had not been proved that Mr Goldberg had caused Priorswalk to pay debts to himself and others between June 1994 and January 1995 when he should have known there was no prospect of avoiding an insolvent liquidation to the detriment of creditors.  The sum of £71,492.47p was paid by Priorswalk to Braveworld. Mr Goldberg was personally repaid,in respect of a loan by him, a total of £128,961  by Priorswalk between September and December 1994.  £16,536 was paid  by Priorswalk to Greenlawns and, as already mentioned ,the overdraft personally secured by him with the Royal Bank of Scotland was extinguished by Priorswalk.  Suppliers, such as Blockbuster, were owed substantial amounts by Priorswalk. They had not, however, been paid for orders placed and goods supplied to Priorswalk. The Registrar’s conclusion was that Mr Goldberg had no reason to believe, and did not believe, that Priorswalk would go into insolvent liquidation. There was nothing irrational in his belief that Priorswalk would make a profit over the Christmas 1994 period of trading and that the overdraft facility would continue. The Registrar rejected the Secretary of State’s claim that Mr Goldberg intended to prefer above payees over other creditors of Priorswalk.
Decision on Appeal 
18.	On the appeal the judge placed a different interpretation on the facts. He reviewed  in  greater detail than the Registrar all the factual material appearing in the documents, the witness statements and the transcripts of evidence. His conclusions may be summarised as follows.
19.	Mr Goldberg had known for some time that Priorswalk was insolvent on a balance sheet basis. Accounting records ceased to be kept from about June 1994.   At the latest by November 1994 Mr Goldberg knew that the future of Priorswalk was grim because of competition from other retail stores.  What he then did was to use the proceeds of sale of the products dealt in by Priorswalk to repay himself and his associated companies and to repay the overdraft of the Royal Bank of Scotland, from which he would benefit, having secured it personally by guarantee and cash deposit.  In addition he was repaid money which Priorswalk owed to him and he obtained his remuneration via Greenlawns.  He sought by these means to extract from Priorswalk as much as he could for his own benefit.This was to the detriment of creditors.  The creditors suffered as a result of him continuing to place orders for goods, which were supplied to Priorswalk in good faith and on credit terms by such suppliers as Blockbuster.  Priorswalk took the delivery of the goods with Mr Goldberg knowing that the company was not going to pay for them.
20.	As regards the transfer of the wholesale business to Realman, Mr Goldberg had extracted that from the wreckage of Priorswalk and put it into a company  which is still trading. The judge concluded that Mr Goldberg had intended all this to happen. He was gambling with creditors’ money for his own benefit.  
21.	The judge was critical of the Registrar’s decision in its failure to analyse in detail the documentary and oral evidence. He concluded that on a proper analysis of the material- in particular, the trading history of Priorswalk, the dealings with Mr Goldberg in the last three months of the company, the extent of the  insolvency , the way that the creditors had suffered as compared with the way that Mr Goldberg and his associated companies had not suffered- these facts spoke for themselves on the issue of Mr Goldberg’s fitness. It was insufficient for the Registrar to conclude that Mr Goldberg acted in  the honest belief that Priorswalk would be able to pay.
Mr Goldberg’s Submissions
22.	Mr Adrian Davies emphasised, on behalf of Mr Goldberg, that only the Registrar had had  the benefit of hearing and seeing Mr Goldberg give evidence tested by cross examination. He expressly found, first, that Mr Goldberg intended to pay the creditors by using the Priorswalk overdraft; secondly, that he did not intend to benefit himself at the expense of other creditors; and, thirdly, that he did not realise that until January 1995 that Priorswalk would be unable to avoid insolvent liquidation.
23.	He contended that on the appeal the  Judge was wrong to  interfere with those crucial findings of fact. Unlike the Registrar, he had not had the advantage of hearing and seeing Mr Goldberg give evidence. He emphasised that the appeal to the High Court from the Registrar was a true appeal and not a re-hearing of the original application.
24.	In particular, Mr Davies focused on certain aspects of the  judgment as being open to serious criticism.  
25.	In respect of the period June 1994 to January 1995 he had made a finding of  premeditated and  calculated fraud and false accounting without the benefit of oral evidence tested by cross examination. He reminded the court of the Registrar’s finding that Mr Goldberg intended to pay off creditors by utilising the overdraft and that he did not intend to benefit himself. In using the overdraft he exposed himself to the risk of loss of £350,000 deposit and liability on the personal guarantee. The Registrar found that there was a prospect of the creditors being paid and that Mr Goldberg himself did not anticipate a  liquidation until about  3 January 1995.
26.	He argued that the burden was not on Mr Goldberg to prove that he had no dishonest intention. The judge wrongly assumed that it was.  The Judge had also wrongly had regard to the question of preferential payments.  The proceedings in respect of preferences had been settled.  Above all Mr Davies relied on the findings of the Registrar as to the honest belief on the part of Mr Goldberg that he was acting properly both with regard to the creditors and to the transfer of the wholesale business to Realman.
27.	Finally, Mr Davies submitted that the period of disqualification was excessive.  
Conclusion
28.	In my judgment, there was no error of approach to the appeal.  The  critical question is  whether Mr  Goldberg’s conduct, as a director of Priorswalk, made him unfit to be concerned in the management of a company.  If it did, then it is the duty of the court to disqualify him. In determining whether he is unfit it was necessary for the court to inquire into the extent of his responsibility for the causes of Priorswalk becoming insolvent and for entering into a transaction or giving any preference which was liable to be set aside under the relevant provisions of the Insolvency Act.
29.	In answering this question the court has to decide whether Mr Goldberg’s conduct
“ … viewed cumulatively and taking into account any extenuating circumstances, has fallen below the standards of probity and competence appropriate for persons to be directors of companies.” See Re Grayan Building Services Limited [1995] Ch 241 at 253 E.
30.	In order to apply this test it is first necessary for the trial judge to make findings of primary fact where the facts are in dispute and to draw appropriate inferences from those facts, from the documents and from the undisputed facts. Then he has to apply to those facts the standard concerning a director’s conduct.  Of course, the decision of the Registrar merits great respect, having regard to his wide experience of such cases as well as to the unique advantage of hearing and seeing the witnesses.  An appeal court should be slow to disturb his conclusion on the fitness or otherwise of the director. If, however, there is little or no dispute about the primary facts and the appeal court is satisfied that the trial judge had reached a wrong conclusion on the issue of fitness , it is entitled to interfere with the decision.  In my judgment, this is a case in which there is, as described by Henry LJ in Grayan (supra) at p.257E, a “mismatch” between the facts and the conclusion of the Registrar that Mr Goldberg’s conduct did not make him unfit to be concerned in the management of a company. His ultimate conclusion is at odds with the facts and the inferences properly to be drawn from them. He erred in principle in his approach to the facts, focusing too much on Mr Goldberg’s evidence as to his beliefs and whether they were honestly held and too little on the established or undisputed acts and omissions of Mr Goldberg in the months leading up to the administration order.
31.	I agree with the Judge. The cumulative effect of the factual material  points in one direction only - the unfitness of Mr Goldberg as a director of Priorswalk: the  deteriorating financial position of the company from mid-1993 onwards ; the lack of accounting information from June 1994 onwards; the reluctance of the Royal Bank of Scotland to provide facilities; and Mr Goldberg’s failure to comply with the conditions attached to them; the timing, amount and identity of the payees of the various payments; the timing of the transfer of the wholesale business to Realman ; the continuation of ordering of large quantities of stock over the Christmas 1994 period on credit;  the non-payment of those creditors; and, at the end of the day, the  very large deficiency.
Period of Disqualification
32.	As to the appropriate period of disqualification it has been held that an appeal court should not interfere with the exercise of discretion of the court below, unless that court has erred in principle or been plainly wrong: Re Copecrest Ltd [1996] 2 BCLC 477 at 485 and Re Westmid Packing Services Ltd [1998] 2 All ER 124. I would agree with Mr Davies that the period is on the high side,  but the case does come within the top end of the second bracket referred to in Re Sevenoaks Stationers (Retail) Limited [1991] Ch 164.  In this case large sums of money were involved and there is a serious insolvency arising out of Mr Goldberg’s conduct. In those circumstances I would not interfere with the decision to disqualify for 9 years. I would, however, point out that it is always open to Mr Goldberg to apply under section 17 of the 1986 Act for leave to act as a director.
Result 
33.	 I would dismiss the appeal.
Lord Justice Longmore:
34.	I agree.
The Vice-Chancellor:
35.	I also agree.

ORDER: Appeal dismissed with the costs assessed summarily at £4,628 to be paid within 14 days. Permission to apply for further time to master. Permission to appeal was refused.
(Order does not form part of approved Judgment)