Mr Whyte has stated that his disqualification as a company director, in June 2000, for seven years, was a result of a “technicality”. Whist I do not wish to dispute what he says, as clearly he knows the circumstances, I would comment that such a period of disqualification would seem extraordinarily severe for commission of a “technicality”.
Perhaps the passage of time has dimmed Mr Whyte’s recollection of what took place?
The Insolvency Service issue regular guidance on this issue. They state that the purpose of the disqualification of directors is:-
“To maintain the integrity of the business environment. Those who become directors of limited companies should:
- carry out their duties with responsibility; and
- exercise adequate skill and care with proper regard to the interests of the company’s creditors and employees.
The majority of directors do this effectively, but the CDDA is a powerful tool against those who abuse the privilege of limited liability. The CDDA applies not just to persons who are formally appointed as directors but to those who carry out the functions of directors.”
Craig Whyte being reminded of his disqualification in 2000
Mr Whyte’s Disqualification
In all of the coverage of Craig Whyte prior to last night’s BBC Inside Story documentary, I was not aware of any mention by him, or anyone else, that he had been disqualified from holding a post as a company director for seven years on 13th June 2000.
This revelation was stunning, casting doubt on the business acumen of the person labelled as a “billionaire” when he first came on the Rangers scene.
Mr Whyte’s interview with STV, shown on Thursday night, just before the BBC programme, was recorded when he knew about the allegation that he had been disqualified. However, he failed to mention it at all, even though that might well have been his chance to get his explanation in first.
Today (Friday) STV revealed that the Insolvency Service had confirmed the seven year disqualification. It was also confirmed on Mr Whyte’s behalf that this had happened, but it was explained by his spokesman that this was due to a “technicality”.
Details of the disqualification are not clear, but is it possible that a director would be suspended for seven years for a “technicality”?
The Company Directors Disqualification Act 1986.
The Act lays down certain circumstances in which a director can be disqualified.
Section 2 states that a person can be disqualified if “convicted of an indictable offence (whether on indictment or summarily) in connection with the promotion, formation, management, liquidation or striking off of a company, with the receivership of a company’s property or with his being an administrative receiver of a company”.
If the conviction is in a summary court, the maximum disqualification is five years, and in any other court, fifteen yes.
Section 3 states that appears a director can be disqualified if “he has been persistently in default in relation to provisions of the companies legislation requiring any return, account or other document to be filed with, delivered or sent, or notice of any matter to be given, to the registrar of companies”.
Subsection 2 defines “persistent” by stating that “the fact that a person has been persistently in default in relation to such provisions as are mentioned above may … be conclusively proved by showing that in the 5 years ending with the date of the application he has been adjudged guilty (whether or not on the same occasion) of three or more defaults in relation to those provisions”. (Emphasis added)
Subsection 3 defines being adjudged guilty as being convicted in a criminal court or being subject of a default order for failure to comply with companies legislation.
The maximum period of disqualification under Section 3 is five years.
Under Section 4 a person can be disqualified if, in the course of a winding up, it appears that the person has been guilty of fraudulent trading or fraud or breach of duty, whether convicted in a criminal court or not.
The maximum period of disqualification under Section 4 is fifteen years.
Under Section 5 a court can disqualify a person convicted of “a contravention of, or failure to comply with, any provision of the companies legislation requiring a return, account or other document to be filed with, delivered or sent, or notice of any matter to be given, to the registrar of companies … where during the 5 years ending with the date of the conviction, the person has had made against him, or has been convicted of, in total not less than 3 default orders and offences counting for the purposes of this section; and those offences may include that of which he is convicted as mentioned in subsection (2) and any other offence of which he is convicted on the same occasion”.
The maximum period of disqualification under Section 5 is five years.
Section 6 is headed “Duty of court to disqualify unfit directors of insolvent companies”.
The section states as follows:-
“(1)The court shall make a disqualification order against a person in any case where, on an application under this section, it is satisfied—(a)that he is or has been a director of a company which has at any time become insolvent (whether while he was a director or subsequently), and(b)that his conduct as a director of that company (either taken alone or taken together with his conduct as a director of any other company or companies) makes him unfit to be concerned in the management of a company.
(2)For the purposes of this section and the next, a company becomes insolvent if—(a)the company goes into liquidation at a time when its assets are insufficient for the payment of its debts and other liabilities and the expenses of the winding up,(b)an administration order is made in relation to the company, or(c)an administrative receiver of the company is appointed; and references to a person’s conduct as a director of any company or companies include, where that company or any of those companies has become insolvent, that person’s conduct in relation to any matter connected with or arising out of the insolvency of that company.” (Emphases added)
Under Section 6, the minimum disqualification is two years, and the maximum fifteen yes.
Section 9 directs us to Schedule 1 Part 1 of the Act as regards the factors to be considered in determining “unfitness” to be a director.
I have summarised the relevant part of the Schedule below.
Part I – Matters applicable in all cases (that is, whether the relevant company has become insolvent or not):
- (i) Misfeasance or breach of duty.
- (ii) Misapplication of company money or property.
- (iii) Transactions defrauding creditors.
- (iv) Failure to comply with the Companies Act 1985 (maintenance of books, records, etc.)
- (v) Accounts – failure to discharge obligations.
Part II – Matters applicable when the relevant company has become insolvent:
- (vi) Causes of failure and insolvency (director’s responsibility, conduct after insolvency),
- (vii) Consumer prepayments (treatment of deposits, etc.)
- (viii) Transactions at an undervalue, preferences (giving someone an improper advantage), disposition of property (dispositions after the start of a liquidation).
- (ix) Whether the director carried out his duties in regard to putting the company into liquidation.
- (x) Statement of affairs – obligations in regard thereto.
- (xi) Co-operation with the office holder and the handing over of company property.
The maximum period of disqualification under Section 10 is fifteen years.
Can We Determine What the Disqualification was For?
It cannot be the case that Mr Whyte was disqualified for:- being convicted in a summary court of an indictable offence; persistent default in following companies legislation; or repeated offences of failing to comply with companies legislation as regards submission of returns etc, as all of these have a maximum five year disqualification.
We can also rule out Section 2 for non-summary convictions, as I am sure that the BBC would have reported any relevant criminal conviction.
That leaves us with the following misdemeanours for which the maximum disqualification is 15 years.
1 In a winding up, the court considered that the person was guilty of fraud or “fraudulent trading” (Section 4).
2 Unfit director of a company (Section 6)
3 Wrongful trading (Section 10)
Again, if it were the first or third one would assume that the BBC would have identified the specific court declaration. (Whilst the BBC made mention of certain actings alleged to have been carried out by Mr Whyte which could have been seen as fraudulent, these were alleged by the Insolvency Service in connection with a later business (whilst the disqualification was in place)).
This leaves us, by a process of elimination, with Mr Whyte being unfit to be a director. Now of course, such a declaration is not necessarily fatal to a businessman’s career. After all as regards Robert Maxwell a DTI Report in the early 1970’s stated “notwithstanding Mr Maxwell’s acknowledged abilities and energy, he is not in our opinion a person who can be relied on to exercise proper stewardship of a publicly quoted company.” Robert Maxwell, prior to his demise, succeeded in building a very successful business empire.
The late Robert Maxwell - please note nothing derogatory should be implied as regards Craig Whyte by use of this picture
(For the avoidance of doubt, whilst I am aware that Mr Maxwell died on the point of it being discovered he had committed fraud on a massive scale, there is no suggestion, nor should any be taken as implied, that Mr Whyte has committed any illegal acts.)
So we are left with the implication that Mr Whyte was found to have been responsible for at least one, and possibly more, of the matters mentioned in Schedule 1 Part 1 above.
The DTI considered it serious enough to ask the court for a disqualification order of seven years or indeed more. The court granted an order for seven years. This might have been by agreement with Mr Whyte, or after hearing the case and determining that that was the correct disqualification.
As we have seen though the period of ban under Section 10 is to be between two and fifteen years. Mr Whyte is toward the middle of that range. That might suggest that either his “technicality” was not seen as such by the court, or that there were a lot of “technicalities” which the court determined added up to justifying a seven year ban.
Mr Whyte had the chance to challenge his disqualification in court. He either failed to do so, or did it unsuccessfully.
I am not suggesting that Mr Whyte is less than 100% honest in his explanation of the disqualification. I do not have the detailed information, and the presence of Messrs Carter-Ruck, Solicitors, acting for Mr Whyte ensures that anyone writing about him does so with discretion.
However, as I have shown, it seems unusual that such a significant disqualification was imposed upon a businessman guilty only of a “technicality”.
It would be possible for Mr Whyte to clarify this for us, or for the media to ask him or his lawyers to do so.
For now, I think it is fair to say that, if it had been known in the run up to the takeover that Mr Whyte had been disqualifies as an unfit director, it may have changed the views of some of the parties involved.
If I was a creditor of Rangers now, I would be very concerned by the matters raised about the Club’s solvency and the revelation about Mr Whyte would only heighten those fears.
It may well be that he is, and has been, able to allay any anxieties amongst his suppliers and creditor. He is clearly a persuasive and successful businessman, but, as is often the case in this saga, there are more questions than answers.