In September 2023, the High Court made the second ever compensation order, in Secretary of State for Business and Trade v Barnsby [2023] EWHC 2284 (Ch).
The judgment related to the compensation element of the Secretary of State's application only, the defendant having been disqualified for seven years on consideration of the first element of the Secretary of State's application, for conduct relating to the company's business as a travel operator after its ATOL licence had expired, meaning the company illegally took bookings in the period thereafter.
The decision is a useful summary of the compensation order regime, namely that under section 15A of the Company Directors Disqualification Act 1986 (CDDQ) the power to make a compensation order is a new cause of action, with a purpose of (i) enabling creditors to receive financial compensation where the conduct for which the director was disqualified has caused identifiable loss to such creditors not adequately compensated through the insolvency process - thereby helping to protect victims of wrongdoing; and (ii) to help 'to remove the perception that wrongdoers are not held to account and [to] improve confidence in the insolvency regime'.
Therefore, ICC Judge Barber outlined it is necessary to consider (a) the conduct relied upon for the making of a compensation order; (b) whether any such conduct caused loss to any creditors (and if so which creditors and in what sum); and (c) looking at all the circumstances of this case, whether it is appropriate for the court in the exercise of its discretion to make a compensation order.
In this case, the Judge considered the director's 'recklessness and incompetence [was] wilful and defiant', meeting the relevant conduct threshold. She found on the evidence that such conduct caused loss to the affected customers. The defendant asked the court to take into account various mitigating factors, and submitted that the compensation regime should not be used in cases of negligence but only in cases of fraud. He also alleged he had no assets and a low income and could not pay a large compensation award, and any order would likely result in his bankruptcy.
ICC Judge Barber considered all the evidence and found it was appropriate to make a compensation order, noting that the defendant had taken risks with customers' money and should live with the consequences. It will be interesting to see whether more compensation orders are sought by the Secretary of State in future.
