- The requirement
that the court must have regard "in particular" to
the matters listed in the schedule means that the court is not confined to
looking at those matters: Re Bath Glass Ltd [1988] BCLC 329; Secretary
of State for Trade and Industry v. Reynard [2002] 2 BCLC 625. However,
I accept Mr Downes’ submission that the words "in particular" mean
that the court should give greater weight to those matters that are expressly
mentioned in the Schedule, as opposed to those that are not.
- The relevant matters laid down in the Schedule to the Act include the following:
- Any misfeasance or breach of any fiduciary or other duty by the director
in relation to the company
- Any misapplication or retention by the director of, or any conduct by
the director giving rise to an obligation to account for, any money or
other property of the company
- The extent of the director’s responsibility for any failure by the company
to comply with any of the following provisions of the Companies Act, namely
section 221 (companies to keep accounting records); section 222 (where
and for how long records to be kept) and section 363 (duty of company to
make annual returns);
- The extent of the director’s responsibility for the causes of the company
becoming insolvent.
- In Re Sevenoaks Stationers (Retail) Ltd [1991] Ch. 164 Dillon L.J.
said at 176:
"The test laid down in section 6 - apart from the requirement
that the person concerned is or has been a director of a company which has
become insolvent - is whether the person's conduct as a director of the company
or companies in question "makes him unfit to be concerned in the management
of a company." These are ordinary words of the English language and they
should be simple to apply in most cases. It is important to hold to those
words in each case.
The judges of the Chancery Division have, understandably,
attempted in certain cases to give guidance as to what does or does not make
a person unfit to be concerned in the management of a company. Thus in In
re Lo-Line Electric Motors Ltd. [1988] Ch. 477, 486, Sir Nicolas Browne-Wilkinson
V.-C. said:
"Ordinary
commercial misjudgment is in itself not sufficient to justify disqualification.
In the normal case, the conduct complained of
must display a lack of commercial probity, although I have no doubt in an
extreme case of gross negligence or total incompetence disqualification could
be appropriate."
Then, at p. 492, he said that the director in question:
"has
been shown to have behaved in a commercially culpable manner in trading
through limited companies when he knew them to be insolvent
and in using the unpaid Crown debts to finance such trading."
Such
statements may be helpful in identifying particular circumstances in which
a person would clearly be unfit. But there seems to
have been a tendency, which I deplore, on the part of the Bar, and possibly
also on the part of the official receiver's department, to treat the statements
as judicial paraphrases of the words of the statute, which fall to be construed
as a matter of law in lieu of the words of the statute. The result is to
obscure that the true question to be tried is a question of fact - what used
to be pejoratively described in the Chancery Division as "a jury question."
- A less pejorative
description of the question is that it is a "value
judgment": see Re Grayan Building Services Ltd [1995] Ch. 241
at 255D. That case also shows that to describe the question as simply one
of fact may be an over-simplification. It is a question of mixed law and
fact, namely the application of the standard laid down by the courts as conduct
appropriate to a person fit to be a director (law) to the facts of the case
(fact). In his judgment in that case, Henry L.J. said:
"The
concept of limited liability and the sophistication of our corporate law
offers great privileges and great opportunities for
those who wish to trade under that regime. But the corporate environment
carries with it the discipline that those who avail themselves of those privileges
must accept the standards laid down and abide by the regulatory rules and
disciplines in place to protect creditors and shareholders. And, while some
significant corporate failures will occur despite the directors exercising
best managerial practice, in many, too many, cases there have been serious
breaches of those rules and disciplines, in situations where the observance
of them would or at least might have prevented or reduced the scale of the
failure and consequent loss to creditors and investors."
- As Peter Gibson J put it in Re Bath Glass Ltd [1988] BCLC 329, 333:
"To
reach a finding of unfitness the court must be satisfied that the director
has been guilty of a serious failure or serious
failures, whether deliberately or through incompetence, to perform those
duties of directors which are attendant on the privilege of trading through
companies with limited liability. Any misconduct of a director qua director
may be relevant, even though it does not fall within a specific section of
the Companies Act or the Insolvency Act."
- Mr Downes submitted that the question whether a person is fit or unfit
to be a director should be considered under three broad heads:
- If a person is competent, disciplined and honest, Mr Downes says, he cannot
be said to be unfit to be a director. It is fair to say, as Mr Downes acknowledged,
that this three-fold analysis has not hitherto appeared in the voluminous
jurisprudence on directors’ disqualification. But he submitted that this
conceptual framework is at least consistent with authority, with one possible
exception.
- Competence. The general standard of competence that the law requires
of a director was described by Lindley MR in Lagunas Nitrate Co v. Lagunas
Syndicate [1899] 2 Ch. 392 as follows:
"As directors, I am not aware that there is any difference
between their legal and their equitable duties. If directors act within their
powers, if they act with such care as is reasonably to be expected from them,
having regard to their knowledge and experience, and if they act honestly
for the benefit of the company they represent, they discharge both their
equitable as well as their legal duty to the company. In this case they clearly
acted within their powers: they did nothing ultra vires: fraud is not imputed.
The inquiry, therefore, is reduced to want of care and bona fides with a
view to the interests of the nitrate company. The amount of care to be taken
is difficult to define; but it is plain that directors are not liable for
all the mistakes they may make, although if they had taken more care they
might have avoided them: see Overend, Gurney & Co. v. Gibb. Their negligence
must be not the omission to take all possible care; it must be much more
blameable than that: it must be in a business sense culpable or gross. I
do not know how better to describe it."
- In Re D’Jan of London Ltd [1994] 1 BCLC Hoffmann LJ said:
"In
my view, the duty of care owed by a director at common law is accurately
stated in s 214(4) of the Insolvency Act 1986. It
is the conduct of –
‘a
reasonably diligent person having both – (a) the general knowledge, skill
and experience
that may reasonably be expected of a person
carrying out the same functions as are carried out by that director in relation
to the company, and (b) the general knowledge, skill and experience that
that director has.’"
- This, I think,
is the modern formulation of a director’s duty of skill and care. I do
not, however,
consider that the reference to "general
knowledge" excludes a duty to bring to the attention of the company
(acting by its board of directors) knowledge possessed by an individual director
of particular facts that are relevant to a decision that the board is called
upon to make.
- Incompetence
in "a marked degree" is
enough to render a person unfit: Re Sevenoaks Stationers Ltd [1991]
Ch. 164 at 184. Mr Downes accepts that a person who is not competent to
discharge the duties of a director
is unfit. But he emphasises the word "duties". He says that a director
cannot be castigated as incompetent unless he is in breach of some legal
duty to the company. If a director fulfils all his legal duties to the company
he is, by definition, competent.
- The cases give guidance on the sort of conduct which the courts will regard
as amounting to unfitness. Allowing a company to trade while insolvent, even
if not amounting to wrongful trading under section 214 of the Insolvency
Act 1986, may yet amount to unfitness: Re Bath Glass Ltd [1988] BCLC
329. The courts regard this as in effect trading with creditors’ money: Re
Living Images Ltd [1986] 1 BCLC 348. In Secretary of State for Trade
and Industry v. McTighe (No 2) [1996] 2 BCLC 477 the Court of Appeal
accepted the Secretary of State’s submission that it was misconduct to pursue:
"the
policy of not paying the debts of creditors who are not pressing when it
is known that the company has insufficient reserves
enabling it to trade except at the risk of such creditors."
- Both limbs of this submission are important. As Sir Martin Nourse put it
in Secretary of State for Trade and Industry v. Creegan [2002] 1 BCLC
99:
"It
is well established on the authorities that causing a company to trade,
first, while it is insolvent and, secondly, without a
reasonable prospect of meeting creditors’ claims is likely to constitute
incompetence of sufficient seriousness to ground a disqualification order.
But it is important to emphasise that it will usually be necessary for both
elements of that test to be satisfied. In general, it is not enough for the
company to have been insolvent and for the director to have known it. It
must also be shown that he knew or ought to have known that there was no
reasonable prospect of meeting creditors’ claims."
- In Secretary of State for Trade and Industry v. Gash [1997] 1 BCLC
341 Chadwick J said:
"The
companies legislation does not impose on directors a statutory duty to
ensure that their company does not trade while insolvent;
nor does that legislation impose an obligation to ensure that the company
does not trade at a loss. Those propositions need only to be stated to be
recognised as self-evident. Directors may properly take the view that it
is in the interests of the company and of its creditors that, although insolvent,
the company should continue to trade out of its difficulties. They may properly
take the view that it is in the interests of the company and its creditors
that some loss-making trade should be accepted in anticipation of future
profitability."
- Mr Downes explains this line of cases by pointing out that the thread that
runs through them all is the insolvency of the company while continuing to
trade. He says that once a company becomes insolvent, there is a sea change
in the nature of a director’s duties to the company. While it is solvent,
his duties are owed to the general body of shareholders. But once it becomes
insolvent, the interests of the shareholders are replaced by those of the
company’s creditors: see West Mercia Safetywear Ltd v. Dodds [1988]
BCLC 250. Statements to the effect that a director owes duties to the company’s
creditors may also be found in Winkworth v. Edward Baron Development Co
Ltd [1986] 1 W.L.R. 1512 and Facia Footwear Ltd v. Hinchliffe [1998]
BCLC 218. Thus, Mr Downes says, a director’s duties preclude him, once the
company has become insolvent, from unfairly preferring one creditor to another.
Although there is no statutory duty not to trade while insolvent, he says
that these cases are properly viewed as ones in which the court found that
there had been a breach of the director’s duties. Even if the duties in question
are duties to the company’s creditors rather than to the company itself,
nevertheless they are legal or equitable duties that have been broken. However,
in Re Pantone 485 Ltd [2002] 1 BCLC 266 Mr Field QC, sitting as a
judge of the Chancery Division, held that it is not a breach of duty if directors
of an insolvent company act consistently with the interest of the creditors
generally, but inconsistently with the interests of a particular creditor
or section of creditors. Mr Downes’ explanation of the cases that are founded
on the preference of one creditor to another is therefore contrary to authority.
- In Re Barings plc (No. 5) [1999] 1 BCLC 433 Jonathan Parker J considered
the position of three senior directors of Barings in the wake of the debacle
brought about by Nick Leeson’s unauthorised trading. He emphasised that no
imputation was made on the honesty or integrity of any of the directors concerned.
The Secretary of State’s case was based on incompetence alone. In Section
III of his judgment he set out the law. Paragraph A7 emphasised that the
Secretary of State’s case was based solely on allegations of incompetence.
What he said subsequently must be read in that context. In paragraph A12
he said:
"Although
in considering the question of unfitness the court must have regard (among
other things) to ‘any misfeasance or breach
of any fiduciary or other duty’ by the respondent in relation to the company
(see para A3, above), it is not in my judgment a prerequisite of a finding
of unfitness that the respondent should have been guilty of misfeasance or
breach of duty in relation to the company. Unfitness may, in my judgment,
be demonstrated by conduct which does not involve a breach of any statutory
or common law duty: for example, trading at the risk of creditors may found
a finding of unfitness even though it might not amount to wrongful trading
under s.214 of the Insolvency Act 1986. Nor, in my judgment, will it necessarily
be an answer to a charge of unfitness founded on allegations of incompetence
that the errors which the respondent made can be characterised as errors
of judgment rather than as negligent mistakes. It is, I think, possible to
envisage a case where a respondent has shown himself so completely lacking
in judgment as to justify a finding of unfitness, notwithstanding that he
has not been guilty of misfeasance or breach of duty. Conversely, in my judgment,
the fact that a respondent may have been guilty of misfeasance or breach
of duty does not necessarily mean that he is unfit. As Sch 1 makes clear,
there are a number of matters to which the court is required to have regard
in considering the question of unfitness, in addition to misfeasance and
breach of duty."
- Mr Downes submits that, for the reasons I have outlined in paragraph [25]
above, Jonathan Parker J was wrong to give the example of trading at the
risk of creditors as an example of unfitness without breach of duty. When
the case reached the Court of Appeal [2001] 1 BCLC 523 that court approved
Jonathan Parker J’s statement of the law. They said specifically:
"Fifthly
a finding of breach of duty is neither necessary nor of itself sufficient
for a finding of unfitness (at 486). As the judge
observed a person may be unfit even though no breach of duty is proved against
him or may remain fit notwithstanding the proof of various breaches of duty."
- Since the allegations of unfitness in that case were based solely on allegations
of incompetence, it must follow that unfitness by reason of incompetence
may be established even without proof of a breach of duty. This authority
is, in my judgment, inconsistent with Mr Downes’ submission and binds me.
- Central to the concept of limited liability is the concept that a company
has a separate legal personality. A company retains its separate legal personality
even if it is a member of a group of companies. Every director of a company,
whether executive or non-executive, owes fiduciary duties to that company.
Respect for the separate legal personality of each company, and recognition
of a director’s duty to exercise his powers in the best interests of the
particular company of which he is a director are essential attributes of
fitness to be concerned in the management of a company. These duties are
personal and inescapable: Re Westmid Packing Services Ltd [1998] 2
All E.R. 124. Mr Downes accepted, I think, that a failure to understand or
respect these fundamental principles could lead to the conclusion that a
person was not competent to be a director.
- As Millett L.J. explained in Bristol and West Building Society v. Mothew [1998]
Ch 1:
"The
distinguishing obligation of a fiduciary is the obligation of loyalty.
The principal is entitled to the single-minded loyalty
of his fiduciary. This core liability has several facets. A fiduciary must
act in good faith; he must not make a profit out of his trust; he must not
place himself in a position where his duty and his interest may conflict;
he may not act for his own benefit or the benefit of a third person without
the informed consent of his principal."
- Discipline. Engrafted onto the general duties are the specific duties
imposed on directors by statute. The statutory requirements to make and retain
adequate financial records arise under sections 221 and 222 of the Companies
Act 1985. Section 221 (2) prescribes the contents of the accounting records.
They must contain entries from day to day of all sums of money received and
expended by the company, and the matters in respect of which the receipt
and expenditure takes place. They must also contain a record of the assets
and liabilities of the company. The importance of these records is twofold.
Chadwick J described the two purposes in Secretary of State for Trade
and Industry v. Arif [1997] 1 BCLC 34 as follows:
"Section
221 of the 1985 Act has, at the least, two purposes. First, to ensure that
those who are concerned in the direction
and management of companies which trade with the privilege of limited liability,
do maintain sufficient accounting records to enable them to know what the
position of the company is from time to time. Without that information, they
cannot act responsibly in making decisions whether to continue trading. But
equally important is a second purpose. If the company fails, a licensed insolvency
practitioner will become office holder; as liquidator or as administrator
or as administrative receiver. The office holder requires information as
to the company's trading and transactions which is sufficient to enable him
to identify and recover or exploit the company's assets. His task is made
extremely difficult, if not impossible, if the company has failed to comply
with its obligations under s 221 of the 1985 Act."
- Section 382 of the Companies Act 1985 requires a company to maintain books
of minutes recording all business transacted at meetings of the company’s
members, directors and managers. This is supplemented by Reg 100 of Table
A which places the duty to cause minutes to be made on the directors of a
company. The minutes are also required to record the names of the directors
present at such meetings.
- Section 226 of the Companies Act 1985 requires the directors to prepare
a balance sheet and profit and loss account for each financial year. Section
234 requires them to prepare a report for each financial year. Section 242
requires the directors to deliver to the registrar of companies a copy of
the company’s annual accounts together with a copy of the directors’ report
and the auditors’ report on the accounts. Failure to comply with obligations
as regards the filing of accounts and returns may also amount to unfitness.
Nicholls V-C observed in Secretary of State for Trade and Industry v.
Ettinger [1993] BCLC 896:
"Those
who take advantage of limited liability must conduct their companies with
due regard to the ordinary standards of commercial
morality. They must also be punctilious in observing the safeguards laid
down by Parliament for the benefit of others who have dealings with their
companies. They must maintain proper books of account and prepare annual
accounts; they must file their accounts and returns promptly; and they must
fully and frankly disclose information about deficiencies in accordance with
the statutory provisions. Isolated lapses in filing documents are one thing
and may be excusable. Not so persistent lapses which show overall a blatant
disregard for this important aspect of accountability. Such lapses are serious
and cannot be condoned even though, and it is right to have this firmly in
mind, they need not involve any dishonest intent.
The
seriousness with which such conduct is to be viewed is shown by the provisions
of the
Disqualification Act itself. The extent
to which a director is responsible for any failure to comply with the statutory
provisions regarding accounting records and the preparation of annual accounts
is one of the matters to which the court is required to have regard in determining
unfitness to be concerned in the management of a company. Those who persistently
fail to discharge their statutory obligations in this respect can expect
to be disqualified, for an appropriate period of time, from using limited
liability as one of the tools of their trade. The business community should
be left in no doubt on this score. It may be that, despite the disqualification
provisions having been in operation for some years, there is still a lingering
feeling in some quarters that a failure to file annual accounts and so forth
is a venial sin. If this is still so, the sooner the attitude is corrected
the better it will be. Judicial observations to this effect have been made
before, but they bear repetition."
- Indeed, persistent failure to comply with duties about filing accounts
and returns can amount to an independent ground for disqualification under
section 3 of the Act. However, as Mr Downes points out, disqualification
under section 3 is discretionary rather than mandatory.
- Section 317 of the Companies Act 1985 requires a director of a company
who is in any way, whether directly or indirectly, interested in a contract
or proposed contract with the company to declare the nature of his interest
at a meeting of the directors of the company. This is no mere formal requirement.
It is a fundamental safeguard of the general obligation of a fiduciary not
to place himself in a position where his interests conflict with those of
the person to whom he owes fiduciary duties. Failure to comply with the statutory
duty to disclose interests in contracts may amount to unfitness.
- Mr Downes said that discipline requires that a director should comply with
the duties laid upon him by statute. Discipline also requires that a director
should exert his own judgment. In Re Barings plc (No. 5) [2001] 1
BCLC 523 the Court of Appeal approved the following statement by Jonathan
Parker J:
"(i)
Directors have, both collectively and individually, a continuing duty to
acquire and maintain a sufficient knowledge and understanding
of the company’s business to enable them properly to discharge their duties
as directors.
(ii) Whilst directors are entitled (subject to the articles
of association of the company) to delegate particular functions to those
below them in the management chain, and to trust their competence and integrity
to a reasonable extent, the exercise of the power of delegation does not
absolve a director from the duty to supervise the discharge of the delegated
functions.
(iii)
No rule of universal application can be formulated as to the duty referred
to in (ii) above. The extent of the duty, and the
question whether it has been discharged, must depend on the facts of each
particular case, including the director’s role in the management of the company."
- In Re Westmid Packing Services Ltd (above) Lord Woolf M.R. said:
"A
proper degree of delegation and division of responsibility is of course
permissible, and often necessary, but total abrogation of responsibility
is not. A board of directors must not permit one individual to dominate them
and use them, as Mr Griffiths plainly did in this case. Mr Davis commented
that the appellants’ contention (in their affidavits) that Mr Griffiths was
the person who must carry the whole blame was itself a depressing failure,
even then, to acknowledge the nature of a director’s responsibility. There
is a good deal of force in that point."
- Honesty. In order to be fit to be a director a person must be honest.
He must be capable of being entrusted with the management of assets that
do not belong to him. But, said Mr Downes, proof of dishonesty was essential.
This, too, seems to me to be inconsistent with authority. In Re Dawson
Print Group Ltd (1987) 3 BCC 322 Hoffmann J said that:
"There
must, I think, be something about the case, some conduct which if not dishonest is
at any rate in breach of standards of commercial morality, or some really
gross incompetence which persuades
a court that it would be a danger to the public if he were to be allowed
to continue to be involved in the management of companies, before a disqualification
order is made." (Emphasis added)
- Judges have
used different phrases to describe the kind of conduct which may make a
director unfit.
They include "a lack of commercial probity" (In
re Lo-Line Electric Motors Ltd.); "breach of standards of
commercial morality" (Re Dawson Print Group) and "ordinary
standards of commercial morality" (Secretary of State for Trade and
Industry v. Ettinger). Lack of commercial probity is, to my mind, difficult
to distinguish from dishonesty. But the other two quoted phrases seem to
me to apply a lower standard. Mr Downes submitted with considerable force
that if a director’s conduct was lawful and honest, it was difficult to see
how it could be a breach of commercial morality. A cynic might think that
commercial morality is summed up in the aphorism: "business is business." But
Mr Downes was inclined to accept that untrustworthiness in a more general
sense could amount to unfitness. Thus if a person repeatedly makes promises
that he does not keep, then even though the promises may be honestly made,
he may be so untrustworthy as to be unfit.
- While accepting both that the words of other judges are no substitute for
the words of the Act itself, and while also accepting that standards of commercial
morality may be a more nebulous criterion than that of dishonesty, I conclude
that dishonesty is not the acid test.
- I hold therefore
that Mr Downes’ three-fold framework, though attractively and persuasively
advanced,
does not represent the law. Time and again judges
have emphasised that the court is required to take a broad brush approach.
Moreover, "competence" and "discipline" overlap to a
considerable extent. I have no doubt that the criteria that Mr Downes urges
on me are highly relevant in assessing the fitness or otherwise of a director.
But the question for the court is a much broader one, and is not confined
within the tramlines of these criteria. This may make the court’s task a
more difficult one, but that is what Parliament has provided for.
- However, the identification of the standard of conduct laid down by the
law is important for two reasons. First, because the question of unfitness
to do something can, as it seems to me, only be judged against an expectation
of what is required of a person doing, or attempting to do, that thing. Second,
because fairness to a director, or prospective director, requires that he
should know what the law expects of him both before accepting his appointment
and while carrying out his duties. I am uncomfortable with the notion that
an honest director may be held to be unfit on account of conduct that, many
years later, a judge may consider was a breach of some indefinable standard
of commercial morality.
- Thus I accept
Mr Downes’ submission on "commercial morality" to
this extent: that the court must be very careful before holding that a director
is unfit because of conduct that does not amount to a breach of any duty
(contractual, tortious, statutory or equitable) to anyone, and is not dishonest.
- In considering whether a director is unfit, it is important to consider
the cumulative effect of such of the allegations as are proved against him.
Although the consequences for a disqualified director are serious, these
are civil proceedings. Thus the civil standard of proof applies. The burden
of proof lies on the Secretary of State. I bear in mind that the more serious
the allegation, the more cogent must be the evidence required to prove it,
even on the balance of probabilities: Re Living Images Ltd [1996]
1 BCLC 348, 355-6.
- The dissenting director. What if a director disagrees with the way
in which a company is run? Chadwick J has addressed this question in two
cases, Secretary of State for Trade and Industry v. Arif [1997] 1
BCLC 34 and Secretary of State for Trade and Industry v. Gash [1997]
1 BCLC 341. In the latter case, having considered his earlier judgment, he
said:
"The
companies legislation does not impose on directors a statutory duty to
ensure that their company does not trade while insolvent;
nor does that legislation impose an obligation to ensure that the company
does not trade at a loss. Those propositions need only to be stated to be
recognised as self-evident. Directors may properly take the view that it
is in the interests of the company and of its creditors that, although insolvent,
the company should continue to trade out of its difficulties. They may properly
take the view that it is in the interests of the company and its creditors
that some loss-making trade should be accepted in anticipation of future
profitability. They are not to be criticised if they give effect to such
view. But the legislation imposes on directors the risk that trading while
insolvent may lead to personal liability. Section 214 of the Insolvency Act
imposes that liability where the director knew, or ought to have concluded,
that there was no reasonable prospect that the company would avoid going
into insolvent liquidation.
If
it is established, in proceedings under s 6 of the 1986 Act, that a director
has caused a company to trade when he
knew, or ought to have known, that there was no reasonable prospect that
the company would avoid going into insolvent liquidation that director may
well be held unfit to be concerned in the management of a company. But a
director who, believing that there is no reasonable prospect of avoiding
insolvency, protests against further trading and uses such influence as he
has to bring the trading to an end, is not in my view a person whose failure
to resign his directorship must lead to a finding of unfitness. He is entitled
to remain a member of a board to whose collective decisions he is continuing
to contribute. He, as it seems to me, is in a different category from a director
who remains in office in circumstances in which he knows that the company
is in breach of the statutory obligations imposed, for example, by s 221
of the Insolvency Act and that no steps are to be taken to remedy that breach.
I
am not to be taken as expressing the view that there may not be circumstances
in which a director who has ceased
to exercise any influence in the deliberations of the board will be at risk
of being held unfit if he fails to resign. The duties of a director include,
in my view, the duty to inform himself as to the company's affairs and the
duty to make his views known to the other directors. If there comes a point
at which his attendance at board meetings is purposeless because he must
recognise that his co-directors take no account of his views and recommendations,
then it may well be appropriate to ask why he continues to remain as a director.
If he continues to remain as a director in those circumstances for no purpose
other than to draw his director's fees or to preserve his status, a court
might well come to the conclusion that he was so lacking in appreciation
of a director's duties that he was unfit to be concerned in the management
of a company."
Review of director’s conduct
- Section 6 of
the Act says that the reason for disqualification can only be a person’s "conduct as a director". "Conduct" encompasses
both acts and omissions. The phrase "as a director" means "in
his capacity as a director". Thus incompetence in, say, providing investment
advice to a prospective shareholder, or in failing to control the personal
financial affairs of a company’s principal shareholder, is not relevant conduct.
In deciding whether or not to make a disqualification order, the court must
concentrate on a person’s acts or omissions in his capacity as a director.
Even if the case is based on allegations of dishonesty, the dishonesty in
question must be dishonesty "as a director".
- In reaching its value judgment about a person’s fitness or unfitness to
be a director, the court must beware of hindsight. As with any critical evaluation
of a person’s decisions, the court must confine itself to what he knew or
ought to have known at the time the decisions were made. I think also that
I must treat statements made by other directors with some degree of caution,
since the directors of an insolvent company will have a natural tendency
to wish to exculpate themselves, and to point the finger of blame at others.
In reaching that value judgment I must also take account of Mr McAvoy’s evidence,
not in the sense of judging his performance as a witness, but in order to
evaluate his response to the allegations made against him.
- There is one other point that I should make at this stage. The Secretary
of State’s case was originally presented against both Mr Goldberg and Mr
McAvoy. It has continued against Mr McAvoy alone. Much of the evidence that
I heard was concerned with Mr Goldberg’s deficiencies as the chairman of
CPFC. But he has reached a compromise with the Secretary of State. It is
therefore important to disentangle those allegations that relate to Mr McAvoy.
To adapt the standard direction given to juries (since this has been described
as a jury question), I must consider the case for and against each defendant
separately.
The lead company and the collateral companies
- As is common,
the Secretary of State’s main allegations relate to some only of the companies
of which
Mr McAvoy was a director. The companies specifically
named in the claim form are conventionally described as the "lead companies".
She makes other allegations relating to other companies which are referred
to in further evidence served on her behalf. These companies are conventionally
referred to as "collateral companies". Mr Downes submits that I
must find conduct amounting to unfitness relating to the lead companies alone,
and that misconduct proved in relation to collateral companies goes only
to the length of the period of disqualification, if disqualification is justified
by reference to the lead companies alone.
- I do not accept
this submission. Section 6 refers to "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)". The natural
reading of this phrase enables the court to take into account both the director’s
conduct in relation to the lead company and also his conduct in relation
to the collateral companies in determining the question of fitness. There
must, of course, be conduct in relation to "that company" (i.e.
the lead company). But the conduct in question need not be such as to demonstrate
unfitness. It need only be such as tends to demonstrate unfitness.
In other words it is conduct which is fit to be placed into the scale. If
unfitness had to be proved by reference to conduct relating to the lead company
alone, it would deprive the words "taken together with his conduct as
a director of any other company" of virtually all force. In my judgment
this conclusion is fully supported by the reasoning of the Court of Appeal
in Secretary of State for Trade and Industry v. Ivens [1997] 2 BCLC
334.
Making the allegations
- Rule 3 (3)
of the Insolvent Companies (Disqualification of Unfit Directors) Proceedings
Rules 1987
("the Disqualification Rules") requires
the affidavit served in support of the application to contain "a statement
of the matters by reference to which the defendant is alleged to be unfit
to be concerned in the management of a company." More than one judge
has said that this requirement should not lead to the technicalities associated
with the framing of a criminal charge. I am not sure how helpful this is
as practical guidance, since the statement of offence in an indictment simply
sets out the statutory provision which creates the offence, and the particulars
of the offence are often extremely terse. A pleading in a civil case is usually
very much more detailed and precise. However, it is clear that the affidavit
must set out the substance of the case that the defendant is required to
meet.
- It is equally clear that the Secretary of State is not necessarily confined
to the allegations as formulated in the affidavit originally served in support
of the application. As Dillon LJ said in Re Sevenoaks Stationers Ltd (above):
"as
a result of the evidence subsequently filed or for some other reason the
official receiver may wish to change the nature
of the allegations on which he is going to rely. Alternatively the official
receiver may wish to add further allegations in the light of further evidence
which has become available. … The court has a discretion to allow the official
receiver to rely on the altered or additional allegation provided that can
be done without injustice to the accused director. What justice requires
must depend on the circumstances of the particular case. In some cases it
would be necessary for the official receiver to have given prior notice of
the new allegation before the effective hearing of the disqualification application,
and to raise it for the first time in the course of the hearing would be
too late. In other cases, when a new allegation is raised for the first time
in the course of the hearing, it may be appropriate to allow an adjournment
for further evidence to be obtained. In yet other cases, particularly where
the director is represented by experienced counsel, counsel may be able to
take a new or altered allegation in his stride without any adjournment. But
the paramount requirement on this aspect is that the director facing disqualification
must know the charges he has to meet."
- If dishonesty is to be alleged against a director, the allegation must
be fairly and squarely made in the affidavit, and must be fairly and squarely
put in cross-examination. As Millett LJ said in Paragon Finance plc v.
BB Thakerar [1999] 1 All E.R. 400, in the context of the amendment of
pleadings:
"It
is well established that fraud must be distinctly alleged and as distinctly
proved, and that if the facts pleaded are consistent
with innocence it is not open to the court to find fraud. An allegation that
the defendant ‘knew or ought to have known’ is not a clear and unequivocal
allegation of actual knowledge and will not support a finding of fraud even
if the court is satisfied that there was actual knowledge. An allegation
that the defendant had actual knowledge of the existence of a fraud perpetrated
by others and failed to disclose the fact to the victim is consistent with
an inadvertent failure to make disclosure and is not a charge of fraud. It
will not support a finding of fraud even if the court is satisfied that the
failure to disclose was deliberate and dishonest. Where it is expressly alleged
that such failure was negligent and in breach of a contractual obligation
of disclosure, but not that it was deliberate and dishonest, there is no
room for treating it as an allegation of fraud."
- I do not believe that proceedings for disqualification of a director are
any different: Secretary of State for Trade and Industry v. Rogers [1996]
1 WLR 1569.
- The Disqualification Rules require that the procedure laid down by CPR
Part 8 be followed. CPR rule 8.1 (3), which enables the court to order that
the claim to continue as if the claimant had not used the Part 8 procedure,
is specifically disapplied. These procedural rules have a number of consequences.
First, there is no formal statement of case. Although the evidence served
in support of the application must state the matters by reference to which
the defendant is alleged to be unfit to be concerned in the management of
a company, if the Secretary of State wishes to amend the allegations or to
introduce new ones, there is no master document which she must apply to amend.
It is true that, as Mr Newey pointed out, counsel for the Secretary of State
is required to provide a skeleton opening a few days before the trial; but
this is not a wholly satisfactory substitute. It is still less satisfactory
if the Secretary of State’s full case is not revealed until her counsel’s
closing address, which takes place after the director (or his counsel) has
made his own final submissions. Second, even if it becomes clear that factual
allegations are hotly contested, there is no obvious mechanism for providing
that the case should continue as if begun by claim form. Third, under the
Part 8 procedure, there is normally no disclosure of documents. In the normal
course of events most or all of the relevant documents will be in the possession
(or at least in the power) of the Secretary of State. This considerably blunts
the force of a submission that there is no document to support such and such
defence to an allegation.
- In those circumstances, I think that I must be cautious before allowing
the Secretary of State to change the thrust of the allegations as they were
originally set out.
The allegations relating to CPFC
- Although the initial involvement of the Official Receiver was triggered
by the winding up of Allowclear Ltd, the Secretary of State’s case was presented
on the basis that CPFC was the lead company. Her case was initially presented
in the form of an affidavit sworn by Mr Boyall. There are allegations relating
to companies other than CPFC, but I shall concentrate on CPFC for the time
being. The principal allegations made by the Secretary of State in relation
to CPFC are as follows:
- Mr Goldberg and Mr McAvoy took unwarranted risks with creditors’ money,
in allowing CPFC to continue to trade between 4 June 1998 and 30 March
1999;
- Mr Goldberg
and Mr McAvoy caused or permitted CPFC to incur a liability to Mr Padovano,
a player who had been bought from Juventus, of £1,200,000
for the purpose of settling the personal liabilities of Mr Goldberg and
an associated company of his, Sports Management Corporation Group Ltd ("SMCG")
- Mr Goldberg
and Mr McAvoy caused or permitted a board minute purporting to record
a board
resolution of CPFC approving the payment of £1,200,000
to Mr Padovano to be produced notwithstanding that no such resolution had
been passed;
- Mr Goldberg
and Mr McAvoy caused or permitted CPFC to agree to forego a payment of £400,000
due to it from Wolverhampton Wanderers in return for Wolves foregoing
an equivalent sum due to it from Mr Goldberg personally;
- Mr Goldberg and Mr McAvoy failed to ensure that the board of CPFC was
aware of the onerous terms on which CPFC was to employ Mr Terry Venables
as its head coach, but on the contrary caused or permitted the board to
be misled as to such terms;
- Mr Goldberg and Mr McAvoy failed to ensure that the affairs of CPFC were
subject to proper financial control.
- Mr McAvoy’s answers to these allegations are, in brief:
- CPFC was not insolvent as at 4 June 1998, but it needed to sell players
in order to be able to meet its debts as they fell due. Mr McAvoy did all
he could to sell players, but was frustrated by Mr Goldberg. Ultimately
he resigned;
- The settlement with Mr Padovano was for the benefit of CPFC;
- The minute was prepared by the company secretary, Mr Withey, who told
Mr McAvoy that two members of the board, who had not been present at the
meeting, had approved the payment by telephone. Mr Withey told Mr McAvoy
that he was getting the minute signed;
- Mr McAvoy was not aware of the accounting arrangements;
- The Board were fully informed about the terms of Mr Venables’ contract,
and the decision to employ him was a reasonable one;
- There were adequate financial controls in place.
- The various allegations are to some extent intertwined, and cover much
the same chronological span. Although placed first in the list, the allegation
that Mr McAvoy took unnecessary risks with creditors’ money can really only
be considered after the remaining allegations. But before considering the
allegations individually, it is necessary to tell the story. The task of
telling the story was not made easier by the almost random arrangement of
documents scattered through many files, and the lack of a core bundle.
Witnesses
- Before embarking on a consideration of the facts, I must say something
about the witnesses. However, I deal with Mr McAvoy’s evidence at the end
of this judgment.
- Mr Morley.
Mr Peter Morley CBE became a director of CPFC in 1995 and remained a director
throughout the relevant period. He was Group Personnel
Director of Tesco plc and has particular expertise in employment matters.
He has some formal training in the reading of accounts, and clearly much
experience of doing so. He is clearly an experienced businessman. He took
notes of meetings that he attended and some of these were produced in evidence.
He was, to my mind, a careful witness and he was doing his best to give a
truthful version of events. He willingly accepted that some of his evidence
was reconstruction of what must have happened, but he was careful to differentiate
between what he remembered and what he thought, with hindsight, must have
happened. Mr Morley accepted that he had not asked the right questions; had
taken Mr Goldberg’s assurances at face value, and had allowed his heart to
rule his head in a number of decisions. As he put it: "my enthusiasm
as a fan exceeded my capacity as a businessman to ask the right questions." He
was quite clear that the board believed in Mr Goldberg’s grand vision for
the future. However, Mr Morley’s general attitude towards CPFC was that since
Mr Goldberg was by far the majority owner of the share capital, "he
would have had, effectively, the right to do whatever he wanted at the time".
So embedded was this view that Mr Morley found difficulty in seeing how there
could be a conflict of interest between CPFC and its majority shareholder.
- Mr Grimes.
Mr Lawrence Grimes was also a director of CPFC throughout the relevant
period.
His business career is in the oil industry. He has no
formal training in the reading of accounts, and is reliant on others for
financial advice. Like Mr Morley, he said of Mr Goldberg: "it was pretty
clear that after a short period of time that, as the owner, he was going
to do what he wanted to do anyway." However, I do not think that Mr
Grimes was as sanguine about that as Mr Morley. But like Mr Morley he found
it difficult to see what conflict of interest there might be between CPFC
and Mr Goldberg.
- Mr Barnes. Mr Paul Barnes was a director of CPFC from 26 June 1998
to 2 February 1999. He is a qualified accountant. His role was as the finance
director both for CPFC and the MGI group. He resigned from MGI and his executive
duties at CPFC in December 1998, although he remained a director of CPFC
until the following February. He was in my view minimising the role that
he played in the management of both companies, and seemed unwilling to accept
the responsibilities of a finance director. Like Mr Morley and Mr Grimes,
he found it difficult to see that there might be a conflict of interest between
Mr Goldberg and CPFC.
- Mr Alexander. Mr Phil Alexander was the managing director of CPFC
from 4 June 1998 to mid-October 1998. Thereafter he was the operations director.
He claimed to have very little recollection of any of the main events in
the story. He also claimed to have paid very little attention to the financial
affairs of CPFC despite being its managing director for several months. On
some points (for example whether he was authorised to sign cheques) his evidence
was clearly incorrect. I approach his evidence with caution. I did, however,
form the strong impression that he accepted instructions from Mr Goldberg
uncritically and unquestioningly. I do not believe that he would have stood
up to Mr Goldberg or questioned his decisions.
- Mr Hume-Kendall. Mr Hume-Kendall has a business career in the shipping
industry. He was at pains to emphasise the concerns he had about CPFC’s finances
during the autumn of 1998 and at the same time to downplay his role in the
management of its affairs. In my judgment he exaggerated on both counts.
I approach his evidence with caution.
- Mr Cole. Mr Jonathan Cole is also a chartered accountant. He was
a director of Tramp Oil. He joined the board of CPFC on 15 January 1999,
after Mr McAvoy’s departure. I found him a careful and reliable witness.
- Mrs Keeling. Mrs Jan Keeling was a book-keeper employed by MGI between
October 1998 and March 1999. She was a careful and reliable witness.
Mr Goldberg and Mr McAvoy
- Mr Goldberg
and Mr McAvoy met in 1995. Mr Goldberg’s career began in the recruitment
business, and
he was a director and substantial shareholder in
a listed public company. He was and was perceived as being a wealthy man.
Although Mr Goldberg did not himself give evidence, I heard a lot of evidence
about him. I was told that he had been a lifelong supporter of Crystal Palace.
Mr Morley, who described his own passion for football as "bordering
on the fanatical", said that Mr Goldberg’s passion was even stronger
than his own. He was a man of great drive and vision and an excellent salesman.
He was a man who could inspire belief in his vision. He had boundless self-confidence
and a belief that he could solve problems. He had great energy and was always
on the go. Mr Barnes described him as having "his cellphone strapped
permanently to his ear". One result of Mr Goldberg’s self-confidence
was that he did not always take advice. As Mr Barnes put it:
"Mr
Goldberg wanted his own way all the time, and whilst he sought advice he
did not actually take it."
- His talents
as a salesman meant that he had a ready answer for any difficulty put to
him by other
board members, and plausible excuses for failure to adhere
to previous decisions. Mr Morley described him as "an extremely difficult
person to handle".
- Mr McAvoy is
a chartered accountant with a background in local government, the computer
industry,
financial management and consultancy. Mr McAvoy provided
consultancy services to Mr Goldberg and various of his companies. His consultancy
fees, at the rate of £20,000 per month plus VAT, were paid to Newcourt Leisure
Ltd of which he was a director. In August 1997, he joined the Board of MG
Investments Ltd ("MGI"). MGI was a holding company, owned by Mr
Goldberg, for a group of companies engaged in various business ventures.
It ceased trading in January 1999 and has subsequently gone into creditors’
voluntary liquidation.
- In response to a questionnaire in February 2001 Mr Goldberg said that:
"Jim
McAvoy was originally employed to manage my personal finances and became
Chief Executive of the group of companies responsible
for providing direction, business analysis, the management of funding each
company, provision of up-to-date management accounting for each company and
the group together with business strategy, forecasting and planning."
- Mr McAvoy ceased to be an effective director of CPFC in January 1999. On
2 March 1999 he wrote a long letter to the board in which he set out his
view of how and why things had gone wrong. I shall refer to this letter from
time to time. His resignation was formally accepted by the board at their
meeting on 3 March 1999. Between Mr McAvoy’s appointment as a director of
CPFC and his leaving in mid-January 1999 the full board met four times (on
4 June, 26 June, 29 July and 17 November). There appear to have been further
board meetings for more routine business on 9 July and 2 October. A committee
of the board met on 4 August. A meeting was recorded as having taken place
on 28 October, but whether there was in fact a meeting (in any sense of the
word) is disputed.
The corporate structure and Mr Goldberg’s assets
- In order to
understand the financial position, it is necessary to say something about
the corporate
structure of Mr Goldberg’s various business ventures
and his assets. MGI was Mr Goldberg’s principal company. Its subsidiaries
included Sports Management Corporation Group Ltd ("SMCG"); Sports
Management Corporation Ltd and Synovate Ltd. Mr Goldberg was a director of
MGI from shortly after its incorporation until it went into liquidation.
Mr McAvoy was a director from 14 October 1996 until 15 January 1999. Land
Developments Corporation Ltd ("LDC") was a trading company engaged
in property development. It began trading in January 1996 and went into creditors’
voluntary liquidation in March 1999. Mr Goldberg was a director throughout.
LDC had had a contract to acquire a property called Holwood House, but it
later assigned the benefit of the contract to Mr Goldberg personally. Holwood
House was thought to be worth about £5 million.
- Allowclear Ltd was incorporated in April 1998 for the purpose of acquiring
the majority shareholding in CPFC. Mr Goldberg and Mr McAvoy were appointed
as directors shortly after the company’s incorporation. CPFC had other shareholders
who between them held the remaining 15 per cent of CPFC’s shares.
- None of these companies were subsidiaries of any of the others of them.
They did not form a group of companies, although MGI was the parent of its
own group.
- CPFC was incorporated in 1984. Its articles of association are based on
the 1985 version of Table A. The management of the company is the responsibility
of the board. Article 29 says that a resolution signed by all the directors
entitled to receive notice of a meeting is as effective as a resolution passed
at a duly convened meeting. Article 30 deems a meeting of directors to be
held when a director is or directors are in communication by telephone or
television with another director or directors and all those directors agree
to treat the meeting as so held.
CPFC before Mr Goldberg
- Before Mr Goldberg acquired control of CPFC 85 per cent of its shares were
owned by Altonwood Ltd, a company in which Mr Ron Noades had a controlling
interest. On 1 August 1997 Mr Goldberg became a director of CPFC. At the
time his business experience related mainly to the recruitment of staff for
the information technology industry. He had a substantial shareholding in
a successful listed company, MSB International plc.
- Mr Noades was an autocrat. Mr Morley said that he ran CPFC as his private
fiefdom. The board met infrequently; and then only to ratify actions that
Mr Noades had already taken in his capacity as executive chairman. Mr Morley
commented that this was not unusual in a football club. Indeed he said that
football clubs are usually run as private fiefdoms. Mr Noades was, however,
an astute businessman. He had particular skills in buying and selling players.
He also made an exceptionally good bargain over the sale of his shareholding
in CPFC. As part of the arrangements for the takeover, Mr Noades procured
the sale of CPFC’s interest in Streete Court (the club’s training ground)
to Altonwood, with a simultaneous leaseback to CPFC. The price at which Streete
Court was to be sold was supported by a professional valuation. The proposal
was put before the company in general meeting and approved. However, following
the takeover, some of the board members began to think that the sale to Altonwood
had been at an undervalue; and that CPFC might have a claim for substantial
compensation.
- The balance sheet.
The last audited accounts for CPFC covered the period to 30 June 1997.
They were signed off by the directors on 31 December
1997. Neither the Secretary of State nor Mr McAvoy questioned the accuracy
of the audited accounts. The balance sheet showed total assets less current
liabilities as being £5.1 million and net assets as being £2.55 million.
These figures take account of the trading loss for that year of some £665,000.
At the time, the value of players was not shown as an asset in the balance
sheet. Rather, purchases and sales of players were shown in the profit and
loss account as and when they took place. Due to a change in accounting standards,
that has now changed. Plainly the value of a player is difficult to assess,
and a player’s value may be affected by matters such as injury. Note 26 to
the accounts said that the cost of the then current playing squad was £15.3
million. Note 28 said that since the balance sheet date new players had been
acquired at a cost of £9.9 million, and that existing players had been sold
for a total of £2.4 million. Figures as high as £28 million have been given
for the value of the squad as a whole. In the light of subsequent events
this last figure may have been over-optimistic, but I consider that it was
not unreasonable for Mr McAvoy to assume that the playing squad had substantial
value. Mr Quick, the Official Receiver, suggested that whatever the value
of the players was, it was inappropriate to capitalise the value of all of
them in the balance sheet. The reason for this was that if all the players
were sold, there would be no team left to play. I do not agree. In estimating
the value of a company’s assets it is commonplace to value them all, even
if the company would cease to carry on business if all its assets were sold.
The only difference between the value of a player and the value of any other
asset is that if a football club is wound up, the players’ registrations
revert to the Football League, so that the value of a player cannot be realised
in a liquidation (as opposed to a sale of a going concern). But that is no
reason not to include the value of a player in the balance sheet. It is now
expressly permitted by the relevant accounting standards. In addition, as
Mr Downes points out, the Companies Act 1985 itself requires a company’s
statutory accounts to be prepared on a going concern basis.
- The value of
CPFC’s interest in its stadium at Selhurst Park as at 30 June 1997 was
shown in
the accounts as £7.8 million. However, the directors’ report
said that the directors had obtained a valuation from Edward Symmons & Partners
which valued the leasehold interest at not less than £21,000,000. The basis
of valuation was not stated in the accounts. Mr Morley said of that valuation
that he saw no reason to query it at the time. Mr Hume-Kendall also said
that Edward Symmons & Partners were a reputable firm, so no one had any
reason not to take the valuation at face value. The value of the interest
as at 30 June 1998 was shown in the draft balance sheet (prepared in the
autumn of 1998) as £9.9 million. However, in May 1998 Edward Symmons & Partners
had valued the leasehold interest at £18 million. This valuation was on a "depreciated
replacement basis", which is, in effect, the cost of buying and building
a new stadium, rather than the open market value of the existing one. In
my judgment it would not have been unreasonable for Mr McAvoy to have considered
that there was a hidden reserve of value in the stadium which was not reflected
in the accounts.
The signing of Neil Emblen
- In August 1997,
shortly after he became a director of CPFC, Mr Goldberg was interested
in signing
Mr Neil Emblen, who played for Wolverhampton Wanderers.
Wolves wanted £1,800,000 as a transfer fee, but CPFC was unwilling or unable
to pay that. So Mr Goldberg agreed to contribute £500,000 personally towards
the transfer fee. On 12 August 1997 he entered into a written agreement with
CPFC under which he agreed to contribute £500,000 before 30 September 1997.
The agreement stated:
"The consideration for the £500,000 will be that if
Crystal Palace Football Club at any time in the future sell the player then
Mark Goldberg will receive 25% of the eventual sale price".
- The agreement,
read as a whole, certainly does not suggest that the £500,000
was a loan, which would have entitled Mr Goldberg to the return of his £500,000
in addition to 25 per cent of the eventual sale price. I reject Mr McAvoy’s
initial suggestion to that effect. On 14 October 1997 MGI transferred £500,000
to CPFC. Mr McAvoy suggested that this payment was a payment by MGI on account
of wages whose liability was that of CPFC and that the agreed payment for
Mr Emblen came out of Mr Goldberg’s personal account. However, this was only
an assumption on his part, and there was no evidence to back it. I bear in
mind that there has not been disclosure of a full set of CPFC’s bank accounts,
which blunts the lack of documentary evidence. But even so, I reject the
suggestion that there were two payments, and find that the £500,000 transferred
by MGI to CPFC was Mr Goldberg’s promised contribution to the purchase cost
of Mr Emblen.
- By the following
spring, CPFC wanted to sell Mr Emblen. Wolves were willing to buy him back
again,
but at the lower price of £600,000. Eventually, on
25 March 1998, a deal was structured under which the nominal price for Mr
Emblen’s transfer was £1,200,000 plus VAT payable in three stages. The first
stage was a payment of £600,000 (plus the VAT) payable on registration of
the player with the Football League. At this stage, no money was to change
hands, as the payment was to be satisfied or "contra-ed" by bringing
forward £810,000 of the remaining £900,000 still owed by CPFC to Wolves under
the terms of the original transfer. £200,000 was to be paid on or before
25 April 1998 and the balance of £400,000 was to be paid on or before 31
August 1998.
- However, in
order to fund the latter two payments, Mr Goldberg, through MGI, was to
pay £200,000 to Wolves on or before 25 April 1998 and £400,000
on or before 31 August 1998. The agreement between MGI and Wolves was signed
on behalf of MGI by Mr McAvoy. The payments of £200,000 were made in April
1998 by Wolves to CPFC and by Mr Goldberg to Wolves. The final payments were
not made, as I shall describe later.
The signing of Michele Padovano
- Mr Michele Padovano played for Juventus until November 1997, when he was
transferred to Crystal Palace. He was one of two Italian players, the other
being Mr Attilio Lombardo. Mr Padovano entered into a written contract with
CPFC on 15 November 1997. The financial provisions of the agreement were
contained in Schedule D. At the date of this contract, Mr Goldberg was already
a director of CPFC, although Mr Noades, through his company Altonwood, was
the majority shareholder. Mr McAvoy was not yet a director of CPFC.
- Three days before Mr Padovano signed with Crystal Palace, he entered into
an agreement with Mr Goldberg and SMCG. The agreement with SMCG and Mr Goldberg
supplemented the financial terms agreed between Mr Padovano and CPFC. The
differences are easiest to understand if they are tabulated, as follows: