Director’s Disqualification – An Unusual Case

The Court of Session has recently published a decision by Lord Braid (HM Secretary of State for Business and Trade for a disqualification order in respect of Muhammad Azam [2024] CSOH 53) to disqualify a director for a period of six years. This particular case is unusual as, rather than the order resulting from dishonesty or the manner in which the director dealt with creditors, shareholders or an Insolvency Practitioner, the order arises from the company’s employment of illegal workers.

The facts of the case are relatively simple; Muhammad Azam was the sole director of MA Fast Foods Ltd, a takeaway business operating in Edinburgh. In the course of this, he employed two individuals who did not have the right to work in the UK. Both individuals were paid substantially less than the national minimum wage. This was discovered by immigration officials and a fine of £20,000 was imposed upon the company. The fine remains unpaid. Against this background, the Secretary of State raised a petition seeking a disqualification order.

In granting the order, Lord Braid relied on the broad wording of Schedule 1 of the Company Directors Disqualification Act 1986, which sets out the factors to be considered by the court when presented with a petition for disqualification. In particular, paragraph 1 requires the court to consider the extent to which the director was responsible for the causes of any material contravention by a company of “any applicable legislative or other requirement”. Having concluded that Mr Azam was directly responsible for the employment of the workers in question, it is clear he was the cause of the company’s breaching legislative requirements applying to the right to work. In addition, this approach was supported by a body of English case law on this point. The breach “demonstrates such a lack of probity on the part of the respondent as to render him unfit to be involved in the management of a company.”

The period of disqualification was six years, just tipping over into the middle of the three brackets set out in Re Sevenoaks Stationers (Retail) Ltd. The main factor that led to Lord Braid imposing a more serious length of disqualification was that Mr Azam had benefited from the illegal conduct; in paying his workers less than the minimum wage, he enhanced the company’s profits. At the same time, the company is now subject to a fine which it cannot pay and which is likely to lead to its dissolution. As such, Mr Azam has escaped individual consequences through the cloak of limited liability. It is this last point which is the key; the illegal conduct itself might have been committed by a sole trader or unincorporated partnership, and had the conduct itself been the only thing at issue Lord Braid “might have given the respondent the benefit of the doubt and placed the case in the bottom bracket”. However, the fact that Mr Azam had used the cloak of corporate legal personality to otherwise escape consequences led him to impose a longer, six-year disqualification.

This case shows that a director’s conduct of the normal course of their business can be a relevant consideration in a disqualification action. It also serves as a demonstration of the usefulness of disqualification orders as a way of expressing the court’s displeasure at a director’s conduct, even where they might otherwise avoid direct liability.