Those who manage companies in a reckless or incompetent manner can expect to be banned from holding directorships in future – but should they also be ordered personally to compensate customers who are left out of pocket? The High Court addressed that issue in a case concerning a failed travel operator.
The company, which provided African safari tours, was engaged in activities that required it to hold an Air Travel Organisers' Licence (ATOL). Despite having received a number of reminders from the Civil Aviation Authority, its ATOL was allowed to expire. It nevertheless illegally took new bookings from four customers in respect of holidays that should have been ATOL protected.
Booking forms were used which included the ATOL logo and the company's expired ATOL number, suggesting that it was appropriately licensed. A deposit paid by a fifth customer was also not refunded before the company entered creditors' voluntary liquidation. The customers received neither their money back nor the holidays they had paid for.
After the Secretary of State for Business and Trade launched proceedings under the Company Directors Disqualification Act 1986, the company's sole director and 80 per cent shareholder was disqualified from holding any company directorship for seven years. In only the second case of its kind, the Secretary of State also sought an order under Section 115A of the Act requiring him to compensate the customers for their losses.
In his defence, the director said that the company had traded well until its fortunes were hit by the Ebola pandemic and the Brexit referendum. He had hoped that difficulties in renewing its ATOL would be swiftly resolved. The company's collapse had left him in straitened financial circumstances and was a disaster for him on a personal level. He had not acted dishonestly and contended that orders under Section 115A should only be made in cases of fraud.
Upholding the Secretary of State's application, however, the Court found that he had taken a risk with customers' money and should face the full consequences of his actions. It was not a case of relatively minor negligence. The company had been repeatedly warned to cease taking licensable bookings and his incompetent and reckless conduct was both wilful and defiant. He was ordered to pay £81,405 in compensation, plus interest.
