Outer House orders nine-year disqualification of insolvent waste disposal company director

About this case:

• Citation:
  [2026] CSOH 77
• Judgment:
  External link
• Court:
  Court of Session Outer House
• Judge:
  Lord Lake

A healthcare waste disposal company founded by the respondent was wound up upon its insolvency in 2019. Seeking to disqualify the respondent from acting as a company director, the Secretary of State for Business and Trade raised a petition before the Outer House of the Court of Session.

The petition was heard by Lord Lake, with Neale Tosh appearing for the petitioner and the respondent appearing in person.

Transactions made HES’s business unviable

The respondent, Garry Pettigrew, served as a director of Healthcare Environmental Services Ltd (HES) since its formation in 1997. The company provided waste collection and disposal services to healthcare providers and grew to dispose of all regulated medical waste in Scotland and 30 per cent of the same from hospitals in England.

With the collection of healthcare waste being a regulated activity throughout the UK, HES operated under permits, granted by the relevant governmental agencies and subject to various conditions. In particular, the permit for HES’s waste transfer station in Normanton, North Yorkshire required that no more than 70 tonnes of waste be stored there and for no longer than seven days. Inspections finding the site to be over 100 tonnes above capacity, however, led the Environment Agency to begin enforcement action against HES, resulting in the suspension of its permit in October 2018.

The following three months saw various transactions resulting in the transfer of shares in, and assets of, HES to companies solely held by Mr Pettigrew and his wife. Such alienations, according to the unchallenged evidence of one of HES’s liquidators, prevented HES from meeting its contractual obligations and rendered the operation of some of its sites “unviable”.

In April 2019, HES – whose liabilities now exceeded its assets by over £15.4 million – was subject to a winding up order. The secretary of state for business and trade, the petitioner, in turn raised proceedings seeking a disqualification order against Mr Pettigrew. Under section 6(1) of the Company Directors Disqualification Act 1986, the court must order disqualification where it is proved that the person was director of a company at the time it became insolvent and that his conduct makes him “unfit to be concerned in the management of a company”.

The petitioner argued that, in putting assets beyond the reach of HES’s creditors at a time when he knew the company was facing the loss of numerous contracts (and, in all probability, insolvency), Mr Pettigrew had breached his fiduciary duty as a director to act in the interests of the company’s creditors as a whole, by reference to the UK Supreme Court’s 2022 decision in BTI 2014 LLC v Sequana SA.

Egregious breach of director’s duties

Examining the nature of the duty noted in Sequana, Lord Lake began by observing: “In Sequana Lord Reed examined the rationale for the rule that had begun to evolve in the decision of the Court of Appeal in West Mercia Safetywear Limited v Dodd (1988) to the effect that in some situations when performing their duties directors must have regard to the interests of the creditors … As the financial position of the company worsens the creditors have an interest in the assets of the company to which they may require to have recourse in an insolvent liquidation or administration. In that situation the directors should manage the company affairs in a way that takes that interest into account and avoids prejudicing it. The extent to which the interests of creditors must be taken into account varies according to the company’s financial position.”

He continued: “The duty to have regard to the interests of creditors arises ‘when the company is insolvent or bordering on insolvency, or where an insolvent liquidation or administration is probable, or where the transaction in question would place the company in one of those situations’ [citing Sequana, para 12] … Three matters are apparent from the passage quoted. The first is that the use of the term ‘bordering on insolvency’ is broader than bordering on liquidation. Lord Reed said that ‘insolvency’ should be understood as a reference to meeting the tests in section 123(1)(e) and (2) of the [Insolvency Act 1986]. The second is that this expression contemplates that the company does not have to have reached the stage of insolvency for the duty to apply. The third is that the effect of the transaction in question should be considered in deciding whether the test is met.”

In respect of the transactions carried out in late 2018, Lord Lake reasoned that: “[T]he motive for entering into the transactions was to ensure that assets were put beyond the reach of the company’s creditors, a liquidator or an administrator. Not only were the legitimate interests of the creditors not protected, the whole purpose of the transactions was to put creditors in a worse position. It is for that reason that when examining Sequana I have considered only the point at which it becomes necessary to consider the interests of creditors and not the later point at which the creditors’ interests are paramount or supplant the interests of the shareholders. If there was any duty to consider the interests of the creditors, it was breached.”

He concluded: “Mr Pettigrew acted in breach of his fiduciary duties as a director in causing the company to enter into the transactions. At the time they were entered into, and having regard to the effect of the transactions themselves, the company was at least bordering on insolvency … It was Mr Pettigrew’s concern that this was going to happen even in the absence of the transactions which motivated him to carry them out. This means that this is not merely a situation in which he failed to consider the interests of the creditors, he acted with the intention of causing prejudice to those interests he was required to consider and, having regard to their practical consequences, put the company on a path which mean [sic] that insolvent liquidation or administration was probable. The circumstances were such that Mr Pettigrew was obliged to consider the interests of the creditors and acting instead so as to prejudice those interests is an egregious breach of the duties of a director.”

Finding accordingly that Mr Pettigrew was unfit to be concerned in the management of a company, Lord Lake added: “In this situation I am required to impose disqualification. The issue is for what period it should be imposed. Having regard to the brackets for potential periods discussed in Re Sevenoaks Stationers (Retail) Limited (1991), I consider that the circumstances of this case put it in the middle bracket of five to ten years – cases which are serious which do not fall within the top bracket which might related to cases where there has been fraud or it is a repeat disqualification.”

The petition was accordingly allowed, with the respondent subject to a disqualification order for a period of nine years.