Glasgow City Council v. Craig & Anor [2008] ScotCS CSOH

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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Glasgow City Council v. Craig & Anor [2008] ScotCS CSOH_171 (11 December 2008) URL: http://www.bailii.org/scot/cases/ScotCS/2008/CSOH_171.html Cite as: 2009 GWD 5-75, [2009] 1 BCLC 742, [2009] RA 61, [2008] ScotCS CSOH_171, 2009 SLT 212, [2008] CSOH 171

OUTER HOUSE, COURT OF SESSION

[2008] CSOH 171

CA43/08

OPINION OF LORD GLENNIE

in the cause

GLASGOW CITY COUNCIL

Pursuer;

against

GORDON CRAIG

First Defender:

and

ARISTIDE MOCCIA

Second Defender:

________________

Pursuers: Dalgleish, Edinburgh City Council

First Defender: McShane, Brodies LLP

Second Defender: In person

11 December 2008

[1] This case raises an interesting question as to the extent of the liability of a director of a company under s.217 of the Insolvency Act 1986 ("the 1986 Act") where a part of the business of the company, but only a part, is conducted using a "prohibited name" as defined in s.216(2) of the 1986 Act. The question raised here was considered in some detail, albeit obiter, by Arden LJ in ESS Production Ltd. v Sully 2005 2 BCLC 547 but, as far as I am aware, has not arisen for decision until now.

[2] The defenders were formerly directors of Arigo Limited. Arigo Limited was incorporated on 17 July 1996 and changed its name to Arigo Limited in August of that year. The defenders were appointed directors in July 1996 and continued as such until the company was placed into insolvent liquidation on 18 January 2005. Because of that insolvent liquidation, Arigo Limited is referred to in the relevant sections of the 1986 Act as "the liquidating company".

[3] Until just before its liquidation, Arigo Limited was the lessee of premises at 67 Kilmarnock Road, Glasgow in terms of a lease dated 12 November and 9 December 1996. It operated from those premises as an Italian restaurant, under the name "Arigo".

[4] The defenders were also directors of Degreefresh Limited ("Degreefresh"). Degreefresh was incorporated on 15 August 2002 and the defenders were appointed directors shortly thereafter. They remained directors until Degreefresh was placed into liquidation on 12 September 2007.

[5] In or about February 2003 Degreefresh opened a wine bar, under the name "Bar Vino", at 69 Kilmarnock Road, Glasgow, of which premises it was the sub-lessee. Bar Vino was next door to Arigo. Degreefresh also ran, and still run, a restaurant at 85 Renfield Street, Glasgow, now called "Mangiare".

[6] In December 2004 Degreefresh took an assignment from Arigo Limited of the lease of 67 Kilmarnock Road. From that time on, or possibly from November 2004 (the precise date does not matter), until it went into liquidation, it operated both the restaurant (under the name "Arigo") and the wine bar (Bar Vino) from adjoining premises. In January 2006 the wine bar was converted into a Spanish style tapas bar under the name of "Olé".

[7] The pursuers are the rating authority for the City of Glasgow. Their claim in this action is for the balance of non-domestic rates due in respect of both 67 and 69 Kilmarnock Road for the years 2004/5, 2005/6 and 2006/7. The sum claimed is £64,036.22 plus interest. There is no dispute as to the sums attributable to both properties, though parties are not agreed on the correct split (if that is relevant) between the two. By letter dated 10 January 2005 to the pursuers, Degreefresh pointed out that Arigo Limited was in liquidation and acknowledged that, with effect from 1 November 2004, it was responsible for the rates for both premises. The rates were originally claimed against Degreefresh and summary warrants were obtained addressed to Degreefresh at 67 Kilmarnock Road. With Degreefresh now in liquidation, and part of the rates demanded being unpaid, the pursuers in this action seek to hold the defenders personally liable for the unpaid balance. They do so in reliance on ss.216 and 217 of the 1986 Act.

[8] It is necessary to set out those sections in full. S.216, which imposes criminal sanction for use of a prohibited name, provides as follows:

"216. (1) This section applies to a person where a company ("the liquidating company ") has gone into insolvent liquidation on or after the appointed day and he was a director or shadow director of the company at any time in the period of 12 months ending with the day before it went into liquidation.

(2) For the purposes of this section, a name is a prohibited name in relation to such a person if:

(a) it is a name by which the liquidating company was known at any time in that period of 12 months, or

(b) it is a name which is so similar to a name falling within paragraph (a) as to suggest an association with that company.

(3) Except with leave of the court or in such circumstances as may be prescribed, a person to whom this section applies shall not at any time in the period of 5 years beginning with the day on which the liquidating company went into liquidation:

(a) be a director of any other company that is known by a prohibited name, or

(b) in any way, whether directly or indirectly, be concerned or take part in the promotion, formation or management of any such company, or

(c) in any way, whether directly or indirectly, be concerned or take part in the carrying on of a business carried on (otherwise than by a company) under a prohibited name.

(4) If a person acts in contravention of this section, be is liable to imprisonment or a line, or both.

(5) In subsection (3) "the court" means any court having jurisdiction to wind up companies; and on an application for leave under that subsection, the Secretary of State or the official receiver may appear and call the attention of the court to any matters which seem to him to be relevant.

(6) References in this section, in relation to any time, to a name by which a company is known are to the name of the company at that time or to any name under which the company carries on business at that time.

(7) For the purposes of this section a company goes into insolvent liquidation if it goes into liquidation at a time when its assets are insufficient for the payment of its debts and other liabilities and the expenses of the winding up.

(8) In this section "company" includes a company which may be wound up under Part V of this Act.

S.217 imposes civil liability for use of a prohibited name when there has been a contravention of s.216. It is in the following terms:

217. (1) A person is personally responsible for all the relevant debts of a company if at any time:

(a) in contravention of section 216, he is involved in the management of the company, or

(b) as a person who is involved in the management of the company, he acts or is willing to act on instructions given (without the leave of the court) by a person whom he knows at that time to be in contravention in relation to the company.

(2) Where a person is personally responsible under this section for the relevant debts of a company, he is jointly and severally liable in respect of those debts with the company and any other person who, whether under this section or otherwise, is so liable.

(3) For the purposes of this section the relevant debts of a company are:

(a) in relation to a person who is personally responsible under paragraph (a) of subsection (1), such debts and other liabilities of the company as are incurred at a time when that person was involved in the management of the company, and

(b) in relation to a person who is personally responsible under paragraph (b) of that subsection, such debts and other liabilities of the company as are incurred at a time when that person was acting or was willing to act on instructions given as mentioned in that paragraph.

(4) For the purposes of this section, a person is involved in the management of a company if he is a director of the company or if he is concerned, whether directly or indirectly, or takes part, in the management of the company.

(5) For the purposes of this section a person who, as a person involved in the management of a company, has at any time acted on instructions given (without the leave of the court) by a person whom he knew at that time to be in contravention in relation to the company of section 216 is presumed, unless the contrary is shown, to have been willing at any time thereafter to act on any instructions given by that person.

(6) In this section 'company' includes a company which may be wound up under Part V."

It can be seen that s.216 imposes a restriction on those who were, until its liquidation, directors of the liquidating company. The restriction is that, for a period of 5 years after the liquidating company has gone into insolvent liquidation, they are not allowed, except with the leave of the court or in the three excepted cases in Rules 4.80 to 4.82 of the Insolvency (Scotland) Rules 1986, to be directors of or otherwise concerned in the management of a company which has or carries on business under a prohibited name. A prohibited name is a name by which the liquidating company was known or which is so similar as to suggest an association with it. S.216 renders those who contravene that restriction subject to criminal sanctions. S.217, on the other hand, is not concerned with criminal sanctions. It makes such persons personally liable for the debts of the company which is known by the prohibited name.

[9] The pursuers' case is straightforward. They say that, in relation to the defenders, who had been at the material time directors of Arigo Limited, the name "Arigo" is a prohibited name. Accordingly, for a period of 5 years after Arigo Limited went into insolvent liquidation the defenders are not permitted to be directors of any other company that is known by the name "Arigo". From November or December 2004 until it went into liquidation in 2007, the defenders were directors of Degreefresh which was known by that prohibited name, in that it carried on the restaurant business at 67 Kilmarnock Road under the name "Arigo". Accordingly, the defenders were throughout that period in contravention of s.216 and are therefore personally liable for the relevant debts of Degreefresh under s.217(1)(a). The relevant debts of Degreefresh in relation to persons personally liable under s.217(1)(a) are such debts and other liabilities of the company as are incurred at a time when that person was involved in the management of the company. That means that the defenders are personally liable for all of the debts and other liabilities of Degreefresh incurred whilst they were directors of Degreefresh, including the sums sued for.

[10] The defenders do not dispute that, in relation to them, the name "Arigo" is a prohibited name; and that during the period from January 2005 to September 2007, in contravention of s.216, they were directors of a company (Degreefresh) which carried on the restaurant business at 67 Kilmarnock Road under the name "Arigo". However, they argue that they have no liability for the sums sued for or, indeed, for any of the debts or liabilities of Degreefresh. In the alternative, they contend that if they have any liability for the debts of Degreefresh, it should only be for debts which it incurred when using the name "Arigo". In practice, if this latter submission were accepted, it would mean that they should only be liable for the rates attributable to 67 Kilmarnock Road, in which they traded as "Arigo", and not for those attributable to 69.

[11] The defenders' first submission, that they have no liability at all for the sums sued for, was based in part on a pleading point and in part on evidence from the first defender, which was not challenged, that the income from the Arigo restaurant business accounted for less than 50% of the total income of Degreefresh. The pleading point was that the pursuers had periled their case on an averment that the defenders had used the name "Arigo" as the trading name of Degreefresh, rather than as one of its trading names. I reject this argument. The relevant facts (as opposed to the proper interpretation to be given to them) were not seriously in dispute, and evidence was led by the first defender (without objection) to the effect that Arigo was only part of the business of Degreefresh. In the preliminary and procedural hearings before the proof, both parties approached the matter on the basis that the main issue was whether the defenders' liability should be restricted to a liability for the rates attributable to 67 Kilmarnock Road, on the basis that it was only in respect of those premises that Degreefresh traded under the name "Arigo". In those circumstances there is no reason why the case based on "Arigo" being a trading name of Degreefresh, rather than the trading name, should be excluded. As to the 50% point, it was submitted, under reference to the last sentence of para [75] of the judgment of Arden LJ in ESS Production v Sully, that if the use of the prohibited name accounted for only a minority of the company's business, then no criminal or civil liability arose under the Act. I reject this submission too. I shall refer to the judgment in ESS Production v Sully in more detail later in this Opinion, but suffice it to say, at this stage, that the submission is based upon a misreading of that sentence and a misunderstanding of the point there being made. There is no warrant in the Act for such a construction. It was held in ESS Production v Sully that s.216(6) of the Act refers to any name by which the company carried on business; it does not require the company to have carried on the whole of its business by that name. Accordingly, there is a contravention of s.216 by the defenders when the company carries on even a part of its business using the name "Arigo". Nothing in the Act authorizes the court to apply a de minimis approach. Even if it did, it could not sensibly be contended that the use of the prohibited name was de minimis simply because it accounted for less than 50% of the company's business.

[12] The defenders' alternative submission, that if they are liable at all they are liable only for the rates levied on 67 Kilmarnock Road, since it was only from there that Degreefresh carried on business using the prohibited name, requires more attention. But before considering the legal proposition underpinning that submission, I should first set out my findings of fact as to how the business of Degreefresh was conducted at the relevant time. The first defender lodged an Affidavit and gave oral evidence. He was subjected to cross-examination. His credibility was not put in issue and I considered that his evidence was generally reliable, particularly as it was given largely by reference to documents lodged in process.

[13] The lease of 67 Kilmarnock Road was originally held in the name of Arigo Limited, whereas that for 69 was in the name of Degreefresh. After the lease of 67 was transferred to Degreefresh on 1 November 2004, the two properties continued to be billed separately for utilities such as water. The Scottish Water invoice for 67 was directed to "Degree Fresh Ltd T/A Arigo", whereas that for 69 was directed simply to "Degree Fresh". Rates had previously been levied on the two properties separately. After the lease of 67 was transferred, Degreefresh accepted responsibility for the rates for both properties, as they acknowledged in their letter to the pursuers of 10 January 2005 to which I have referred, and thereafter a composite demand was made to them for the rates of both 67 and 69. That was no doubt for administrative convenience, but it does not alter the fact that Degreefresh was separately liable for the rates for the two properties as the occupier or lessee of each.

[14] In terms of carrying on the two businesses, although Arigo Limited and Degreefresh were legally separate entities, this was not reflected in their accounting processes. Until Arigo Limited was put into liquidation, or at least until the lease of 67 Kilmarnock Road was assigned to Degreefresh in November 2004, all income, both from the restaurant and the wine bar, was shown in the accounts of Arigo Limited. After the lease was transferred on 1 November 2004, all income from the restaurant and the wine bar was shown in the accounts of Degreefresh. Those accounts themselves showed no division of income between Arigo restaurant and Bar Vino (and, later, Olé). Both the restaurant and the wine bar had their own telephone numbers, bars, toilets and washroom facilities, though they shared a kitchen and at least some of the waiters and bar staff. They each had their own tills from which bills were issued to customers headed with the name of the particular establishment; and, even though both tills were linked to a central computer, it was possible on the daily printed reconciliation from that central computer to identify what had been consumed or spent in which place and, indirectly, what the profitability of each place was.

[15] Looking at the matter in the round, it seems to me that, despite the informal and somewhat loose accounting practices which pre-existed Arigo's liquidation, and which continued thereafter, the two premises were run and continued to be run throughout as separate businesses. Both when Arigo Limited was a going concern and after its liquidation, the restaurant and the wine bar offered themselves to the public as separate entities. This is important, having regard to the mischief at which ss.216 and 217 were aimed, to which I refer below. The risk of confusion to members of the public arose only in relation to 67. In respect of those premises, the public would probably have considered that the business of Arigo at 67 Kilmarnock Road was being carried on without interruption. But the wine bar or tapas bar at 69 was not held out as part of that business, albeit that the public might have appreciated that there was a connection of sorts. The two premises were painted differently and offered a different type of evening to customers, although people frequenting the wine bar might sometimes move through to the restaurant later for dinner. The premises were originally rated separately though, for convenience, once the lease of 67 was transferred, a single rates demand was sent to Degreefresh for the two properties. They received separate utility bills and, in respect of 67 (but not 69), Degreefresh - "T/A Arigo" - was identified by the name of the business which it had taken over from Arigo Limited. It would be right in my view to regard Degreefresh as simply taking over the Arigo restaurant at 67 and running it alongside its existing wine bar business at 69. Put another way, in carrying on the business at 69 Kilmarnock Road, Degreefresh was not carrying on business under the prohibited name.

[16] It is well recognized that the mischief aimed at by ss.216 and 217 was the eradication of the "phoenix syndrome", the ease with which a person trading through the medium of one or more companies could allow such companies to become insolvent, form a new company using a similar name, and carry on trading much as before, often having bought up the assets of the first company at an undervalue either before its insolvency or from its liquidator afterwards: see Thorne v Silverleaf [1994] BCC 109, per Peter Gibson LJ at 113E-G, Ricketts v Ad Valorem Factors Ltd [2004] 1 BCLC 1, per Mummery LJ at para [15]. In Penrose v Secretary of State for Trade and Industry [1996] 1 WLR 482 at 489, in a passage cited with approval in ESS Production v Sully, Chadwick J (as he then was) said this:

"The purposes for which section 216 was enacted can be gleaned - in part at least - from the excepted cases under the rules. Rule 4.228 permits a director of an insolvent company to act as director of a new company with a prohibited name provided that the business of the insolvent company has been acquired under arrangements made by an insolvency practitioner and notice has been given to the creditors of the insolvent company. That rule identifies, and meets, two elements of mischief: first, the danger that the business of the old insolvent company has been acquired at an undervalue - or is otherwise to be expropriated - to the detriment of its creditors; and, secondly, the danger that creditors of the old company may be misled into the belief that there has been no change in the corporate vehicle. The "phoenix" must be disclosed as such. The third excepted case in rule 4.230 shows that the mischief is not thought to exist in a case where the company having a prohibited name has been established and trading under that name for a period of not less than 12 months before the liquidating company went into liquidation. The former director of the liquidating company can join, or can remain a member of, the board of such a company without restriction. That must be because the mischief is not perceived to exist when the company having a prohibited name is not a "phoenix".

Rules 4.228 and 4.230 of the Insolvency Rules 1986 are in identical terms to Rules 4.80 and 4.82 of the Insolvency (Scotland) Rules 1986. The defenders did not argue that they fell within any of the three excepted cases in those Rules, and therefore they are not directly in issue in this case.

[17] Two points of importance emerge from the cases to which I was referred. The first is that, although it is important to have regard to the mischief at which the sections are aimed, a purposive approach to construction does not necessarily provide the correct answer to their applicability. Thus, in Thorne v Silverleaf, Peter Gibson LJ accepted that while it was "somewhat surprising" that the sections should apply to impose both a civil and a criminal liability on a person in the position on Mr Thorne, since he was not attempting to exploit the goodwill of the company by misleading others, it was clear that in the absence of an application for leave under s.216(3) the court was left with no discretion but to apply such liability: see p. 113E-H. In Ricketts v Ad Valorem Factors Mummery LJ at paras.[17] and [18] indicated that although he appreciated the significance of a purposive interpretation, the legal position was that, if a prohibited name was used, then the case was caught by the restriction in s.216 even if it was not a "phoenix syndrome" case and even though the imposition of criminal sanctions seemed harsh. The second point, however, is that since s.216 imposes criminal liability (and s.217 applies the same definitions to impose a potentially Draconian civil liability) "the court should strive to avoid adopting a construction which penalises someone where the legislator's intention to do so is doubtful, or penalises him in a way which is not made clear": see per Simon Brown LJ in Ricketts v Ad Valorem Factors at para [30]. The same point is made by Arden LJ in ESS Production v Sully at paras [71], [72] and [78] under reference to the "principle of doubtful penalisation".

[18] I turn to the construction of s.216. There is no doubt that the name "Arigo" is a prohibited name within the meaning of s.216(2) in relation to these defenders. Accordingly, they are prohibited in terms of s.216(3)(a) for a period of 5 years from being directors of, or being concerned in the management of, another company known by that name. A company is "known by" that name at any particular time if it carries on business under that name at that time: s.216(6). The defenders were, during the relevant period, directors of Degreefresh and Degreefresh carried on business at 67 Kilmarnock Road under the name "Arigo". That much is admitted. In respect of that activity, therefore, Degreefresh carried on business under a prohibited name; and the defenders were thereby in contravention of s.216(3)(a) and subject to criminal sanctions under s.216(4).

[19] Civil liability is imposed by s.217. Under s.217(1) a person who, at any time, is involved in the management of the company in contravention of s.216 is personally liable for all the relevant debts of the company. The company in this case is Degreefresh. The relevant debts are defined by s.217(3). So far as concerns the present case, where the civil liability is imposed by s.217(1)(a), the relevant debts of the company are "such debts and other liabilities of the company as are incurred at a time when that person was involved in the management of the company".

[20] Does that mean that the defenders, as directors of Degreefresh and in contravention of s.216, are liable for all the debts and liabilities of Degreefresh, however incurred, or only for those incurred by Degreefresh whilst carrying on business under the name "Arigo"? It seems to me that Parliament cannot have intended the liability of the defenders in such a case to extend beyond the debts and other liabilities incurred by Degreefresh while carrying on business under the prohibited name. The situations in which the defenders are subject to criminal liability under s.216 are co-extensive with those which attract civil liability under s.217. This is made clear by s.217(1). Take, therefore, the case of criminal liability under s.216 which attaches "if a person acts in contravention of this section", i.e. by being a director of, or being involved in the management of, a company carrying on business under a prohibited name. Insofar as Degreefresh runs the wine bar (Bar Vino) or tapas bar (Olé) at 69 Kilmarnock Road, the defenders are not doing anything which the legislation is trying to prevent. Can Parliament have intended that innocent activity to be criminalised by reason of the fact that separately Degreefresh is carrying on business next door under the prohibited name ("Arigo")? I think not. A number of examples were mentioned in argument to illustrate the point. They can be illustrated by reference to the position of the defenders, directors of X Ltd and former directors of Arigo Limited, in respect of whom the name "Arigo" is a prohibited name. What if X Ltd, with no other business of its own, buys the restaurant at 67 Kilmarnock Road from the liquidator and uses the name "Arigo": but then, after no more than a month or two, changes the name of the restaurant to a non-prohibited name. Or what if X Ltd has a number of business interests across the country - restaurants, bars, clubs, retail outlets, etc - and then acquires the restaurant from the liquidator; and, without giving notice to creditors or applying to the court, runs it under the prohibited name? Are the defenders in each case, as a result, criminally liable (and subject to imprisonment or a fine) in respect of the whole business of X Ltd over the 5 years since the liquidation of Arigo Limited? It seems to me that the question only has to be asked to be answered in the negative; for the simple reason that the defenders are not acting in contravention of the section by reason of X Ltd carrying on business under a non-prohibited name. This construction becomes inevitable once it is appreciated, as it was in ESS Production v Sully, that the Act is intended to deal with a situation where companies may be known by, or carry on business under, a number of different names, whether concurrently or consecutively, of which some may be prohibited and some not. If there were any doubt, however, it would be resolved in favour of the defenders by the principle of doubtful penalisation to which I have referred.

[21] The same result, in my view, must apply to the question of civil liability under s.217. If one takes the same examples, and asks in each case whether Parliament intended that the defenders should be held personally liable for all the debts and liabilities of X Ltd for a period of 5 years after the date of the liquidation of Arigo Limited, again I would have thought it clear that the answer must be: No. A further example was suggested of a former director of Arigo Ltd who, perhaps four years after Arigo Limited went into liquidation, joined the board of a large hotel and restaurant chain (Y plc). If Y plc purchased the Arigo restaurant sometime during that five year period, and ran it as such as one of its numerous outlets, the former director of Arigo might, almost inadvertently, find himself in contravention of s.216; but is he be held personally liable - and it must be borne in mind that it is a primary liability, not merely secondary - for the whole debts and liabilities of the hotel and restaurant chain which he has joined? Again, the answer must be: No. As a matter of construction of s.217(3), in my opinion relevant debts, in relation to a person who is personally responsible under s.217(1)(a), are "such debts and other liabilities of the company as are incurred [by the company while carrying on business under a prohibited name] at a time when that person was involved in the management of the company." The inserted words pick up on the extended definition of "known by" in s.216(6). They do not, in my opinion, alter the intended scope of s.217(3).

[22] This approach is consistent with the analysis by Arden LJ in ESS Production v Sully. That case raised a different issue, namely whether the defender against whom personal liability was alleged could bring himself within the third excepted case, that being a case where the prohibited name company had been known by the prohibited name for the whole of the 12 month period ("the qualifying period") preceding the liquidation of the liquidating company. It is not necessary to go into the details of the argument. The county court judge held that the prohibited name was not one under which the company had carried on the whole of its business during the qualifying period, and that therefore the third excepted case did not apply. The appeal was allowed. In giving the first judgment in the Court of Appeal, a judgment with which both Chadwick and Auld LJJ agreed, Arden LJ emphasised (at para [61]) the need to interpret ss.216 and 217 and the Rules consistently with each other, so as to create a "coherent and rational scheme". At para [65], in considering the arguments before the court, she set out a number of possibilities. The fourth was that:

"(d) throughout the qualifying period the company's registered name is a non-prohibited name but the company carries on each of the separate parts of its business under a different name. One of those names is a prohibited name."

Having then considered the other (earlier) possibilities, she raised the following question at para [73]:

"That brings me to an important argument in favour of the judge's interpretation of section 216(6). If the judge is wrong, a person can incur criminal or personal liability merely by virtue of the fact that the company carried on some of its trading activities under a prohibited name. Moreover, there is the question of personal liability. Does the director then become liable for all the debts which the company incurs at any time when it is carrying on a part of its business under a prohibited name, i.e. even those debts which are incurred under a name which is a not a prohibited name? If that is the effect of sections 216 and 217 it would be a factor which might well lead to the conclusion that the judge was right. I consider this argument in paragraphs 74 to 78 below." [underlining added]

Arden LJ then set out the terms of s.217(1) and (3) and said this, at para [75]:

"Read literally, the effect of section 217(3)(a) is that, once a company has a prohibited name, a director becomes personally liable for all its debts incurred while he was a director. So, if a director holds office from 1 January 2000 to 31 December 2005, and the company trades under a prohibited name for the calendar year 2003, he would, if section 217(3)(a) is read literally, be liable for all the debts which the company incurs between 1 January 2000 and 31 December 2005, not just for those incurred in 2003. ... It is unlikely that Parliament intended liability under section 217(1)(a) and (3)(a) to extend to debts incurred when there was no contravention and accordingly in my judgment section 217(3)(a) must be read as restricted to the time during which there is a contravention of section 216."

Thus far the discussion is about time, i.e. a case where the contravention is for only a part of the 5 year period after the insolvent liquidation of the liquidating company. Arden LJ in that passage suggests that Parliament cannot have intended the director to be liable for all the debts and liabilities of the company during the whole of the 5 years if the contravention is for a shorter period. She continued, in the same paragraph:

"I now return to section 216 to see precisely what constitutes a contravention of that section. It is to be a director of a company that is known by a prohibited name. So if a company carried on 50% of its business under a name which was not prohibited, the director would not by virtue of that corporate activity commit an offence."

In para [76] she asked whether a similar limitation could be read into section 217(3)(a), and concluded that it could:

"In order that the (implicit) requirement for a contravention of section 216 is satisfied, there must in my judgment be read into that paragraph a requirement that the company should be known by a prohibited name. Section 217(3)(a) would then read:

'(3) For the purposes of this section the relevant debts of a company are - (a) in relation to a person who is personally responsible under paragraph (a) of subsection (1), such debts and other liabilities of the company as are incurred at a time when that person was involved in the management of the company and the company was known by a prohibited name...'.

In para [78], referring to the principle against doubtful penalisation , she says:

"Applying that principle, the court would in my judgment reach the conclusion that the director was personally liable only for debts incurred in the course of carrying on business under the prohibited name. In my judgment, section 217(3)(b) would be similarly construed so as not to impose wider liability than section 217(3)(a). Accordingly the measure of liability under section 217(3)(b) would not extend beyond the amount of the debts incurred under the prohibited name.

"Further, in my judgment liability under section 217(3) is limited to debts incurred under a prohibited name."

It is not clear to me whether those comments are still dealing with the case of the use of the prohibited name being for a shorter period than the 5 years; as opposed to a case where the company throughout the whole period conducted some of its business under a prohibited name and the rest under a non-prohibited name. But it does not matter. Arden LJ is clearly interpreting the liability under s.217(3) as being limited to debts and liabilities incurred in carrying on business under the prohibited name. Even if she is only dealing with the question of period, the same principle must, so it seems to me, apply in the case of prohibited and non-prohibited names being used contemporaneously. Arden LJ does not appear to draw a distinction between the two cases, and neither would I. In light of the particular issue in that case, the comments about the extent of the liability of a director of a company which carried on only a part of its business under a prohibited name is properly to be regarded as obiter; but it is highly persuasive and provides support for the conclusion to which I have come.

[23] I conclude therefore that the defenders are not liable for the whole sum claimed but only for such amount as is attributable to the rates for 67 Kilmarnock Road. Based on the relative rate demands for the last period when the two properties were rated separately, it appears that the rates for 67 were marginally less than those for 69. Mr McShane gave me a calculation which was not challenged. This led to a principal sum of £31,612.78 being attributable to the unpaid rates for 67. With interest from citation to today's date the total sum is £32,943.37. I shall accordingly sustain the fourth plea-in-law for both defenders, but otherwise repel both defenders' pleas-in-law and sustain the second, third and fourth pleas-in-law for the pursuers to the extent of granting decree substantially in terms of the first and second Conclusions by (a) declaring that, in relation to the first and second defenders, the name "Arigo" is a prohibited name in terms of s.216 of the Insolvency Act 1986, (b) declaring that the first and second defenders are personally liable in terms of s.217 of that Act for the debts incurred by Degreefresh Limited in the course of carrying on business under the name "Arigo" and, further, in respect of the third Conclusion, I grant decree against the first and second defenders, jointly and severally and severally, for payment to the pursuers of the sum of £32,943.37. I shall continue the case for consideration of all questions of expenses if they cannot be agreed.

Scottish Court of Session Decisions