Secretary of State for Business and Trade v Davies: four-year director ban despite bounce back loan allegation failing

A company director who showed that £33,000 of a bounce back loan was spent on his business has nonetheless been disqualified for four years for failing to keep adequate records, the High Court has ruled.

In Secretary of State for Business and Trade v Davies [2026] EWHC 2563 (BP), ICC Judge Agnello KC found one of two allegations of unfitness proved under section 6 of the Company Directors Disqualification Act 1986.

Gareth Davies was director of Orange Tree Sawbridgeworth Limited, a pub and restaurant business that entered creditors' voluntary liquidation in June 2021. The Secretary of State alleged that he took £33,000 of a £50,000 bounce back loan for personal benefit, contrary to the scheme's terms, and failed to maintain or deliver up adequate accounting records for the period from April 2019 to May 2021. A six-year ban was sought.

The bounce back loan

Within days of the loan arriving in May 2020, £35,000 moved to Mr Davies' personal account. Some £2,000 was returned and £33,000 passed to a personal savings account. The Secretary of State argued that, without savings account statements or invoices, personal use could not be excluded.

The judge disagreed, accepting that the money funded the building and fitting out of a farm shop, which became the company's only trading business while Covid restrictions closed its bar and restaurant. Photographs, supplier payments and near-daily merchant services credits supported his account. There was no evidence that a successor company ran the shop.

Mr Davies did not have to carry out a tracing exercise, the judge held, because more money flowed back from the savings account than went in, and business payments from his personal account exceeded £33,000. The judge gave little weight to the liquidator's untested emails, as no evidence was called from the liquidator. The first allegation failed.

Accounting records

The second allegation succeeded, but on narrower grounds than the Secretary of State advanced. Section 386 of the Companies Act 2006 requires adequate accounting records, not prepared accounts. Data from the company's cloud-based till system and its bank statements gave an accurate record of receipts, and the Secretary of State had not shown otherwise.

However, Mr Davies had not kept invoices or any record of company liabilities. He used a personal account for both business and personal payments, so identifying company spending depended on his own knowledge. He said he had sent invoices to the company's accountants, and some had been sent, but there was no evidence that the accountants agreed to retain or upload them. Records must be maintained by the company, and the responsibility could not be shifted to its accountants, the judge said. 

Disqualification

The judge found a lack of care justifying a finding of unfitness, but not intentional or reckless conduct, and accepted that Mr Davies was doing his best to keep the business going through Covid restrictions. The case differed from those in which records do not exist, because a liquidator or accountant could have reconstructed the position by speaking to him.

The case sat in the lowest of the Sevenoaks Stationers brackets rather than the middle bracket argued for, and the period imposed was four years. The judge added that a section 387(2) defence to criminal liability for the record-keeping failure may well have been available.

Charlotte Cooke, instructed by the Insolvency Service, appeared for the Secretary of State. Mr Davies appeared in person.