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Vince Cable's attempt to bar the bosses of Farepak, the Christmas hamper business that went bust leaving 116,400 people out of pocket, collapsed at the high court.
The Insolvency Service, part of Cable's business department, withdrew its case against the directors, including Sir Clive Thompson, a former president of the CBI.
An Insolvency Service spokeswoman said the decision to drop the case was taken on the basis of the evidence given to the court. "The Insolvency Service, acting on behalf of the secretary of state for business, innovation and skills and on advice of counsel, will discontinue the proceedings against the directors of Farepak and [its parent company] European Home Retail. This decision is based on consideration of evidence given to the court to date." The Insolvency Service, acting on behalf of Cable, had been calling on the high court to ban five former Farepak bosses from being company directors for up to 15 years.
Cable said: "I am deeply disappointed by the day's events and feel a huge amount of sympathy for those who lost out when the company went bankrupt … Without doubt, we need to reflect on this result, consider what options are on the table and seek further legal advice if needed."
The Insolvency Service had accused Farepak's former directors, including Neil Gillis, a former chief executive of Blacks Leisure, and five others, of taking "unreasonable risk" with prudent savers' money.
Earlier in the case it was claimed that Farepak was taking in about £1m a week from customers on low incomes right up until its collapse in October 2006 even though the company had identified a risk that it might not have enough cash to pay its suppliers as far back as November 2005.
Lawyers representing the former directors of Farepak and EHR told the judge, in written submissions, that evidence had "singularly failed" to establish a case for disqualification. One said: "What it comes down to in the end is essentially the commercial judgment and decision-taking of the defendants." The former Farepak directors had denied the allegations.
Mr Justice Smith is expected to make a statement to the court tomorrow .
Thompson was the highest profile of the directors facing charges and had been known as Mr Twenty Percent when he was the boss of Rentokil.
At the time of the collapse, Farepak was owed £35m by EHR, which was chaired by Thompson. EHR also collapsed.
