UK: England and Wales: winding-up in the public interest

Section 124A of the Insolvency Act (1986) provides the Secretary of State for the Department of Business, Enterprise and Regulatory Reform with the power to petition the court for the winding-up of a company where this is “expedient in the public interest”. In considering the Secretary of State’s application, the court must satisfy itself that it is “just and equitable” for the company to be wound-up.

In a recent case - Re Tag World Services Ltd. and Club Labourse Travel Ltd. (Ch.D., Robert Englehart QC, 30 July 2008) - the Secretary of State petitioned for the winding-up of two companies both of which were subsidiaries of the same parent company.  The petition for one of these (Tag World) was granted (there was clear evidence of deceptive marketing practices).  It was argued for the Secretary of State that the second company (Club Labourse) should also be wound-up because it was inextricably linked with the first company and tarnished by its behaviour (although there was no evidence that it had acted wrongfully or disreputably).  The trial judge rejected this argument and observed (at para. [51]) that it would be wrong to wind-up the second company in the absence of any complaints against it. 

Notes: 

[1] The judgment is not yet available on BAILII but it has appeared on the Lawtel subscription service.  Update (24 September 2008): the judgment is now available on BAILII - click here. 

[2] For an earlier earlier post concerning Section 124A, click here.

India: Supreme Court upholds constitutional validity of National Company Law Tribunal

Significant changes to the way in which company law disputes and the winding-up of companies are dealt with have moved closer. Earlier this week the Supreme Court of India held - in Madras Bar Association v Union of India (11 May, appeal number 3067 of 2004, heard with appeal number 3717 of 2005) - that it was not unconstitutional to create the National Company Law Tribunal and National Company Law Appellate Tribunal and vest in them the powers and jurisdiction exercised by the High Court with regard to company law matters. A copy of decision is available by searching the Supreme Court judgments website here.

The Company (Second Amendment) Act (2002) provided for establishment of the NCLT and NCLAT to take over certain functions performed by the High Court, Company Law Board, the Board for Industrial and Financial Reconstruction and the Appellate Authority for Industrial & Financial Reconstruction. This followed the recommendations of the Eradi Committee, which found that the time taken to wind-up a company (often between 10 and 15 years) was largely due to the multiplicity of court proceedings required.

UK: England and Wales: unfair prejudice and just and equitable winding-up

Earlier this year, in Hawkes v Cuddy [2009] EWCA Civ 261, the Court of Appeal declined to follow the position, adopted in Re Guidezone [2000] 2 BCLC 321 by Jonathan Parker J., that conduct which is not sufficient to found an unfair prejudice petition is necessarily insufficient to found a winding-up petition based on the "just and equitable" ground (see, in particular, para. [107]). 

Last Friday judgment was given in Amin v Amin [2009] EWHC 3356 (Ch), in which the trial judge, Warren J., considered the Court of Appeal's decision and the relationship between the unfair prejudice remedy (Section 994 of the Companies Act (2006)) and just and equitable winding-up (Section 122(1)(g) of the Insolvency Act (1986)). 

Warren J. found the petitioners' allegations of unfair prejudice unfounded but nevertheless recognised that the circumstances may well have founded a successful petition for just and equitable winding-up, although the petitioners had not sought this (see para. [613]). Interestingly, Warren J. also observed, obiter, at para. [584]:

"If the facts are such that a winding up petition on the "just and equitable" ground would succeed but the majority refuse to agree to a winding-up out of court, that conduct might amount to unfair prejudice, the unfairness being to compel the minority to continue to participate in the company when the court would, on this hypothesis, wind it up".

England and Wales: Winding-up in the public interest

Section 124A of the Insolvency Act (1986) provides the Secretary of State for Business, Enterprise and Regulatory Reform with the power to petition the court for the winding-up of a company where this is “expedient in the public interest”. In considering the Secretary of State’s application, the court must satisfy itself that it is “just and equitable” for the company to be wound-up.

In Secretary of State for Business, Enterprise and Regulatory Reform v Amway (UK) Ltd [2008] EWHC 1054 (Ch), a Section 124A petition was presented in April 2007 by the Secretary of State with regard to a company running a direct selling business. Following the petition's presentment the company made changes to its business model which were implemented in October 2007 (and reported in the press at the time: see here). The case was heard in late 2007 and judgment was given today by Norris J. His Lordship declined to grant the petition (subject to the company providing certain undertakings) and observed:

The Court has a discretion whether or not to make a winding up order. The Court may simply dismiss the petition if satisfied that past wrongs have been remedied and the management can be trusted not to permit their recurrence (even if unconstrained by any undertakings). But the Court has power to accept undertakings as to future conduct, and a discretion as to whether to make the giving of undertakings a condition of dismissing the petition. The power will not be exercised (and undertakings will be refused) if those offering them cannot be trusted. The power to accept undertakings is likely to be exercised if that course is acceptable to the Secretary of State. If the Court considers that undertakings may be acceptable, it should nonetheless be slow to accept them if the Secretary of State is not willing to dispose of the petition in that way: but whilst the course may be unusual, the Court undoubtedly has power to do so if there are countervailing factors which outweigh the Secretary of State's opposition. In the instant case I could simply dismiss the petition: but undertakings are offered and I see no need to spurn them even if the Secretary of State shows no enthusiasm for their acceptance" (para. [62]).

With regard to Section 124A, his Lordship observed:

Parliament has charged the Department with wide ranging responsibilities in relation to the affairs of companies including (under section 124A of the Insolvency Act 1986) their investigation and the formation of the view that it would be expedient in the public interest that companies should be wound up ... The Secretary of State is not a licensor of approved business models or a business design consultant and is under no obligation to approve or to police a scheme of undertakings relating to the conduct of an individual company's business" (para. [10])

NB: Under Section 27 of the Serious Crime Act (2007), a petition to wind-up a company can be presented by the Director of Public Prosecutions, the Director of HMRC and the Director of the Serious Fraud Office, where (a) the company has been convicted of an offence under section 25 in relation to a serious crime prevention order; and (b) the relevant Director considers it would be in the public interest for the company to be wound-up.

UK: Scotland: winding-up unregistered companies

Lord Hodge, sitting in the Court of Session (Outer House) has ordered the winding-up, under Section 221 of the Insolvency Act (1986), of eleven companies registered overseas but with their principal place of business in Scotland: see HSBC Bank Plc, Re An Order To Wind Up Kirkbride Investments Ltd [2009] CSOH 147. With regard to the exercise of the court's discretion, Lord Hodge observed that the approach adopted by the English courts was appropriate in Scotland. He stated (para. [11]):

There is no recent Scots case law on this issue but I am satisfied that the approach of the English courts is appropriate and I recall that our courts have adopted that approach in applications which have not resulted in written opinions. In similar circumstances Lord Grieve in Inland Revenue Commissioners v Highland Engineering Limited 1975 SLT 203 relied on English case law in his interpretation of the provisions of the Companies Act 1948 in relation to the winding up of unregistered companies and observed that it was desirable that the courts in each jurisdiction should interpret a United Kingdom statute, such as the Companies Act, in the same way. In Marshall, Petitioner (1895) 22 R 697 the First Division used English authority to inform their interpretation of section 199 of the Companies Act 1862".

UK: April 6: Companies Act 2006 implementation

Today, April 6, is an important date for aficionados of the Companies Act 2006 and anyone else interested in the Government's programme of company law reform. Today, provisions concerning the following matters come into force:

(a) Execution of documents in England, Wales and Northern Ireland;
(b) Removal of former members from the register
(c) Company secretaries
(d) Accounts, reports and auditing
(e) Debentures
(f) Distributions
(g) Arrangements and reconstructions
(h) Mergers and divisions of public companies
(i) Statutory auditors
(j) The expenses of winding-up

There is further information in the implementation timetable (a Word document) and the Government has also published a short document titled "The Companies Act 2006 - Updating you; updating your clients" (PDF) which provides an overview of the Act's implementation. A press release was also issued on 31 March.

Australia: Treasury consultations - shareholder claims against insolvent companies + insolvent trading

In Sons of Gwalia Ltd v Margaretic [2007] HCA 1 the Australian High Court held that a shareholder's claim in respect of a loss caused by a company's misrepresentation or defective market disclosure which induced the purchase of shares ranked alongside the claims of unsecured creditors. This proved controversial because it was widely believed that such a claim would rank below the unsecured creditors because it was a claim by the shareholder as a member of the company (in accordance with Section 563A of the Corporations Act 2001).

In December 2008 the Corporations and Markets Advisory Committee (CAMAC) published a report - available here (pdf) - in which it considered the implications of the Australian High Court decision and recommended that it should not be reversed. The Government has, however, taken a different view: in a consultation paper published last week - available here (pdf) - the Treasury announced that it would "amend the law so that it substantially corresponds to how it was generally perceived to be prior to the High Court's decision".

The Treasury has also published a consultation paper setting out a proposal to reform the law on insolvent trading: see here (pdf).

UK: England and Wales: winding-up in the public interest - Re Tag World judgment now on BAILII

A copy of Re Tag World Services Ltd. and Club Labourse Travel Ltd. [2008] EWHC 1866 (Ch), noted in this earier post, is now available here on BAILII. The case concerned an application under Section 124A of the Insolvency Act (1986) by the Secretary of State for the Department of Business, Enterprise and Regulatory Reform.