R v Registrar of Building Societies. ex parte A Building Society
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE HODSON,LORD JUSTICE PEARCE,LORD JUSTICE UPJOHN |
| Judgment Date | 12 May 1960 |
| Judgment citation (vLex) | [1960] EWCA Civ J0512-1 |
| Date | 12 May 1960 |
| Court | Court of Appeal |
[1960] EWCA Civ J0512-1
In The Supreme Court of Judicature
Court of Appeal
Lord Justice Hodson
Lord Justice Pearce and
Lord Justice Upjohn
MR. NEIL MCKINNON. Q. C. and Mr. J. R. PEPPITT (instructed by Messrs. wm. J. Wade & Co., Slough, Bucks,) appeared on behalf of the Appellants (Applicants).
The Hon. J. R. CUMMING-BRUCE (instructed by the Treasury Solicitor) appeared on behalf of the Respondent, the Registrar of Building Societies.
: This is an appeal from an order of the Divisional Court dated 28th April, 1960, dismissing a motion by a building society to remove an order of the Registrar of Building Societies to this court for the purpose of being quashed. The order of the Registrar was made on the 6th April, 1960, directing that no invitation to subscribe should be issued by the society. "Pursuant to the provisions of sub-section 1 of section 11 of the Prevention of Fraud (Investments) Act, 1958, the Registrar of Building Societies hereby directs that unless and until this order is revoked no invitation to subscribe for, or to acquire or offer to acquire, securities or to lend or deposit money shall be made by or on behalf of the above-named society".
Sub-sections 1, 2 and 3 of section 11 are material. "(1) If, with respect to any building society, the registrar considers it expedient so to do in the interests of persons who have invested or deposited or may invest or deposit money with the society, he may by an order made with the approval of the Treasury direct that, unless and until the order is revoked, no invitation to subscribe for, or to acquire or offer to acquire, securities or to lend or deposit money shall be made by or on behalf of the society…. "The next part of sub-section 1 deals with penalties in the event of a contravention of that order. The proviso reads: "Provided that, before deciding to make an order under this sub-section with respect to any society, the registrar shall serve on the society a written notice stating his intention to make the order, and shall consider any representations with respect to the proposed order made to him by the society within the period of one month from the date of the service of the notice, and, if the society so requests, afford it an opportunity of being heard by him within that period". Subsection 2; "Any order under the preceding sub-section may be revoked by a subsequent order of the registrar made with the approval of the Treasury". Sub-section 3, which deals with a matter anterior in time to the hearing to which sub-section 1 refers, is as follows: "The registrar may, at any time, by notice in writing served on a building society or on any person who is or has been an officer of such a society, require that society or person to produce to the registrar such books, accounts, deeds and other documents relating to the "business of the society, and to furnish to him such other information relating to that business, as he considers necessary for the exercise of the powers which he has by virtue of sub-sections 1 and 2 of this section; and any such notice may contain a requirement that any information to be furnished in accordance with the notice shall be verified by a statutory declaration". The remainder of sub-section 3 deals with sanctions to enforce the provisions of sub-section 3 itself.
In May of 1959 notice was given to the society under the sub-section which I have last read, and the investigation of the Registrar continued until the 19th February, 1960. On the 19th C February, 1960, notice was given: "Notice is hereby given pursuant to the provisions of sub-section 1 of section 11 of the Prevention of Fraud (Investments) Act, 1958} that it is the intention of the Registrar to make an order directing that no invitation to subscribe for" (and so forth) "shall be made by or on D behalf of the above-named society. Any representations that the society desires to make to the Registrar with respect to the proposed order must be submitted to him within the period of one month from the date of the service of this notice".
The covering letter enclosing the notice stated this: "The principal grounds upon which the Registrar proposes to make an order are as follows; (I) The unsatisfactory reserve position in relation to the total assets of the Society. (2) Inadequacy of security for the advances in respect of the 'Oak Farm properties, resulting in a position of potential loss which would jeopardise the Society's solvency. (3) Division of mortgages artificially thus avoiding disclosure of details in the Schedule of the annual accounts. (4) The unauthorised deposit of large amounts of the Society's 'liquid' funds on terms which require up to six months' notice of withdrawal. With regard to (2)" — that is, the Oak Farm property — "the Registrar has received from the District Valuer a provisional valuation of the Oak Farm Estate at a total figure of £149,000 compared with the Society's valuation of £370,000". The final paragraph reads: "Representations in respect of the proposed Order may he made both orally and in writing. If representatives of the Society wish to attend before the Registrar for this purpose I will arrange an appointment upon hearing from you".
On the 18th March the first hearing took place, when Counsel on behalf of the society made representations. In the course of those representations he desired to refer, or was considered by the Registrar to be anxious to refer, to the accounts for 1959, which had not then been produced arid which the Registrar had not seen. The accounts for the year ending 31st December, 1959, were not due to be filed with the Registrar until the 31st March, 1960, and therefore there was nothing unusual in the fact that those accounts were not then produced. nevertheless it is clear from what I have already said that the investigations of the Registrar had been pursued into 1959, which was the period for which no accounts were then ready. An adjournment was granted in order that those accounts might be available for the inspection of the Registrar, and also for certain correspondence to be produced to which I need not further refer.
On the 22nd March a further abortive hearing took place, because the accounts were not then ready; and on the 25th Karen., 1960, there was the final hearing before the Registrar:, then the accounts for the year ending 31st December, 1959, prepared on the statutory form called "A. R. 11", were produced. To that form the auditor has appended his certificate, dated 21st March, 1960, and annexed thereto a Special Report, dated 25th March, 1960, The Special Report of the auditor is in the form of a letter and is as follows: "1. Interest on Share Capital. Interest amounting to £130,094. 9s. 6d. was due to be paid to the Society's shareholders on 31st December 1959. The cheques or warrants in settlement of the interest were dated 1st January 1960 and appear in the hooks of the Society on that date instead of the last day of the accounting period, that is 31st December, as has boon the practice in previous years.
"2. Withdrawals of Capital. During the last few months of the year ended the 31st December 1959 the Society received from a number of investors withdrawal forms requesting the society to repay their investment together with accrued interest thereon on the 3lst December 1959. In accordance with the terms of issue of the Shares the Society calculated interest to the requested date of repayment, that is 31st December 1959, but the cheques in payment of the interest and repayment of the investment were dated 1st January 1960. The interest so paid is included in the figure of £130,094. 9s. 6d. referred to in (1) above. The total of Share Capital so repaid on the 1st January 1960 was £172,357. 6s. 1d.
"3. Balance due or outstanding on Mortgages. (a) On 31st December 1959 the total sum of £354,314. 10s. 5d. was credited to the Society's bank account by way of the redemption of three mortgages issued to Oak Farm Property Investment Ltd., Oak Farm Property Co. and Oak Farm Investment Co. On the 1st and 2nd January 1960 the respective sums of £270,000 and £92,060 were advanced by the Society on the same security. (b) For the purpose of the Society's Accounts the receipt of the sum of £354,314. 10s. 5d. referred to in (a) above has been ignored. The sum of £354,314. 10s. 5d. is included in the Balance Sheet under the heading of 'Balance due or outstanding on Mortgages' and the Cash at Bank has been reduced by a similar sum.
"4. Cash at Bank, The balance of Cash at Bank at 31st December 195S as shown by the books of the Society was £642,450. 12s. 10d. The Society's Balance Sheet at 3lat December 1959 shows Cash at Bank in the sum of £288,136 2s. 5d. computed as follows; Cash at Bank as shown by the books of the Society, £642,450, 12s. 10d, Less Cash received on 31st December 1959 referred to in 3 (b) above, £354,314. 10s. 5d.", leaving a balance of £288,136. 2s, 5d.
" If the payment of Interest referred to in (1) above and the repayment of Capital referred to in (2) had taken place on 31st December 1959 the Balance of Cash would have been fully absorbed and there would have been an overdraft of £14,315. 7s. 1d".
On the 28th March, having considered the accounts and the Special Report which was put in with the accounts by the representatives of the Society on the hearing of the 25th March, and having heard the representations, the Registrar made up his mind to make an order. On the 30th March consent was asked for Treasury approval; and a further request for Treasury approval was made on the 5th April, described in the second instance as a formal request; and Treasury approval was received on the 6th April, upon which date the order was made.
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