Re Abacrombie & Company Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice David Richards,M |
| Judgment Date | 23 October 2008 |
| Neutral Citation | [2008] EWHC 2520 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: 3385of 2008 |
| Date | 23 October 2008 |
[2008] EWHC 2520 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
MANCHESTER DISTRICT REGISTRY
Mr Justice David Richards
Case No: 3385of 2008
Mr David Mohyuddin (instructed by Cobbetts) for the Secretary of State for Business, Enterprise and Regulatory Reform
Mr Nicholas James Buchanan, Director, for Abacrombie & Co Limited
Hearing dates: 7,8,9,10 October 2008
Introduction
The Secretary of State applies to the court for an order to wind up Abacrombie & Co Limited (“the company”). The application is made under s.124A of the Insolvency Act 1986 which so far as relevant provides:
“Where it appears to the Secretary of State from (a) any report made or information obtained under Part XIV of the Companies Act 1986 (company investigations, etc.)…that it is expedient in the public interest that a company should be wound up, he may present a petition for it to be wound up if the court thinks it just and equitable for it to be so.”
An investigation into the company and its business was conducted by Paul Andrew Simpson and Katharine Louise Blount, investigators in the Companies Investigation Branch of the Insolvency Service, in the course of which documents and information were obtained pursuant to s.447 of the Companies Act 1986. In August 2008 Mr Simpson made a report of his investigation on the basis of which the Secretary of State by an appropriate officer concluded that it was expedient in the public interest that the company should be wound up. The petition to wind up the company was presented on 22 August 2008. The company will be ordered to be wound up if the court thinks it just and equitable to do so.
The Secretary of State applied for the appointment of a provisional liquidator pending the determination of the petition. On the company giving undertakings as regards the conduct of its business, HHJ Hodge QC declined to appoint a provisional liquidator. Nonetheless, the company ceased business on 3 October 2008, because, I was told, it was unable to continue in business while the undertakings remained in force.
At the hearing for the appointment of a provisional liquidator, both the Secretary of State and the company were represented by solicitors and counsel. By the time of the trial of the petition, the company was for financial reasons no longer represented. Its sole shareholder and director, Nicholas James Buchanan, acted on its behalf at the trial. Mr Buchanan conducted the defence in an intelligent, fluent and coherent manner.
The principal evidence in support of the petition and in response to the evidence filed by the company was given by Mr Simpson who was cross-examined on his affidavits. The evidence on behalf of the company was given by Mr Buchanan who was cross-examined on his five affidavits.
Legal principles
Section 124A of the Insolvency Act 1986 confers a discretion on the court as to whether to order the winding-up of a company. The grounds for such an order on a petition presented by the Secretary of State are rooted in considerations of the public interest, as the language of the section makes clear. The task of the court is to balance such of the grounds as are made out against the factors which tell against the making of a winding-up order, and to come to a conclusion as to whether it is just and equitable to make the order. See re Walter L. Jacob & Co Ltd (1989) 5 BCC 244 at 250 – 251 per Nicholls LJ. A winding-up order is not confined to those cases where the company has been acting unlawfully: re Senator Hanseatische Vervaltungsgesellschaft MbH [1997] 1 WLR 515 at 522–3 (Saville LJ) and 526 (Millett LJ). Where the activities of a company are contrary to a clearly identified public interest, including but not limited to falling short of a minimum standard of commercial morality ( re Walter Jacob & Co Ltd), it may be just and equitable to wind up the company. Little attention will be paid to any changes made by a company in the face of an actual or imminent winding-up petition.
The company and its business
The company was incorporated on 20 September 2002 and commenced business within the following nine months. Since acquisition of the company from incorporation agents, Mr Buchanan has been the registered holder and beneficial owner of its only issued share. Mr Buchanan was a formally appointed director from 1 May 2003 to 22 December 2004 and became a director again on 27 August 2008 after service of the petition. Thomas Edward Green was a director from 25 February 2003 to 27 August 2008. Mr Buchanan has nonetheless been in control of the company at all material times. He readily accepted that he was “the decision-maker”. The company had about a dozen employees and consultants.
The company promoted itself as insolvency and bankruptcy experts, providing bankruptcy advice and help. On its website, it stated:
“We are committed to giving our clients the best bankruptcy advice, help and solutions they need to get them back on the quickest route to a debt free life. As one of the UK's leading bankruptcy advisors we can help you with your debt problems – every step of the way!”
It advertised its services widely, particularly in telephone directories such as the Yellow Pages. It placed advertisements in the Yellow Pages for every area in England and Wales. Yell Limited, the publisher of the Yellow Pages, has given notice of support of the petition as a creditor for £78,206, although Mr Buchanan disputes the claim. Typical of the advertisements was one which read:
“Call us before you commit to debt management and/or IVA.
Want to clear your debts instantly?
Talk to us
We act on your behalf not your creditors.
Under the new bankruptcy laws the stigma has gone…Talk
to us today!
We can help you.”
Other advertisements referred to “protecting your interests not your creditors” and stated that “A free call could solve all your financial worries.”
The solution offered by the company to its clients was to assist them to become bankrupt. In many cases this involved help with the process of bankruptcy: advice on how it operated, assistance with completing a bankruptcy petition and other documents, attending with the client at court and at a meeting with the Official Receiver. For this service, a fee of between £1,500 and about £3,000 plus VAT was charged and paid ahead of the bankruptcy. The Secretary of State's case is not concerned with this part of the business.
Rather more was involved where the insolvent client was a co-owner of a property, normally a house or flat shared with a spouse or partner. Before any steps were taken for the client to become bankrupt, the company would purport to determine the size of the debtor's beneficial interest and, on the basis of a valuation of the property, arrange for the purchase of the interest by the debtor's spouse or partner. The proceeds of sale would be deposited with the company and the company would take its fee out of the proceeds. Typically, the fee would account for between 70 and 90% of the proceeds. In most cases the proceeds were in the range of £9,000 to £20,000. Larger sums of up to £44,000 were involved in some cases, while in others the equity was valued at a negative figure. A composition offer, in a range of 7 —17p in the £, was made to the debtor's creditors but this was conditional on 100% acceptance which was never achieved. There was paid to the Official Receiver or trustee in bankruptcy the balance of the proceeds of sale after deduction of the company's fees and other expenses. It was rarely, if ever, sufficient to enable a distribution to be made to creditors.
Mr Buchanan's evidence was that this activity accounted for no more than 10% of the company's business, with simple advice and assistance in becoming bankrupt accounting for 90%. Whether or not this is the case in terms simply of the company's clients, it is not the case as regards the company's receipts and turnover, of which a significant proportion derived from the fees taken from the proceeds of property transactions. It is clear that this part of the company's business was highly significant to its financial performance and results and hence, as will be seen, to Mr Buchanan's drawings from the company.
The activities of debt insolvency advisers such as the company are entirely unregulated. This was emphasised by Mr Buchanan in his evidence and submissions, as a justification for a number of matters, including the lack of any clear pricing structure; the absence of agreement in advance on fees in a number of cases; the level of the company's fees, which Mr Buchanan accepted were high; the lack of any records as to time spent on clients' affairs; and the absence of any arrangements to segregate funds held on behalf of clients from the company's own funds. Clients' funds were paid into the company's current account which was frequently overdrawn. Mr Buchanan accepted that the company's clients were generally unsophisticated in financial matters and, being insolvent, were in a vulnerable position. Whether in the light of facts disclosed in this case, insolvency advisers and the like should remain unregulated is a question which may merit consideration.
The Secretary of State's case that the company should be wound up is based on seven grounds, although there is overlap between some of them. I will address each of them, although not in the order set out in the petition.
Lack of commercial benefit to the company's clients
The effect of the arrangements made by the company and in issue on this petition may be shortly stated. The client debtor disposes of their interest in the shared property to their spouse or partner. Some of the funds thereby realised are offered as a composition to creditors, but on terms as to the...
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