Re Dairy Farmers of Britain Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice Henderson |
| Judgment Date | 18 June 2009 |
| Neutral Citation | [2009] EWHC 1389 (Ch) |
| Court | Chancery Division |
| Date | 18 June 2009 |
| Docket Number | Case No: 14882 of 2009 |
[2009] EWHC 1389 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Henderson
Case No: 14882 of 2009
Mr Richard Sheldon QC and Mr Marcus Haywood (instructed by Addleshaw Goddard LLP) for the Applicant
Hearing date: 3 June 2009
Mr Justice Henderson :
Introduction
Dairy Farmers of Britain Limited (“DFB”) is an industrial and provident society (“IPS”) registered under the Industrial and Provident Societies Act 1965 (“IPSA 1965”). DFB and its subsidiaries owe a substantial sum to HSBC Bank Plc (“HSBC”), secured by a debenture. DFB has also granted fixed and floating charges to HSBC Invoice Finance (UK) Limited (“HIF”). The directors of DFB have recently become increasingly concerned about DFB's financial situation, and at a meeting on 2 June 2009 they failed to gain the support of HSBC for their plans for the future funding of the business. The board accordingly concluded that DFB could not safely continue to trade, and at a further meeting held early in the morning on 3 June a resolution was passed by the board to invite HSBC to appoint insolvency practitioners of PricewaterhouseCoopers LLP as joint receivers and managers of DFB.
HSBC and HIF (“the Applicants”) were willing to make the proposed appointment, but there was a doubt whether they could lawfully do so in view of the prohibition in section 72A(1) of the Insolvency Act 1986 which provides that:
“The holder of a qualifying floating charge in respect of a company's property may not appoint an administrative receiver of the company.”
As I shall explain in more detail below, the question turns on whether an IPS is a “company” within the meaning of that term in section 72A and (more generally) in Part III of the 1986 Act (sections 28 to 72H) which deals with receivership.
In order to resolve the doubt, an urgent application to the court was made on 3 June which I heard during the afternoon. The relief sought in the application notice was a declaration that Part III of the Insolvency Act 1986 does not apply to the appointment by the Applicants of joint receivers and managers of DFB, and in particular that the prohibition in section 72A of the Act does not apply with the consequence that the Applicants may appoint receivers and managers over the whole (or substantially the whole) of DFB's property. At the conclusion of the hearing I said I was satisfied it was appropriate to make the declaration sought, and that I would give my reasons for so deciding later.
After some debate with Counsel, I agreed that the order of the court should specifically include further declarations:
(a) that the receivers and managers so appointed would not be “administrative receivers” within the meaning of section 29(2) of the 1986 Act; and
(b) that the provisions of section 37 of the Act (personal liability on contracts etc entered into by receivers appointed out of court) would not apply to them.
In this judgment I give my reasons for making declarations in the above terms. I express my gratitude to counsel (Mr Richard Sheldon QC and Mr Marcus Haywood) for their clear and helpful skeleton argument, produced under considerable time pressure, and to Mr Sheldon for his oral submissions, in which he presented the case both for and against the declaration sought by his clients.
Facts
DFB was established as an IPS in 2002, with its registered office in Cheshire. Its principal object is to carry on for the benefit of its members the business of a co–operative association of agricultural producers. DFB is one of the UK's leading dairy farmers' co–operatives, marketing almost 1.2 billion litres of milk per year for approximately 1,800 member farms. It is responsible for delivering approximately 10% of the UK's milk supply, as well as being a producer of cheese. It has the following subsidiaries: Associated Co–operative Creameries Limited, ACC Milk Properties Limited, Dairy Farmers of Britain Processing Limited, Freshgrass Interments UK Limited, Lubborn Cheese Limited and Nene Valley Foods Limited.
In total, the group employs over 2,000 staff across its business which includes the operation of three liquid milk dairies, two cheese creameries, one ingredients plant and approximately 15 distribution depots. In the year to 31 March 2008, the group turnover was approximately £562 million.
I have already mentioned the principal security arrangements entered into between the DFB group and the Applicants. The debenture securing the current indebtedness to HSBC was granted on 15 July 2008 by DFB and the subsidiaries identified above. In addition, on 22 August 2007 DFB granted a fixed and floating charge to HIF, and a further charge of a similar nature was granted on 25 July 200There were also certain chattel mortgages, but for present purposes the details do not matter.
On 3 June 2009, DFB and its subsidiaries defaulted under the terms of their facility arrangements with HSBC and (as I have already explained) the board of directors of DFB requested HSBC to appoint receivers of DFB.
It is important to note at this point that it would not be possible for the Applicants to appoint joint administrators of DFB pursuant to Part II of the Insolvency Act 1986 or schedule B1 thereto. Such an order may only be made in respect of a “company”, which by virtue of the relevant definitions means a company formed and registered under the Companies Act 1985 or (now) the Companies Act 2006. Section 255 of the Enterprise Act 2002 makes provision for the Treasury, with the concurrence of the Secretary of State, by order to provide for the provisions of Part II of the 1986 Act to apply to societies registered under IPSA 1965, but no such order has yet been made. Accordingly, although administration is the form of insolvency process now generally favoured by Parliament and the “rescue culture” which it seeks to promote, it is not available to an IPS.
The statutory regime applicable to Industrial and Provident Societies
A helpful review of some of the main provisions of the statutory regime which applies to industrial and provident societies may be found in the judgment of His Honour Judge Hague QC, sitting as a judge of the High Court, in In re Devon & Somerset Farmers Ltd [1994] Ch 57, [1994] 1 BCLC 99, at 60–62. IPSA 1965 was a consolidating Act, and it has been supplemented by further Acts since that date, including the Industrial and Provident Societies Act 1967 (“IPSA 1967”). The regulatory and record-keeping functions formerly performed by the Registrar of Friendly Societies were transferred to the Financial Services Authority (“the FSA”) by the Financial Services and Markets Act 2000, but subject to that change the statutory framework is still essentially the same as it was in 1993 when the judgment in In Re Devon & Somerset Farmers Ltd was given.
A society may be registered as an IPS if certain conditions are fulfilled, and in particular if (under section 1(2) of IPSA 1965 as amended):
“(a) … the society is a bona fide co–operative society; or
(b) … in view of the fact that the business of the society is being, or is intended to be, conducted for the benefit of the community, there are special reasons why the society should be registered under this Act rather than as a company under the Companies Act 1985.”
A registered IPS has members, but by virtue of its registration it is a body corporate which may sue and be sued in its registered name, and in which all the property of the society is vested (section 3). It must have registered rules, which bind its members, and must make provision for the matters listed in schedule 1 (section 14). An annual return must be made to the FSA (section 39), and under section 43 any receiver or manager of a registered society appointed under the powers contained in any instrument must give notice of his appointment and deliver periodic returns to the FSA.
Sections 52 and 53 provide for a registered society to convert itself into a company under the Companies Acts, and vice versa. Section 55 provides that a registered society may be dissolved, and where it is wound up pursuant to “an order or resolution made as is directed in regard to companies by the Insolvency Act 1986”, the provisions of the 1986 Act shall apply to that order or resolution as if the society were a company, but subject to certain modifications. In Re Norse Self Build Association Ltd [1985] BCLC 219, Harman J held that section 55 enables an IPS to be wound up by the court in exactly the same way as if it were a company under the Companies Acts and that it is unnecessary to have resort to the power to wind up unregistered companies now contained in Part V of the 1986 Act.
Under IPSA 1967, a registered society has power to create a fixed or floating charge over its assets, and such a charge does not have to be registered as a bill of sale. The instrument creating the charge has to be recorded with the FSA within 21 days of its execution.
Judge Hague summarised the position in this way in In re Devon & Somerset Farmers Ltd at 61H:
“A registered society is thus in many ways similar to a company registered under the Companies Acts. It is a body corporate, its members have limited liability, the word “Limited” is the last word in the title of every society, there are comparable provisions as regards rules, accounts and the registration of charges, and so on. But [IPSA 1965] and the subsequent Acts nevertheless provide a quite separate and distinct statutory framework. Importantly for present purposes, there are separate and different provisions regarding floating charges and the appointment of receivers.”
The meaning of “company” in Part III of the Insolvency Act 1986
The first Group of...
To continue reading
Request your trial
-
Keith Panter (Petitioning Creditor) v Rowellian Football Social Club and Others
...of his submissions Mr Roberts referred me to a number of authorities including In Re International Bulk Carriers [1993] Ch 77, Re Dairy Farmers of Britain Ltd [2009] EWHC 1389 and Re Witney Town Football and Social Club [1994] 2 BCLC 487. He accepted that none of these authorities were dir......
- Nancy Jong v HSBC Private Bank (Monaco) SA (1) (Defendant/Applicant) HSBC Private Bank (UK) Ltd (2) and Another