Re Marketing Services Worldwide (UK) Ltd; Re Alpha Club (UK) Ltd
| Jurisdiction | England & Wales |
| Judgment Date | 23 April 2002 |
| Neutral Citation | [2002] EWHC 884 (Ch) |
| Court | Chancery Division |
| Docket Number | NO: 4474 of 2001 & 4475 of 2001 |
| Date | 23 April 2002 |
[2002] EWHC 884 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand
London WC2
Mr John Jarvis QC
NO: 4474 of 2001 & 4475 of 2001
MR S MOVERLEY SMITH (instructed by TREASURY SOLS) appeared on behalf of the Claimant
MISS C HOFFMANN (instructed by GOSSCHALES) appeared on behalf of the Defendant
(This transcript was produced without the assistance of any documents)
MR JARVIS QC:
Introduction
The Secretary of State for Trade and Industry petitions to wind up two companies, Alpha Club UK Limited (Alpha Club) and Marketing Services Worldwide United Kingdom Limited (Marketing Services), under section 124 of the Insolvency Act 1986.
The petitions are opposed by the directors and shareholders of Alpha Club who have been represented today by Miss Clare Hoffman. She opposes the petition against Alpha Club on the basis that the company is no longer carrying on business, that there is no need for any further investigations and that there is no benefit to be gained by a compulsory winding up Alpha Club.
So far as Marketing Services are concerned, the directors and shareholders of that company are controlled by a company incorporated in the Isle of Mann, International Company Services Limited. It wrote to the Treasury Solicitor by letter dated 17th April 2002 to the effect that it did not intend to appear at the hearing of the petition against Marketing Services, that it would give any assistance necessary to a liquidator and that it did not object to the winding up of Marketing Services.
The jurisdiction to wind up a company in these circumstances arises, as I have said, under section 124A of the Insolvency Act 1986. This provides that where it appears to the Secretary of State from information which he has obtained from investigations, that it is expedient in the public interest that a company should be wound up, the Secretary of State may present a petition for it to be wound up. If the court thinks it is just and equitable for it to do so, it may order the winding up of the company.
The circumstances in which the Court should exercise its discretion to wind up a company under section 124A of the Insolvency Act were considered by Megarry J in Re Lubin, Rosen and Associates Ltd [1975] 1 WLR 122, when he was dealing with the predecessor of section 124A, namely section 224 of the Companies Act 1967. In that case there had been a voluntary winding up of the company. Megarry J said that the fact of the voluntary winding up was one of the circumstances to be considered in deciding whether or not it was is just and equitable to make a compulsory winding up order, but said that it was no more than that. He also at page 127 said this:
"Furthermore, as Mr Morritt contended, where a petition is presented by a creditor seeking to exercise a class right, the view of the majority of his class has a potency which does not exist where the petition is presented not by a creditor but by the Secretary of State, after he has reached the conclusion that it is expedient in the public interest that the company should be wound up. It seems to me that the very fact that the Secretary of State has reached such a conclusion is a factor which, without being in any way decisive, ought to be given appropriate weight by the court."
I pause there to say that it is appropriate weight which should be given to it, which means it is one of the balancing factors which the Court takes into account. It is not to be given any special weight but it is a factor which must be taken into account.
Megarry J, at page 128 also considered the fact that under the 1948 Companies Act, although there was provision for a voluntary liquidator to report apparent offences, those provisions did not have the force of section 236 of that Act because, as with the Insolvency Act, the Official Receiver comes under a duty to submit a report to the court, in a compulsory winding up, setting out the state of the company and whether further enquiry is desirable. Megarry J went on to conclude that, in that case, where there were circumstances of suspicion, as there were in that case, that it was highly desirable that the winding up should be by the court, with all the safeguards that this provided, including the investigation of any suspected offences. He then said at page 128:
"Where the results of that investigation lead the Secretary of State to the conclusion that it is expedient in the public interest that the company should be wound up, and he accordingly presents a petition for a compulsory order, I do not think that the passing of a resolution for a voluntary winding up shortly before the Secretary of State presents his petition, and the subsequent confirmation of that resolution, ought to be allowed to put the voluntary winding up into an entrenched position, as it were, which can be demolished only if the Secretary of State can demonstrate that the process of voluntary winding up will be markedly inferior to a compulsory winding up. The Secretary of State may, of course, reach the conclusion that a voluntary winding up will suffice, and so not proceed with his petition; but if he does proceed, then in my judgment the question is essentially whether, in all the circumstances of the case (including, of course, the existence of a voluntary winding up and the views of the creditors), it is just and equitable for the company to be wound up compulsory. In addition to the suspicion of offences, the presence of foreign complications such as exist in this case, and the difference between the interests of the disappointed purchasers and those of any other creditors, seem to me to make it both just and equitable that this winding up should be conducted with the full authority and resources of the court."
So that is the jurisdiction.
There are three ways in which the public interest can be said to be affected in this case:
1. Suspected offences under the Fair Trading Act 1973.
2. Offences under the Lotteries and Amusements Act 1976.
3. If the business carried out by the companies is inherently objectionable.
Background
I will turn, in due course, to each of those heads but I need to set out the background of the business carried out by Alpha Club. Alpha Club operated a scheme from the beginning of 1999 until it changed the scheme in August 2000. Under the original scheme Alpha Club sold 10 year memberships of Alpha Club for a cost of £2,650. Respective members were told that membership attracted benefits in six stated categories, namely travel, business, household, leisure, motoring and personal. The benefits were, for example, discounts through a travel agent, Shires Travels Bureau Limited, which company has now been subject to a compulsory winding up order. The discounts were, in reality, as the evidence discloses, of minimal value, if any. Either the benefits were never taken up by members or they would have been available to members without having to be a member of Alpha Club. Indeed, in some cases, the evidence shows that a greater discount was available to members of the public than Alpha Club purported to offer.
The scheme worked shortly in this way. Respective members of Alpha Club were invited by sales agents to presentations. The agents paid a commission fee of £20 for themselves and each guest that accompanied them. Agents were then appointed as silver agents and they received a commission on the sale of the first two memberships. Then, on the sale of a third membership, a silver agent received an increased commission and was promoted to a gold agent. Gold agents then received an increased rate of commission on every direct sale of a membership and a reduced rate of commission on the first two direct sales made by silver agents who were considered to be part of the gold agent structure or sales team. When a silver agent made any two membership sales and those two new members made their first two sales, the gold/silver member then would become a platinum agent. The rates of commission were calculated as a percentage of the net sum of the membership fee of £2,650 less VAT.
The rates of return for agents were potentially attractive and large sums could be earned. For example, a Mr Stephen Sweeney earned some £45,547 and Mr Andrew Martin earned some £31,110 by way of commission. As the evidence disclosed, there were relatively small numbers who benefited financially from becoming an agent for Alpha Club.
The presentations which were given by Alpha Club and Marketing Services focused primarily upon the potential return to be made by joining the organisation and choosing to become an agent so as to sell Alpha Club membership to others. The discounts which I have indicated above were merely an ancillary part of the presentation. The whole focus and emphasise was to induce the individuals to become members on the basis of the profits that they would make as a result of further introductions.
As I have said, the original scheme in this form ceased in August 2000. It may well be that the directors of Alpha Club took legal advice and decided that the scheme should be operated in a different way. It operated in the new form until November 2000, when investigations were then undertaken by the Secretary of State.
On 29th June 2001, the Secretary of State was informed by Alpha Club that it was preparing to re launch its operations. It was that which led to the presentation of the petition.
I return to the revised scheme. This provided for 1 year memberships of Alpha Club to be sold for £200 including VAT. The distinct element of this scheme was that it was said that it was no longer necessary to become a member of Alpha Club in order to become an...
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