The Financial Conduct Authority v Carillion Plc ((in Liquidation))
| Jurisdiction | England & Wales |
| Judge | Mr Justice Michael Green |
| Judgment Date | 27 October 2021 |
| Neutral Citation | [2021] EWHC 2871 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: CH-2020-000217 |
[2021] EWHC 2871 (Ch)
THE HONOURABLE Mr Justice Michael Green
Case No: CH-2020-000217
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
APPEALS (ChD)
IN THE MATTER OF CARILLION PLC (IN LIQUIDATION)
AND IN THE MATTER OF THE INSOLVENCY ACT 1986
ON APPEAL FROM THE INSOLVENCY AND COMPANIES COURT
ICC JUDGE JONES' ORDER DATED 7 AUGUST 2020
Royal Courts of Justice
Rolls Building, Fetter Lane, London, EC2A 1NL
Javan Herberg QC and Ajay Ratan (instructed by The Financial Conduct Authority) for the Appellant
Catherine Addy QC, Farhaz Khan and Benjamin Archer (instructed by Womble Bond Dickinson (UK) LLP) for the Respondent
Hearing dates: 13 and 14 July 2021
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
THE HONOURABLE Mr Justice Michael Green
INTRODUCTION
Does regulatory action by the Appellant, the Financial Conduct Authority (the FCA), against a company in liquidation constitute an “ action or proceeding” that requires the permission of the insolvency court under s.130(2) of the Insolvency Act 1986 (the Act)? That is the question in this appeal by the FCA from the Order of ICC Judge Jones (the Judge) made on 7 August 2020. For the reasons set out in his reserved judgment reported at [2020] EWHC 2146 (the Judgment), the Judge concluded that permission was required and went on to grant that permission. That latter decision is not challenged by either party. I am therefore only concerned with the purely legal threshold issue as to whether the FCA needs the permission of the court to proceed with its proposed regulatory action under its powers in the Financial Services and Markets Act 2000 ( FSMA).
The appeal arises in relation to the spectacular collapse of the Respondent, Carillion PLC ( Carillion) which was put into compulsory liquidation on 15 January 2018. The Official Receiver ( OR) was appointed, and still acts, as the liquidator. Carillion through the OR is represented by Ms Catherine Addy QC, leading Mr Farhaz Khan and Mr Benjamin Archer.
The FCA is represented by Mr Javan Herberg QC leading Mr Ajay Ratan. At the time of the Judge's Order and when this appeal was launched, the FCA was contemplating issuing statutory notices against Carillion and some of its directors in respect of alleged market abuse and breaches of the Listing Rules pursuant to ss.91 and/or 123 of FSMA. On 18 September 2020, the FCA issued a Warning Notice and published a brief statement about that Warning Notice which summarised the action that the FCA proposed to take against Carillion and others. In relation to Carillion, the published Warning Notice statement made clear that a public censure was proposed, not a financial penalty. The Warning Notice itself was issued pursuant to the Judge's permission to do so by the Order of 7 August 2020 and the fact of its issue is now in the public domain. There is therefore now no need for the privacy restrictions that were in place in respect of the hearing before the Judge and which required his published Judgment to be redacted.
Mr Herberg QC said that this is an important point of statutory construction that has significant implications for the FCA's performance of a wide range of its functions under FSMA. He also said that this was the first time anyone had suggested that permission was required and the OR had been involved in at least two prior cases in which final notices were issued against companies in liquidation without being required to seek permission to do so from the court. This is therefore a novel point, as the Judge recognised, and could potentially affect a number of other enforcement actions by the FCA.
Ms Addy QC did not accept that the Judge's decision would extend to any other powers of the FCA than the specific ones under consideration. She also submitted that it was irrelevant that the OR had not raised the issue earlier as it was a pure point of statutory construction that had to be clarified in accordance with the law.
The OR's evidence explained why it had been raised in this liquidation. This was because Carillion was the largest trading liquidation in UK history with a massive deficiency in relation to creditors. Proofs of debt received by the OR exceed £7.1 billion while realisations as of last year totalled only some £575 million. The cost to the public purse will be considerable. The income received by Insolvency Service under the Insolvency Proceedings (Fees) Order 2016 has already been expended and all the realisations have been accounted for by way of liquidation expenses. Any costs that would have to be incurred if Carillion, acting by the OR, was required actively to participate in FCA enforcement proceedings would necessarily have to be met from public funds, as would other existing and contemplated litigation. Therefore, Ms Addy QC submitted, it is important that these matters have the scrutiny of the insolvency court before such costs have to be incurred.
Clearly the scale of the liquidation and the particular facts in relation to Carillion cannot influence the proper interpretation of s.130(2) of the Act. But they do provide some perspective and explain why the point has been taken.
In very broad terms, the FCA's case is that s.130(2) of the Act is limited to court actions and proceedings or materially similar actions and proceedings, such as arbitration. It says that the statutory purposes of s.130(2) do not include, and were not intended by Parliament to include, regulatory action taken by the FCA under FSMA. The FCA's decision-making processes and the issue of warning notices and decision notices are not analogous to court proceedings; rather they are purely internal processes and the target of the FCA's enforcement decisions can refer the matter to the Upper Tribunal which would then decide for itself, in a de novo decision, what action the FCA can take. That reference is not subject to s.130(2) because it has necessarily to be taken by, in this case, the company in liquidation, not the FCA.
Mr Herberg QC's general overarching point was that Parliament cannot have intended that an ICC Judge should have to decide whether a public authority such as the FCA with specific statutory responsibilities and obligations should be allowed to continue with regulatory action it had decided to take against a company in liquidation. He asks rhetorically how an ICC Judge is supposed to balance the competing public interests and whether such a Judge would be equipped to do so. Parliament could not have intended to have given that role to an ICC Judge when it had so comprehensively prescribed for the FCA's role under FSMA.
Ms Addy QC said that the Judge was correct for the reasons that he gave. The Judge was right to conclude that, having regard to the language, context and purpose of s.130(2), the FCA's then intended exercise of its statutory powers “ cries out” as a “ proceeding”.
The background facts are dealt with in paras. [19] to [22] of the Judgment and I need say nothing more about them for the purposes of this appeal. I do however need to explain the relevant statutory regimes that are in play.
THE FCA'S RELEVANT POWERS UNDER FSMA
The Judge set out fully the relevant provisions of FSMA in paras. [27] to [49] of his Judgment. I will only expressly refer to some of the more important provisions.
By ss.1B to 1E of FSMA, the FCA's general duties and objectives are stated. In relation to its Warning Notice against Carillion, it seems to me that it is purporting to advance its strategic objective of ensuring that relevant markets function well ( s.1B(2) FSMA) and its operational objective of protecting and enhancing the integrity of the UK financial system (ss.1B(3) and 1D FSMA).
Among its functions, the FCA operates the UK listing regime which requires those on the Official List of the London Stock Exchange to comply with the Listing Rules made by the FCA under FSMA. By s.91 FSMA, the FCA is empowered to bring enforcement action in relation to breaches of the Listing Rules. The FCA considers that the publication of enforcement outcomes even against companies in liquidation can be a particularly effective way of raising awareness of regulatory standards that it is seeking to maintain.
The FCA is also the competent authority under FSMA to enforce the Market Abuse Regulation 1. It can do so pursuant to its powers under s.123 FSMA. Again the FCA places a high priority on preventing and detecting market abuse which is an important aspect of carrying out its statutory objectives of protecting consumers, enhancing market integrity and promoting competition.
The FCA's internal decision-making process is discussed in more detail below. If the FCA wishes to take action in respect of breaches of the Listing Rules or the Market Abuse Regulation it must give the person against whom action is proposed to be taken a warning notice: see ss.92 and 126–127 FSMA.
The manner in which the three-stage internal decision-making process is implemented is set out in the FCA's Handbook: the Decision Procedure and Penalties Manual ( DEPP). But the main stages are prescribed by FSMA itself.
Warning notices are dealt with in s.387 FSMA. Such a notice must state the action the FCA proposes to take and give reasons for that proposed action. By s.387(2), the warning notice must...
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