England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE NOS 002324 AND 002326 OF 98

Royal Courts of Justice

Strand

London WC2

Thursday, 15th October 1998

B e f o r e:

LORD JUSTICE MORRITT

LORD JUSTICE CHADWICK

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THE SECRETARY OF STATE FOR TRADE AND INDUSTRY

Plaintiff/Respondent

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NORTH WEST HOLDINGS PLC

NORTH WEST HOLDINGS LIMITED (REGISTERED IN ALDERNEY)

Defendants/Appellants

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(Computer Aided Transcript of the Stenograph Notes of

Smith Bernal Reporting Limited, 180 Fleet Street,

London EC4A 2HD

Tel: 0171 421 4040

Official Shorthand Writers to the Court)

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MR V JOFFE and MR D LIGHTMAN (Instructed by Bell Lax Litigation, Mill House, 2 High Street, Sutton Coldfield, Birmingham B72 1XA) appeared on behalf of the Appellant

MR R HILDYARD, QC and MISS B LUCAS (Instructed by the Treasury Solicitor, 28 Broadway, London SW1H 9JS) appeared on behalf of the Respondent

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J U D G M E N T

(As approved by the Court)

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©Crown Copyright

Thursday, 15th October 1998

JUDGMENT

LORD JUSTICE CHADWICK: These appellants are two companies against which winding-up petitions were presented by the Secretary of State for Trade and Industry on 22nd April 1998 in the exercise of the powers conferred on him by s 124A of the Insolvency Act 1986. On the same day, on the application of the Secretary of State, ex parte, the Official Receiver was appointed provisional liquidator of each company.

The substantive hearing of those two petitions was fixed to commence on 3rd September 1998 before Hart J. At the commencement of the hearing on that day the companies applied for the petitions to be dismissed on the ground that there had been a breach of rule 4.11 of the Insolvency Rules 1986; alternatively, that the continued prosecution of the petitions was an abuse of the process of the court. Hart J dismissed those applications. It is from that decision that the companies now appeal.

The circumstances in which the appeals come before this court cannot be regarded as satisfactory. On the dismissal of the applications before Hart J, the companies did not (as they might have done) seek leave to appeal or an adjournment pending an appeal. I should make it clear that neither of the counsel who appeared before this court were party to any decision taken by the companies at that stage. The substantive hearing of the petitions commenced, and continued until 11th September 1998. On 11th September, for reasons unconnected to the judge's decision to dismiss the applications made on the 3rd September, the further hearing of the petitions was adjourned until 19th October 1998.

It appears that, on 1st October 1998, junior counsel was instructed to prepare draft notices of appeal, challenging the decision which had been made almost one month earlier. No application for leave to appeal was made until 12th October. The application for leave was made to the judge who granted it with, as he said, considerable reluctance. The judge expressed "the very gravest suspicion" that the application for leave - made within a week of the date set for the further hearing of the trial - was "nothing more than an attempt to set the scene for a yet further application to adjourn the hearing of the petition." In the result it has been necessary for this court to make arrangements for the appeals to be heard at very short notice; so that, if they are without merit, the trial can continue without further interruption.

The point is a short one. Rule 4.11 of the Insolvency Rules 1986 prescribes the manner in which, and the time at which, a winding-up petition is to be advertised. The rule is in these terms, so far as material:

"4.11. - (1) Unless the Court otherwise directs, the petition should be advertised once in the Gazette.

(2) The advertisement must be made to appear -

(a) if the petitioner is the company itself, not less than 7 business days before the day appointed for the hearing, and

(b) otherwise, not less than 7 business days after service of the petition on the company, nor less than 7 business days before the day so appointed.

(4) The advertisement of the petition must state" - [and there are then set out under (a) to (g) seven particulars to be included in the advertisement].

(5) If the petition is not duly advertised in accordance with this Rule, the court may dismiss it."

It is common ground that the petitions were, in fact, advertised in the Gazette within the time period prescribed by paragraph (b) of rule 4.11(2) and that the advertisements contained the matters required by rule 4.11(4). The complaint is not that there was no advertisement in the Gazette in accordance with the rule; but that the petitions were also the subject of press notices issued by the Department of Trade on 23rd April 1998 - that is to say, on the day on which service was effected on the company. It is said that, in the circumstances that the Secretary of State caused the petitions to become public knowledge in advance of the period prescribed by paragraph (b) of rule 4.11(2), the petitions were not "duly advertised" within the meaning of rule 4.11(5).

The press notices referred to the presentation of the petitions and the appointment of provisional liquidators on the previous day; and set out, in summary, the allegations made in the petitions as if they were established facts. By way of example, it was stated in the press notice issued in relation to North West Holdings Plc that:

"[North West Holdings Plc] represented that it was not trading, but the enquiry found that although that company's audited accounts stated that the principal activity of the company was to 'act as a licence holder and a holding company' it was collecting premiums from its clients and charging excessive fees for the services it provided through a bank account operated under the style of 'Premium Collections Services' from which substantial sums had been withdrawn for the benefit of the officers of the company."

It was submitted before the judge that the issue of the press notices in that form was calculated to bring the businesses of the companies to an end in advance of the hearing of the petitions and before the companies had had any opportunity to challenge at a hearing in Court the allegations made against them. That, it was said, amounted to an abuse of the process of the Court which itself ought to lead the court to dismiss the petitions in limine. Although that submission was reflected in the notice of appeal, it was not pursued at the hearing of the appeal.

The judge held that the provisions of rule 4.11(5) of the Insolvency Rules 1986 were not intended to cover circumstances such as those in the present case. In my judgment he was correct to take that view.

It is clear that rule 4.11 has two objectives. First, to ensure the advertisement of a petition (i) in sufficient time (being not less than seven days before the hearing date), (ii) in a prescribed publication (the Gazette) and (iii) in a form which contains the relevant information; so that those, other than the petitioner and the company, who are entitled to appear and be heard on the petition have a proper opportunity to do so. The requirements designed to achieve that objective are set out in sub-rules (1), (2)(a) and (b) and (4). These requirements must be met where the petitioner is the company itself as well as in the more usual case where the petition is presented by someone other than the company.

If those requirements are not satisfied, it may well be appropriate for the court to adjourn the petition to enable proper advertisement to take place. But it is not difficult to imagine circumstances in which it would be oppressive to the company, or otherwise unsatisfactory, to take that course. In such cases the proper course is for the court to dismiss the petition; not because its process is being abused, but because it would be wrong to adjourn for proper advertisement and wrong to proceed with a hearing in circumstances in which all those entitled to attend and be heard had not had a proper opportunity to do so. Sub-rule (5) of rule 4.11 gives the court the power which it needs to dismiss a petition in those circumstances.

The second objective of rule 4.11 is to ensure that the requirements as to advertisement do not, themselves, operate oppressively. It is for this reason that, where the company itself is not the petitioner, sub-rule (2)(b) requires that the advertisement in the Gazette is to appear not less than seven business days after service of the petition on the company. The company is given that period of seven days between service and advertisement so that it can consider its position and, if thought fit, apply to the court for an order restraining advertisement - see the observations of Slade J in In re Signland Ltd [1982] 2 All ER 609 (note) at page 609G-H. But it is plain from the language - and it is not in dispute - that paragraph 2(b) of rule 4.11 is concerned, and concerned only, with the advertisement which the rule itself requires to be made - that is to say, concerned only with the advertisement which, subject to a contrary direction by the court under sub-rule (3), is to appear in the Gazette. In context the opening words of sub-rule (2) - "The advertisement" - can refer only to the advertisement which sub-rule (1) requires. There is no justification for reading the word "the" as if it were "any". To do so would lead to the conclusion that any further advertisement of the petition after the end of the periods prescribed in paragraphs (a) and (b) of sub-rule (2) - whether in the Gazette or any other publication - would be a breach of rule 4.11. That cannot have been intended. There is no sensible explanation why, once the petition has been advertised in the Gazette, the rule-making body should have thought it necessary or appropriate to restrain further advertisement; and there is no way of reading sub-rule (2) so as to achieve the result that advertisement (other than the advertisement required by sub rule (1)) in advance of the period prescribed in paragraph (b) is prohibited but advertisement after that period is not. The issue of press notices, as in the present case - although open to objection, perhaps, on other grounds - cannot sensibly be regarded as a breach of rule 4.11.

If the issue of the press notices was not otherwise a breach of rule 4.11, then sub-rule (5) can have no application. The expression "not duly advertised in accordance with this Rule" in sub-rule (5) is plainly directed to a failure to advertise in accordance with the earlier provisions of rule 4.11; that is to say where there has been a breach of the rule. Sub-rule (5) is not apt to deal with excessive advertisement.

We were referred to a number of decisions at first instance bearing upon the point in question. The first was a decision of Harman J in In re a Company (No 00687 of 1991) [1991] BCC 210. The judge was dealing there with a notification to the company's bank which was said to be in breach of an order made under rule 4.23 restraining advertisement. Rule 4.23 applies to contributories' petitions. The regime under that rule differs from that under rule 4.11. Rule 4.23(1)(c) gives to the court power to give such directions as to whether (and if so by what means) the petition is to be advertised. An order, in that context, that the petition shall not be advertised is plainly capable of being construed (and normally would be construed) as prohibiting advertisement or publication in any form. It was in that context that Harman J decided that the notification in that case constituted a breach of the order. He was not concerned with rule 4.11; and his decision is of no assistance in the present case.

Some twelve months later, the point came before Mummery J in In re a Company (No 001127 of 1992) [1992] BCC 477. The petitioning creditor's solicitors had sent to the company's bank and to a number of its suppliers in advance of the formal advertisement letters notifying them of the presentation of the petition. Mummery J took the view that that course of action was in breach of rule 4.11(2)(b). But he also took the view, expressed at page 479A-B, that he was dealing with

"such a serious a case of abuse of the Insolvency Rules and of the processes of the winding-up court that [he] should mark the court's strong disapproval of [the course of action adopted] by striking out the petition without investigating the merits of the petitioning creditor's argument that the points raised by the company in defence to the petition [were] specious."

For the reasons which I have given, I think that Mummery J was wrong to describe what had happened in his case as a clear breach of rule 4.11(2)(b). But on the facts before him he took the view that there had been an abuse of process which merited the sanction of striking out. There is doubt that the power of the court to control its proceedings by striking out a petition which is abusive can be exercised independently of any power conferred by rule 4.11(5).

The point arose, again, before Jonathan Parker J in S N Group Plc v Barclay's Bank Plc [1993] BCC 506. Jonathan Parker J was not referred to the decision of Mummery J. He came to the conclusion that rule 4.11 had no application to an informal notification of the petition to the company's bank. He held that, in the context of the rule as a whole, it was directed towards advertisement in the Gazette as required by the rule itself. For the reasons which I have already given, I agree with that conclusion. Jonathan Parker J went on to deal specifically with the inherent jurisdiction of the court as a power separate and distinct from the power conferred by rule 4.11(5). That power is not now in question in the present case; and nothing in this judgment should be taken as an indication that it is not to be used in appropriate cases of premature advertisement. It is a necessary and salutary power; but it is not the power on which the appellants rely in this appeal. For a further example of the exercise of the inherent power, see the decision of Laddie J in In re Doreen Boards Ltd [1996] 1 BCLC 501.

The real objection in the present case is to the issue of press notices, or any other form of publicity, as an attempt to pre-empt the decision of the court on the hearing of the winding-up petition or on any interim application to restrain advertisement of the petition. That would be a powerful objection; but for the fact that in the present case the court had already appointed a provisional liquidator before the press notices were issued. This court explained in In re a Company (No 007923 of 1994) [1995] 1 WLR 953 why it might be appropriate in relation to petitions brought under s 124A of the Insolvency Act 1986 to depart from the normal practice requiring any advertisement in advance of the substantive hearing. But that was not a case in which a provisional liquidator had been appointed. It may well be that it was a realisation that different considerations apply where such an appointment has been made that led to the decision not to pursue the objection in this court.

Where a provisional liquidator has been appointed, a number of consequences will follow. First, the court will specify in its order the functions which the provisional liquidator is to carry out. Secondly, the provisional liquidator will be required by rule 4.106 to give notice of his appointment to the registrar of companies. Thirdly, it is likely to be impossible for the provisional liquidator to carry out any substantive functions conferred upon him without notifying those with whom he is dealing of the fact of his appointment. The order made in the present case contains a clear example of the need to communicate to others - including employees, bankers and those dealing with the company - the fact that there is a provisional liquidator; and therefore, necessarily, the fact that petitions have been presented.

Further, on appointing a provisional liquidator, the court will have in mind the effect which that appointment will have upon the company's business and good will, and will take that into account in deciding whether to make an appointment. The Companies Court is fully aware that, for practical purposes, the appointment of a provisional liquidator in a case of this nature is likely to bring the company's business to an immediate halt. Indeed, that is usually a powerful reason for making such an appointment on a Secretary of State's petition under s 124A of the Act.

The Department of Trade's practice in such cases is set out in a note which, as I understand it, is made available on request. In short, the position is that where a petition has been presented but no provisional liquidator has been appointed, the Department will not publicise the fact of the petition until after the advertisement of the petition in the Gazette. But, if the Department is asked what the position is, it will respond by giving details of the petition. That practice, of course, provides a period of seven days prior to advertisement in the Gazette during which the company can, if it thinks fit, seek an order restraining advertisement of the petition.

Where, however, the petition has been presented and a provisional liquidator has been appointed, the Department's practice is to issue a press notice describing the action taken as soon as the provisional liquidator agrees to this being done. The department explains the rationale underlying that practice under three headings. First, that "A wide variety of persons connected with the company must inevitably be informed by the Provisional Liquidator of the action taken"; secondly, that "The Provisional Liquidator himself needs to ensure that the public are informed of his appointment so that anyone proposing have dealings with the company will know that they have to deal with him"; and, thirdly, that the purpose of the appointment of the provisional liquidator in an action of this nature is to protect the public and will usually have the effect of bringing the company's business to an end pending trial.

In my view those are grounds which will usually justify the issue of a press notice in accordance with the stated practice. A further ground might be added; namely that in a case of this nature, where the petition is presented under section 124A and on the premise that the Secretary of State is satisfied that it is expedient in the public interest that the company should be wound up, it is desirable that there should be no uncertainty as to the position once a provisional liquidator has been appointed. The public is entitled to know that the Secretary of State has taken the view that it is expedient in the public interest to present a petition; and that the court, on the application of the Secretary of State, has been satisfied that the case was a proper case in which to appoint a provisional liquidator. For those reasons, the objections which might otherwise have force in relation to the issue of press notices will usually fall away in cases of this nature; as they have in the present case.

I should add this. In any case where the Secretary of State or the provisional liquidator are uncertain whether it is appropriate to issue an immediate press notice directions can be sought from the court, either on the hearing of an ex parte application or by the provisional liquidator following his or her appointment. It would be open to the court in a suitable case to restrain the issue of a press notice for a short period so as to give the company an opportunity to make representations as to why no advertisement should take place. Whether or not the court would think it right to do so will, of course, depend on the circumstances. But those advising the Secretary of State will need to bear in mind that, if there is no compelling reason to issue an immediate press notice without seeking the directions of the court at the time of the appointment of the provisional liquidator, the court may subsequently be concerned to enquire why directions were not sought.

In the present case, I am not persuaded that the press notices were in any way objectionable. In my view the judge was correct in the conclusion which he reached.

LORD JUSTICE MORRITT: I agree. The appeal is dismissed.

ORDER: Appeal dismissed with costs against the company, subject to any further application that may be made by either the liquidator or the Secretary of State that such costs should be paid by Mr Backhouse personally.

(Order not part of agreed judgment.)