England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
BIRMINGHAM DISTRICT REGISTRY

		Claim No. 8532 of 2013 Civil Justice Centre The Priory Courts 33 Bull Street Birmingham B4 6DS
		12th December 2013

1. THE JUDGE: All references in this judgment to Sections or to the Act are references to the Insolvency Act 1986 as it currently stands. All references to Rules are references to the Insolvency Rules 1986 as they currently stand, save where reference is made expressly to the Civil Procedure Rules ("the CPR").
2. This is an application by Mr Andrew Fender in his capacity as liquidator of WeSellCNC.com Limited ("the company"). The application was made on 7^th October 2013 under the provisions set out in section 166 relating to a creditors' voluntary winding up. A resolution was passed to wind up the company on 11^th February 2013, appointing Mr Fender as liquidator. Although this was meant to be a members' voluntary winding up, the resolution was passed at a time when no declaration of solvency was in place. It thus follows from section 90 that the winding up was a creditors' voluntary winding up. It also follows that a creditors' meeting should have been summoned, as required by section 98, and a statement of affairs produced for laying before that meeting, as required by section 99.
3. Mr Fender saw the declaration of insolvency when it was made, which was after his appointment. He did not then appreciate the fact that it was late or the significance of that fact. This is something that occurred to him first on 11^th September 2013 on a review of a draft report commissioned from Nova Consultants Limited for the purposes of external compliance. At the same time, he considered the Act and realised that there was a potential problem arising from the late declaration of solvency. He then consulted counsel, who advised that this application should be made. The application was made within 7 days of Mr Fender's receipt of Counsel's advice.
4. It should be noted that the obligation under section 98 to cause a meeting to be summoned was the company's, and the obligation under section 99 to make and lay before the creditors' meeting a statement of affairs was the directors'. Mr Fender as liquidator was in no sense in default under either of those sections. The defaults were those of the company and the directors respectively. Nevertheless, under section 166(5) of the Act, it is provided that, if default is made under section 98 or 99:

"the liquidator shall, within 7 days of the relevant day, apply to the court for directions as to the manner in which that default is to be remedied.

5. "The relevant day" is said in section 166(6) to mean:

"the day on which the liquidator was nominated by the company or the day on which he first became aware of the default, whichever is the later".

6. It is said by Mr Dean that Mr Fender did not become aware of the default until receipt of Counsel's advice and that this application is therefore in time. I cannot accept that argument. It seems to me that Mr Fender was aware of the default once he knew that the declaration of solvency was late and that the winding up should therefore have proceeded as a creditors' voluntary winding up. He consulted the Act in September 2013 and its terms are clear. He must also have been familiar with its terms and effect as an experienced insolvency practitioner. There is no difficult point of construction involved. There was no statement of solvency when he was appointed, and that meant that the liquidation cannot have been anything other than a creditors' voluntary winding up. I am prepared to assume, as Mr Fender says, that he did not notice this at the time of his appointment, but he certainly knew what had gone wrong by 11 September 2013 and that there had therefore been defaults under sections 98 and 99 by the company and its directors. As I have said, this application was brought on 7^th October. That was within the seven days of Mr Fender's receipt of counsel's advice, but outside the seven days of his becoming aware of the defaults. It seems to me, therefore, that, strictly speaking, this is a late application.
7. During the course of the hearing before me, I asked Mr Dean whether or not the time for bringing the present application could be extended. It is not possible for a time limit prescribed by the Act to be extended by praying in aid the incorporation in insolvency proceedings (by Rule 7.51A) of the provisions of the CPR. That is because the power to extend time under CPR 3.1(2)(a) relates only to a time limit in relation to "any rule, practice direction or court order" and does not relate to any time limit under the Act. However, Rule 4.3 provides:

"Where by any provision of the Act or the Rules about winding up, the time for doing anything is limited, the court may extend the time either before or after it has expired on such terms, if any, as it thinks just.'

8. Those words are deliberately wide and the time limit of seven days under section 166(5) clearly falls within the description of being a "provision about winding up". It deals with default in complying with sections 98 and 99, which are the requirements to convene a creditors meeting following the passing of a resolution to wind up and the laying before that meeting of a statement of affairs. It accordingly seems to me clear that I have power to extend time for bringing the application now before me.
9. Because this was thought to be a members' voluntary liquidation there has been no creditors' meeting and no laying of a statement of affairs before any such meeting. However, the company was not only thought to be solvent, but was in fact well and truly solvent with a considerable surplus after payment of all debts. The position today is that the liquidation is for all practical purposes complete. All creditors have been paid and there have been distributions to shareholders. It follows that there has been no prejudice occasioned to anyone by the defaults of the company and its directors under sections 98 and 99.
10. Mr Fender has acted in good faith throughout and acted promptly once he received counsel's opinion. It was entirely appropriate of him to seek counsel's opinion first before making this application. Counsel dealt with his instructions within a reasonable time. The position was not straightforward and I do not think Mr Fender, though aware of the defaults, could realistically have been expected to know precisely what application to make, without specialist counsel's input, despite his own experience as an insolvency practitioner. Happily, this is not something that happens every day in Mr Fender's practice and he has now, I am assured, instituted office procedures to prevent it happening again. In the circumstances, it seems entirely appropriate for me to extend the time for making this application, and I do so.
11. A draft order has been placed before me seeking relief. I can give, in the words of section 166(5), "directions as to the manner in which that default is to be remedied". I am not however bound to give any directions literally to remedy the defaults if I take the view, as I do, that no prejudice has been occasioned by the defaults, given the payment off of all creditors and the healthy surplus. Moreover, the section was regarded by Scott J., as he then was, in Re Salcombe Hotel Development Co Ltd (1989) 5 B.C.C. 807, as not requiring any application to be made where no directions were in fact needed. This is despite the provision for a default fine in section 166(7). The explanation must presumably be that the fact that no directions are in the event required is a "reasonable excuse" within the meaning of that subsection, or (possibly) that the default fine applies only to other mandatory requirements of the section.
12. During the course of argument, I speculated whether I could extend the time for the making of the declaration of solvency and the holding of the creditors' meeting. Praying in aid, again, Rule 4.3, it seems to me that that is technically something within my power, though it would be an unusual and artificial thing to do and could be said to undermine the basis upon which a members' voluntary liquidation is supposed to come about. Moreover, to go through that process now would be pointless, as creditors are no longer interested. What I could do instead would be to dispense with the requirement of a creditors' meeting (and therefore of laying before it a statement of affairs) on the grounds that it would now be pointless and that there is now (whatever the position was previously) an excuse for non-compliance: compare, in a slightly different context, re UK Coal Operations Limited [2013] EWHC 2581 (Ch). The effect of so ordering would be to put an end to the defaults for the future and in that sense remedy any continuing defaults.
13. I am asked to declare that the liquidation is a creditors' voluntary winding up rather than a members' voluntary winding up. I agree that it is appropriate to make that declaration.
14. Mr Fender also seeks retrospective sanction for his actions and conduct since his appointment as liquidator on 11^th February. I am prepared to make that order because, on any footing, he was a liquidator, and the liquidation has been successful in the sense of paying all creditors in full and returning a surplus to the shareholders. The only problem is that his powers may not technically have been exercisable without the court's sanction: section 166(2). To the extent that he has nevertheless acted, I am prepared now to sanction his having done so. I will also dispense with the requirement to hold a creditors' meeting under section 98 (which has the necessary result of dispensing also with the laying before such a meeting of a statement of affairs). Mr Dean finally asks for a direction that the liquidator shall continue to administer the liquidation on the basis of a members' voluntary winding up, as has previously been assumed. The liquidation is now for all practical purposes at an end, and creditors are no longer interested. Had a creditors' committee been formed (which it never was) it would now be defunct, as there are no creditors.
15. I will accordingly make the orders sought by Mr Dean. They seem to me to be within what must be contemplated by the broad terms of section 166(5), and are in any event within the court's general powers to give directions. I would only add that, unlike in the Salcombe case, this is not an application that can be said to have been unnecessary, as there was at the very least a question mark over the validity of the exercise of the liquidators' powers without sanction.
16. Mr Fender has not asked for his costs of the application and I commend him for that proper concession.
[Court adjourns]