England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		30/01/2014

Peter Smith J :

INTRODUCTION

1. This is a hearing of a Part 8 Claim issued by the Trustees of the Graphic Reproduction Federation ("the Federation").
2. By their application the Trustees seek (1) a declaration that the Federation was spontaneously dissolved at some stage between 1987 and now (2) alternatively an order dissolving the Federation pursuant to the Court's inherent jurisdiction and (3) directions as to how and to whom the Federation's assets should be distributed.

BACKGROUND

3. The Federation is an un-incorporated association formed in 1916 or thereabouts to further the interests of employers engaged in the graphic reproduction trade, to promote fair trading within the industry and to negotiate national agreements with Trade Unions. It is governed by a set of rules which have been amended on various occasions the most recent of which was in 1985 ("the Rules").
4. The Trustees contend that since about 1987 (with the demise I suspect of the traditional form of printing to be found historically in the area where the Rolls Building is) the Federation has spontaneously dissolved but cannot clearly identify any date.
5. Its administrative records have not been kept up to date since then, nor have any subscriptions been called for or paid since 1986. There have been no Annual General meetings since 1985 and the Management Committee has not met since 29^th November 1987.
6. The only activity carried out has been the preparation of annual accounts by its accountants and the storage of its records by the First Claimant. Its net assets were valued at £272,250 in its financial statement for year ending 31^st December 2011. These statements value the Federation's investments (consisting of shares in stock exchange listed companies) at cost value of £15,657. As at 26^th April 2013 the Claimants' solicitors estimated that these investments had a current value of £590,683.98.

MEMBERSHIP

7. By 1987 most of the Federation's members had resigned or been expelled for non payment of subscriptions. The only members who paid their 1986 subscriptions were the First to Third Respondents and the Fifth Respondent. Other corporate members have been dissolved since 1987 namely Mayday Reproduction Ltd (1998), Tower Engraving Ltd (2000), Lithospeed Ltd (2011).
8. Another potential member Tomlinson Engraving Ltd has been dissolved and sometime prior to its dissolution its shares were transferred to Tomlinson Ltd (the Fourth Respondent).
9. All parties agree that the Federation ought to be dissolved (if it has not already been spontaneously dissolved). That can be done by the Court or under the Rules (see below).

THE RULES

10. Clause 3 sets out the various objects of the Federation. It will be seen that its objects can be promoted by (inter alia) establishing a fund or funds for the advancement of the Federation's purposes and the general and material welfare of its members (clause 3 (f)).
11. The Trustees contend that the Federation has been dissolved spontaneously since 1987 as their primary submission. They also submit that the assets should be distributed to a printing charity to serve the underlying spirit and purpose of the Federation. That is on the premise that the Federation has been dissolved or that the Court exercises its inherent jurisdiction to dissolve it.
12. Further provisions of the Rules are relevant however. First clause 17 provides that the Trustees hold all of the assets of the Federation for the benefit of the Federation and its members. That is of course unexceptional as it merely deals with the legal title of the Trustees for administrative purposes.
13. Second are provisions (clause 19 and following) dealing with a management committee but the management committee has not met for many years and there is a doubt as to whether or not there is actually a current management committee.
14. Clause 45 provides for the ability to expel a member (inter alia) in the case of voluntary or compulsory liquidation other than for the purposes of reorganisation or amalgamation.
15. Tomlinson Engraving Ltd has been dissolved but at some time prior to its dissolution its shares were transferred to Tomlinson Ltd (the Fourth Respondent). It seems to me and I am prepared so to decide that was a transfer for the purpose of amalgamation or reconstruction so that the Fourth Respondent is a current member in succession to Tomlinson Engraving Ltd.
16. No steps have been taken under clause 45 to expel any of the members that had gone in to liquidation and subsequent dissolution.
17. Clause 51 provides as follows:-

"51. The Federation may be dissolved whenever the Members in General Meeting assembled have passed a resolution in favour of the dissolution by a majority of not less than three-fourths of the Members present at a General Meeting of which seven days' notice specifying the intention to propose such resolution has been given. If the number of Members is reduced to or below ten a majority of Members present at such General Meeting shall be sufficient to pass such a resolution for dissolution.

Upon the dissolution of the Federation the property of the Federation not consisting of moneys shall be applied in satisfaction of the debts and liabilities of the Federation and Subject thereto shall be distributed among the Members existing at the date of the passing of the resolution for dissolution in the proportion that the amount of subscription respectively paid by such Members to the Federation during the last three years of membership has to the total amount of subscriptions for such period."

18. If the Federation is not already dissolved it is open to the members in my view at a General Meeting to dissolve it. It is then provided expressly that upon such dissolution the assets are to be distributed upon "the Members existing at the date of the passing of the resolution for dissolution in proportion to the amount of subscriptions paid by such member during the last 3 years of membership".
19. As I have said, none of the parties before me seek to argue that the Federation has already been dissolved. It follows that it is open to the present members (that is to say those members who have not gone into liquidation and been dissolved) to invoke clause 51 if they so wish. Prior to that they could equally (for the avoidance of doubt) invoke clause 45 and seek to expel those members which had already gone into liquidation. There is no relieving power so that they can be expelled even if those companies would seek to pay off their arrears of subscriptions.

HAS THE FEDERATION ALREADY BEEN DISSOLVED?

20. In my view it has not yet been dissolved. It is true that the activity is minimal. However it is quite clear that inactivity of itself is not enough see Re William Denby & Sons Ltd Sick and Benevolent Fund [1971] 2 All ER 1196 and Re GKN Bolts and Nuts Sports and Social Club [1982] 2 All ER 855 at page 860. With the decline of the nature of the printing industry there has been very little for the Federation to do but it still has assets and the Trustees continue to manage the assets. Whilst it sleeps it is not dead in my view.
21. This is important because for the reasons I have set out above in my view the present members can still control the Federation. Those relevant members would include companies which have gone into liquidation but have not been expelled under clause 45. They would not in my view extend to companies which had not gone into liquidation but had also dissolved. I do not accept that any rights of the dissolved companies have vested in the Crown under section 1012 of the Companies Act 2006.
22. It seems to me clear that the membership of the Federation is personal. If a person ceases to be a member by resignation or expulsion such a member loses any right to participate in the Federation including the right to participate in any of its assets upon dissolution in accordance with clause 51. That is considered to be the position generally in relation to unincorporated Federations: see the summary of Lewison J in Hanchett-Stamford v Attorney General & Anr [2008] EWHC 330 Ch [2008] 4 All ER 323. It seems to me that the Court should give effect to that principle if it is going to exercise its inherent powers to dissolve the Federation: see William Denby above at page 1201 g. The consequence of my finding the Federation is not yet dissolved is that it is open to the members following the procedure above including expelling liquidated members if required to pass a resolution dissolving the Federation. Upon such a dissolution it is clear that clause 51 provides for the assets to go to the members in existence at the time of the dissolution. That is unnecessarily wasteful of time as the Court can do precisely the same in its inherent jurisdiction.
23. If however the Court exercises its inherent jurisdiction to my mind it ought in fairness to exercise that power to achieve a result which is commensurate to the result that would have occurred had there been a dissolution pursuant to clause 51. That is what the members who appear before me wish. They do not favour the fund being transferred to some other organisation to further the causes of the Federation. As the Federation has not been dissolved they could stop that happening in any event and I do not see why the Court exercising its power should deprive the present members of their undoubted effective rights under clause 51.

POSITION OF DISSOLVED COMPANIES

24. The companies who went into liquidation remain members unless they are expelled. None has been expelled although they can be expelled now for the reason that I have set out. Once they are dissolved in my view they cease to exist and cease to be members.
25. It is submitted on behalf of the Treasury Solicitor that when those companies are dissolved section 1012 of the Companies Act 2006 comes into play. That provides as follows:-

"1012 Property of dissolved company to be bona vacantia

(1) When a company is dissolved, all property and rights whatsoever vested in or held on trust for the company immediately before its dissolution (including leasehold property, but not including property held by the company on trust for another person) are deemed to be bona vacantia and –

(a) accordingly belong to the Crown, or to the Duchy of Lancaster or to the Duke of Cornwall for the time being (as the case may be), and

(b) vest and may be dealt with in the same manner as other bona vacantia accruing to the Crown, to the Duchy of Lancaster or to the Duke of Cornwall.

(2) Subsection (1) has effect subject to the possible restoration of the company to the register under Chapter 3 (see section 1034).

26. It is submitted on behalf of the Treasury Solicitor that all property and rights "immediately before its dissolution" are deemed to be bona vacantia and vest in the Crown or the Duchy of Lancaster or the Duke of Cornwall as the case might be.
27. If the Federation has already been dissolved and the dissolved companies were in liquidation then I would accept that upon the dissolution of those corporations the net assets that the dissolved corporations possessed if not distributed would have been entitled to upon the dissolution of the Federation would pass as bona vacantia. That would extend to cover assets held upon trust consequent upon the dissolution of the Federation.
28. That is a clear asset which in my view is capable of transmission under section 1012. However interests which terminate upon the dissolution in my view are incapable of vesting in the Crown because there is nothing to vest.
29. If the Federation has not dissolved then when a limited company member goes into liquidation it remains a member unless expelled. However, when it is dissolved, it ceases to exist. I cannot see that once the member has ceased to exist as a corporate personality any membership right can survive. It must plainly be personal to that member and terminate when that member ceases to exist. The same would happen in my view if an individual member died. Upon that member's death the member would cease to be a member because he no longer exists. Otherwise as I posed in argument one would have the intriguing concept of Her Majesty the Queen unexpectedly becoming a member of the Federation, something which seems to me to be extremely unlikely and possibly subject to possible expulsion by reason of the liquidation of the relevant Company member. Once the relevant Company is dissolved there is nothing to vest and the statutory vesting cannot revive something that ended with the dissolution. There is no asset or right that survives.
30. I would therefore conclude that where member companies have been dissolved they have ceased to become members and cease to become entitled to any participation in the funds. That is in accordance with the principles summarised in the Hanchett-Stamford decision. Entitlement goes with membership. If membership goes, entitlement to any funds goes.
31. It is different if the Federation has already been dissolved as the rights crystallize upon the dissolution of the Federation and the Trustees hold the assets to distribute them in favour of all members who existed as members at the time of the dissolution of the Federation.
32. This shows the difficulty of trying to find a date of dissolution. It is impossible in my view on the evidence to see that any particular date from 1987 can be picked for the dissolution of the Federation as argued by the Trustees. Its ramification would be larger because it is quite conceivable that one could pick a date (for example) after 1998 when Mayday Reproduction had already been dissolved and thus would have lost any entitlement but leave the other companies which were dissolved after the dissolution of the Federation so in turn the right to return of the assets would have survived and passed to the Crown under section 1012 above. That is so unlikely and irrational that I discount it.
33. However as I have concluded that the Federation has not yet been dissolved I will exercise the Court's inherent jurisdiction to dissolve it as at the date of this judgment. I will direct that the assets of the Federation after payment of all its liabilities (including the storage liabilities incurred by the First Claimant) be distributed to the members in existence at the time of the order of the court (including Tomlinson Ltd) pro rata according to their contributions as if clause 51 applied. There will need to be an inquiry as to what arrears of contributions will have to be made by the relevant members to determine the entitlement.

A FOOTNOTE

34. It is unfortunate in this case that nobody was here to argue for the existing members who had a significant interest. Ordinarily I would have expected one of them to be picked as a representative Defendant so that they could employ lawyers to argue the case for them. It is normally the case in that situation that the costs of that exercise are borne by the fund. That did not happen. I am unsure as to why that did not happen but there is a residual power to require the Trustee to argue the point see State Street Bank and Trust Company v Sompo Japan Insurance [2010] EWHC 1461 (Ch) applied by me in Citicorp Trustee Company Ltd v Barclays Bank PLC & Ors [2013] EWHC 2608 (Ch). In the event I did not require assistance from Mr Shaw to argue the case for the members as the position appeared to be clear to me and he was not required as watchdog (to echo the words of Sir Andrew Morritt) to bark or even bite on this issue.

CONCLUSION

35. I therefore refuse the declaration sought that the Federation was spontaneously dissolved but order the Federation be dissolved as at the date of this judgment and direct that the net assets be distributed to the members existing at the date of the order after payment of the expenses and storage charges. Such members are those undissolved members who are joined as parties to this action including the successor to Tomlinson Engraving Ltd, Tomlinson Ltd but there is no entitlement in respect of fallen members who have been dissolved before the order of this court. It would be otherwise of course if those companies were to have the dissolution declared void so as to revive the companies for the purpose of membership. In that eventuality if it happened they would then spring fully armed as to being members. That cannot however happen in my view after the order of the court; this is too late.