The Secretary of State petitioned to wind up three companies pursuant to section 124A of the Insolvency Act 1986 on the basis that it was in the public interest to do so because there was a lack of transparency in relation to each of them regarding the legal basis for certain fees and other payments they had received. The first and second companies defended the petitions on the basis that while an obligation to explain transactions may be prescribed by certain particular statutory provisions and while a company might reasonably be expected to co-operate with an investigation such as one under the Companies Act 1985, there was no freestanding requirement or obligation to explain transactions. Consequently, a failure simply to explain the basis upon which money was received could not properly form the subject matter of a winding up petition presented on public interest grounds. The third company did not respond to the petition and so offered no defence.
On the petition—
Held, petition granted in part. While it was correct to say there was no freestanding requirement or obligation to explain transactions, that did not mean that one could exclude there being circumstances in which a failure to explain might, in itself in the particular circumstances of the case, be indicative of the relevant company operating in an illegal or otherwise inherently objectionable way, or should be taken to be so indicative such that the court was entitled to proceed on the basis that the affairs of the company had been, or were being, conducted in an inherently objectionable way so as to disclose a lack of probity. An extreme example might be where a company had failed, or been unable to explain where money that it had received had come from in circumstances where the only fair inference, on the particular facts, given the absence of an explanation or the inadequacy of such explanations as had been given, was that the money in question represented the proceeds of crime or of money laundering. In those circumstances the court could potentially at least, and dependent on the full facts, properly proceed on the basis that the company’s activities were inherently objectionable and that there was a clearly defined public interest in winding up the company even if the relevant activity had ceased. Aside from an extreme example such as money laundering, there was also no reason, in principle, why the same logic could not apply where there were legitimate concerns relating to some other nefarious or potentially nefarious activity, provided that one could properly conclude that, in the circumstances, if those behind the company had been acting with honesty and propriety, then an explanation alleviating the concerns would have been provided. In such circumstances, the court could properly conclude, on appropriate facts, that the affairs of the company had been conducted in an inherently objectionable way so as to enable a legitimate public interest to be identified that would justify winding up the company on public interest grounds pursuant to section 124A. Having had regard to the totality of the evidence, the conduct of the affairs of the first and second companies was not such so as to demonstrate any inherent impropriety or any sufficient public interest in winding up those companies and the petition to do so was refused. However, the same could not be said for the third company. Accordingly a winding order was to be made pursuant to section 124A in respect of that company (paras 129–132, 135, 148, 149, 158–161).
Lucy Wilson-Barnes (instructed by Womble Bond Dickenson) for the Secretary of State.
Edward Davies QC and Patrick Harty (instructed by Richard Nelson LLP) for the first and second companies.
The third company did not appear and was not represented.