Leyland Printing Company Ltd & Anor, Re

This is my extemporary judgment in the matter of winding up petitions presented against two companies, Leyland Printing Company Limited (Petition Number 2598 of 2010) and Leyprint Limited (Petition Number 2599 of 2010). Both were petitions presented by the sole administrator of each company on 19^th November 2010. Each petition refers to the fact that the administrator was appointed in accordance with section 8 of the Insolvency Act 1986 (in its original form) for the purposes of achieving a more advantageous realisation of the companies’ assets than would be effected on winding up, and the survival of the company, and the whole part or any part of its undertaking, as a going concern.

In each case the administrators were appointed under the pre-Enterprise Act 2000 regime by administration orders made by His Honour Judge Roger Cooke, sitting as a Judge of the High Court, on 22^nd May 2002. In each case the petition alleges that the administrator considers that the purposes for which he was appointed have been achieved as far as possible; and by paragraph 9:

“In the circumstances it is just and equitable that the company should be wound up. The company is insolvent and unable to pay its debts when they fall due.”

This judgment is effectively a post-script to a written reserved judgment that I handed down in the Manchester District Registry of the Chancery Division on 11^th August 2010. The neutral citation number is [2010] EWCH 2105 (Ch). This extemporary judgment should be read in conjunction with the reserved judgment I handed down on that day.

For the reasons set out in that judgment, I made an order pursuant to section 14 of the Insolvency Act 1986 that, subject as mentioned in my order, in the absence of consent from the shareholder of each company to the admission to proof of statute-barred claims, neither the administrator nor any subsequent liquidator of the company could and should accept any statute-barred claims for the purpose of proving and receiving a dividend through the realisations that had been made during the course of the administration. I then set out machinery for the purpose of confirming whether the companies’ shareholder or shareholders did in fact consent to the admission to proof of any statute-barred claims.

By paragraph 5 of my order I directed that in certain events – which in fact have occurred – the administrator was to apply for the discharge of the administration order, to place the company into liquidation, and for such other consequential relief as was appropriate. I directed that the administrator should serve copies of the order and the transcript of my judgment upon the companies’ creditors. I gave liberty to apply to the companies’ creditors to vary or set aside my order within certain time limits. In the event, no one has applied to vary or set aside my order.

These petitions were presented pursuant to the direction in paragraph 5 of my order. I am satisfied that the sole administrator, Mr. Shaw, has acted entirely properly in presenting these winding up petitions. One issue that has arisen on the hearing of the petitions is the extent to which I may have decided, in the course of my earlier judgment, whether claims by creditors were, as a matter of fact, statute-barred. Miss Carly Sandbach of counsel, who appears for the petitioning administrator, submits that I have not found or determined that all creditor claims in respect of the companies are statute-barred, with the result that the companies are solvent.

It seems to me that that is indeed the case. I took care in the course of my judgment, where I heard no argument from individual creditors, that I was deciding the matter in principle, and that if a claim was statute-barred then it should not be admitted to proof for a distribution. The background to the application is that the administrations have, in the sense at least of realising assets, proved extremely successful. The administrator presently holds, in respect of Leyland Printing Company Limited some £720,000-odd, and, in the case of Leyprint Limited, some £330,000-odd.

The effect of my judgment was that if claims were statute-barred (and it had appeared to Mr. Shaw that many, if not most of them, were, for the reasons set out in my reserved judgment of August) then the companies had surplus assets which would fall to be distributed to their members.

The petitions have taken an unusual course. They first came before me on 26^th November 2010 in the Applications List in Manchester. At that stage, the evidence in support of the petitions consisted of a single witness statement of the sole administrator, Mr. Shaw, dated 19^th November 2010, together with exhibits MAS 1 through to 4. On that day, Miss Sandbach appeared for the petitioning administrator, and Mr. Louis Doyle of counsel appeared for the members of both companies, and also for a creditor, Scenestock Ltd., which is connected with the shareholders or one of their companies.

The shareholders had initially indicated that they were not opposing winding up orders, but that position changed, almost overnight, in the immediate run up to the first hearing of these petitions. The day before the petitions were listed for hearing, and, the administrator says, quite out of the blue, three witness statements were served on behalf of the members, and also Scenestock Ltd. claiming to be a creditor. Those were the witness statements of Mr. David Astbury, a partner in the firm of DWF LLP, which firm acts for the members and Scenestock Ltd., dated 25^th November 2010, together with exhibit DAS1. There was a witness statement from Mr. George Lawrence Adrian Mould, dated 24^th November 2010, together with Exhibit GLAM1. He is a director of Ditchfield’s British Books Limited, which claims to be the beneficial member or shareholder of Leyprint Limited; and a witness statement of Frances Clark, dated 25^th November 2010, who is the Financial Controller of Scenestock Ltd., together with Exhibit FC1.

I adjourned the matter on 26^th November at Miss Sandbach’s request, on behalf of the petitioning administrator, over to today; and I gave directions for further evidence. In the event, I have received further evidence in the form of a further witness statement, dated 2^nd December 2010, from Mr. Shaw, together with Exhibit MAS3. In addition, there are two further witness statements from the opponents, Mr. Edward Mould, dated 9^th December 2010. He is the Managing Director of Scenestock Ltd.; and there is also a second witness statement from Mr. Astbury, dated 9^th December 2010, with Exhibit DA2.

It is now, I think, common ground – although this was not always the case – that in the case of Leyland Printing Company Limited it is indeed insolvent, although it has assets slightly in excess of £700,000. It is common ground that there are claims against it in excess of that amount which are clearly not statute-barred. In particular, there is a claim in the form of a contingent liability from the administrators of the company’s pension scheme which is certainly said to amount to £830,000 and, more recently, has been estimated at £1.15 million.

The position of the pension scheme is set out in letters from its solicitors, Eversheds. The letters in question are dated 20^th September 2010, 15^th October 2010, and, most recently, 6^th December 2010. Mr. Doyle submits that the pension scheme’s claim is against Leyland Printing Company Limited, and not against Leyprint Limited, in respect of whom a proof of debt had previously been submitted. He has taken me to passages in the correspondence from Eversheds which demonstrate this. In particular, he has taken me to the penultimate paragraph of Eversheds’ letter of 20^th September 2010, in which it was stated that Eversheds understood that Leyprint Limited had not participated in the scheme, and that as at the date of its winding up, the only participating employer had been Leyland Printing Limited, against whom the debt, in the form of a contingent liability pending a certificate under section 75 of the Pensions Act 1994, had been issued. That is reiterated in the fourth paragraph on the first page of the letter of 15th October. It is also consistent with the chronology of the matter.

The pension scheme apparently began to be wound up on 30^th November 2000. Leyprint Limited itself was only incorporated thereafter on 7^th November 2001. Mr. Doyle has taken me to Exhibit DXA4 to Mr. Astbury’s second witness statement, which is a valuation report as at the 5^th April 2001, upon which the contingent liability is founded. Although Mr. Shaw had understood that there were claims against Leyprint Limited amounting to in excess of £1.4 million, against assets of some £330,000, that was on the basis of the perceived liability to the pension scheme. Without that liability, it would seem that Leyprint Limited is solvent, both on a cash flow and on a balance sheet basis. There is a claim by Her Majesty’s Revenue and Customs, but that is for a sum of just under £61,000. There would appear to be a claim by a former employee, which may or may not be statute-barred, but the value of that is between some £10,500 and £16,000.

Thus the agreed position is that Leyland Printing Company Limited is indeed insolvent and should be wound up. But Mr. Doyle says that that is not the position with Leyprint Limited On the evidence, I am not satisfied that Leyprint Limited is insolvent. There may be questions as to whether there are additional debts which may not be statute-barred; but, on the evidence, the court cannot say, on a balance of probabilities, that Leyprint Limited is insolvent. Therefore, if it is to be wound up at all, it can only be on the just and equitable ground.

As to that, Mr. Doyle accepts that there is jurisdiction to make a winding up order on the just and equitable ground. Pursuant to paragraph 21 of Schedule 1 to the Insolvency Act 1986, an administrator has power to present a winding up petition. Pursuant to section 122(1), the court may make a winding up order not only where, in accordance with subparagraph (f) “the company is unable to pay its debts”, but also, under paragraph (g), where “the court is of the opinion that it is just and equitable that the company should be wound up”.

The question is whether, in the exercise of its jurisdiction, it is just and equitable to wind up Leyprint Limited, or whether, although the administration order should be discharged, the company should be returned to its directors.

The administrator nominally adopts a neutral stance; but, on his behalf, Miss Sandbach draws attention to various matters which she says militate in favour of making a winding up order on the just and equitable ground. She submits that the court has to perform a balancing exercise, in accordance with the principles laid down by Nicholls LJ in the case of Re Walter L Jacob & Co. Ltd. [1989] BCLC 345 at 351-2. Essentially, what he there said was that in considering whether or not to make a winding up order under section 122(1)(g), the court had to have “regard to all the circumstances of the case as established by the material before the court at the hearing.” That would normally involve considering, primarily, the conflicting interests and wishes of the opposing parties to the petition, whether creditors or contributories or the company itself; and,

“… the court [would] consider those matters which constitute reasons why the company should be wound up compulsorily and those which constitute reasons why it should not. The court [would] carry out a balancing exercise, giving such weight to the various factors as was appropriate in the particular case”.

Miss Sandbach acknowledges - and I accept - that this is a highly unusual case, and it does not fit neatly into any line of established authority. She submits that the matters which must be weighed in the balance by the court are the interests of the creditors as a body generally. Essentially, she says the court is being asked to choose between two potential exit routes from administration: either an exit into compulsory liquidation, or returning the companies, and the realisations made within the administration of Leyprint Limited, to the members. It therefore falls, she says, to the court to consider the effect and/or prejudice that each route would have on the interests of the parties before the court. They are the creditors generally, the members, and those specific creditors who have made particular representations. She emphasises that the companies were, in 2002, made the subject of administration orders on the footing that at that time they were insolvent. She says that if the companies are wound up, it will allow those creditors’ claims which are not statute-barred to be adjudicated upon, and creditors paid, by an independent insolvency practitioner, who is an Officer of the Court.

The insolvency regime contains built-in simplified mechanisms for determining any disputes as to whether claims are statute-barred. She says that if the court opts to return the company to the control of its members, unpaid creditors who are entitled to be paid, and who have already been subjected to an eight-year insolvency regime, will remain unpaid, and will be in no better position than they were before the administrations in 2002. She submits that that is a real and severe prejudice, and there is therefore a useful purpose to be served by a liquidation, namely, the adjudication and payment of creditors’ claims. She emphasises the fact that Leyprint Limited is not a trading company, that its assets have all been realised, and all that now remains to be done is to distribute those assets. She also points to the fact that there is some uncertainty as to the identity of the member or members of Leyprint Limited. She makes the point that liquidation will also stop the clock running on any claims by creditors that have still to become statute-barred. She makes the point that the directors of Leyprint are financially interested, through the sole claimed member of the company, in any surplus assets. She says that in the administration of Leyland Printing Company Limited, there had been a failure by its directors to disclose the existence of a substantial asset; and that, in those circumstances, the distribution of the surplus assets realised in the administration of Leyprint Limited would benefit from the disinterested approach, and investigations, of a liquidator.

She says that, balanced against that, the only prejudice that would be suffered by the members as a result of the company entering into liquidation is that some costs would be incurred by the appointment of the Official Receiver as liquidator. She emphasises that the court has not actually determined, in the case of any individual creditor, whether or not his claim is or is not statute-barred. She emphasises that the members have an obvious and undeniable interest in rejecting, and not making payment in respect of, any non statute-barred creditors’ claims, and that an insolvency officeholder has no similar interest.

For all of those reasons, she submits that, when weighing up the competing interests, and evaluating the prejudice that may be suffered as between the non-payment of any non statute-barred creditors if the companies are returned to the members, weighed against the additional costs of an insolvency procedure before any surplus is returned to members, she says that the least prejudice is suffered by the companies entering into liquidation. She also says that, when considering any prejudice to be suffered by the members by doing that, it is worth remembering that their potential interests have only arisen at all by way of a windfall, which has already operated to the expense of some creditors, and where, in accordance with paragraph 13 of my earlier judgment, I have already found that the approach of distributing the surplus assets amongst the companies’ shareholders would produce an unfair result, representing an unexpected windfall to those shareholders.

She also draws attention to the views that have been expressed by creditors in response to letters written to all known creditors and members by Mr. Shaw on 1^st December. I can disregard the response of the Pension Scheme Administrators, through their solicitors Eversheds, because, on the evidence, it seems that that does not relate to the position of Leyprint Limited. But Mr. Hewlock, whom I have already mentioned (who is a creditor of Leyprint, albeit one whose claim may well be statute-barred) is firmly opposed to a resumption of control by the directors, which he considers would be a dangerous and improper move. A limited liability partnership called Sintons, who appear to represent a Mr. Coghill, have expressed the view that their client would regard the shareholders as persons who could not properly be trusted with the administration of a company; but, again, his claim appears to be in relation to Leyland Printing Company Limited, rather than Leyprint. Another creditor, a Mr. Wadsworth, has written in, but his complaint appears to relate to the activities of the administrator, or at least one of his predecessors.

Mr. Doyle has produced a letter from another creditor, Warren Board Sales Ltd., in which its financial director has again criticised the administrator’s, or former administrator’s, conduct of the administration. What is perhaps surprising, particularly in view of what Mr. Doyle submitted was the rather one-sided way in which the letter from the administrator to creditors was expressed, is that more creditors have not written in expressing views in the matter.

Notwithstanding that, and whilst Mr. Shaw is said to remain neutral to the exit route from administration, Miss Sandbach submits that it is plain on any analysis that it is in the interests of the companies’ creditors for Leyprint Limited to exit into liquidation, and that there is indeed a purpose to such liquidation. She says that, given the various matters that the court must weigh in the balance, the least prejudice and injustice would flow from Leyprint entering into liquidation, and any surplus assets being distributed to their members.

Mr. Doyle submits the contrary. He says that it is quite clear, on the evidence before the court, that Leyprint is not insolvent, and, in those circumstances, why should it be just and equitable to order that company to be wound up? He submits that the highest the evidence of Mr. Shaw takes the matter appears in paragraph 24 of his second witness statement. Disregarding the position of the pension fund, Mr. Shaw there says that the question as to whether Leyprint may be solvent depends upon whether any individual creditors are able to establish reasons why their claims are not statute-barred. For that reason, he says, the petition for winding up sought alternative grounds, based upon insolvency or just and equitable winding up, because that would allow a liquidator to deal with adjudicating on the claims and ensure the claims sit with the correct company for dividend purposes. But, stripped down, Mr. Doyle says the reality of the position is that Leyprint is not insolvent on either a cash flow or a balance sheet basis. There is no need for an adjudication as to what claims may lie against Leyprint, and for how much, because that exercise will have to be undertaken in the context of a liquidation of Leyland Printing Company Limited in any event. The creditors can quite easily be appraised of the true position, in the form of a letter explaining that, if they have a claim against Leyprint, then they should consider whether or not it is statute-barred and, consequent upon that, whether or not they wish to pursue their claim against Leyprint, no longer in administration but not in liquidation, or, he says, any third party, including the former administrator who was responsible for allowing their claims to go statute-barred.

He says there is no other reason, compelling or otherwise, as to why Leyprint, a solvent company, should be placed into liquidation. No creditor would be prejudiced because any valid creditor claim might simply be brought against Leyprint, shorn of any insolvency procedure. Such an outcome would also clear the way for Leyprint itself to consider action against any or all of the administrators in respect of the very significant fees which they have charged notwithstanding what, Mr. Doyle says, has, on any view, been a catastrophic exercise from the point of view of ordinary unsecured creditors. Whatever the position of the creditors may have been, it has not been a catastrophic exercise from the point of view of the company, Leyprint Limited.

Mr. Doyle says that it is difficult to avoid the conclusion that the only party which might benefit from placing Leyprint into liquidation would be the liquidator thereby appointed, who would necessarily, he says, preside over the needless task of picking over creditor claims in the sure knowledge that a significant sum stands in ready assets for the purposes of meeting the liquidator’s own remuneration and disbursements. It is in those circumstances that Mr. Doyle submits that a winding up order should be made against Leyland Printing Company Limited, but not against Leyprint Limited.

In summary, Mr. Doyle submits that only vague benefits would flow from putting Leyprint Limited, as a solvent company, into liquidation; and that there is nothing objectionable in principle about returning that solvent company to its directors; after all it is the former administrator who has allowed claims to become statute-barred.

I have carefully weighed up all of those competing arguments and considerations. I have considered whether, pursuant to section 212 of the Insolvency Act 1986 (as originally enacted), and before the introduction of the new administration regime by the Enterprise Act 2002, there would be any benefit to creditors by putting Leyprint Limited into compulsory liquidation, with the consequent appointment of the Official Receiver as liquidator. But I cannot see that creditors will be in any better position in terms of resort to any provisions of the Insolvency Act in pursuing claims against the former administrator. Nevertheless, I have to bear in mind that these companies have been in an insolvency process, with the same administrators acting, albeit their precise identity has changed with the passage of time, since May of 2002.

I must focus only upon the position of Leyprint Limited. On the evidence, it would certainly appear to be solvent, and to have surplus assets. But it is not trading; and those assets fall to be distributed, first, to those creditors whose claims are not statute-barred, of whom there is at least one not insubstantial creditor in the person of Her Majesty’s Revenue and Customs, and then any surplus falls to be distributed to the member or members. The position as to the identity of the actual member or members is not entirely free from all doubt, although it may fairly easily be capable of resolution. But, nevertheless, this is not the case of returning a trading entity, with unrealised assets in specie, to its members. All the assets have been realised. The company is not trading; and all that remains to be done is to effect a distribution of the company’s assets, first to any creditor whose claim is not statute-barred, and then to the members.

It does seem to me that, in those circumstances, it is just and equitable to order the company Leyprint Limited to be wound up, and for its affairs to be placed in the hands of a disinterested insolvency officeholder, in the person of the Official Receiver, rather than for it simply to be handed back over to its directors. If there are any creditors whose claims are not properly statute-barred, then those claims can be investigated by that insolvency officeholder, who is not driven by any competing personal financial interest.

So I conclude, essentially for the seasons given by Miss Sandbach, that I should make a compulsory winding up order.

A number of subsidiary matters have been ventilated by Mr. Doyle. He has proposed that the administrator should not be released under section 20 of the 1986 Act (as originally enacted) for a period of, say, six months, so as to allow for a proper investigation into his conduct. I am satisfied that the administration order should be discharged. It therefore seems to me that the administrator should receive his release, and that he should receive it without being put to the expense which would fall to be borne by the creditors or the members of a further application for such relief.

In the particular circumstances of this case, whilst I accept that no personal criticism has been levelled at Mr. Shaw, otherwise than, effectively, that of guilt by association with the former administrator originally appointed, nevertheless it does seem to me that more than the usual short period should be allowed before the release takes effect, so that if anything comes to light over the next few weeks, further application can be made to vary the terms of this release. Otherwise I can see that a further application might be made to defer the time of his release.

It is for that reason that I consider it appropriate to say that the administrator should be released, but not for a period of three months. In doing so, I recognise that there is no present complaint that has been levelled at Mr. Shaw.

Mr. Doyle also invites the court to consider giving a direction, both to Mr. Shaw and to the two former administrators, that they should not seek appointment as liquidator of Leyprint, or indeed of Leyland Printing Company Limited. Mr. Shaw is not presently seeking his appointment as liquidator, and, if he were to do so hereafter, he would no doubt have to explain his change in position. But it does not seem to me that I should make an order, in the context of this winding up petition, preventing him from seeking office as liquidator hereafter. Indeed, I am not convinced that I have jurisdiction to make an order along those lines. Mr. Shaw is, until the discharge of the administration order, before the court in his capacity as an officer of the court; but what such an order would be doing would be seeking prospectively to seek to regulate his conduct after he had ceased to be an insolvency officeholder, and I am not sure that I should do that. And, in any event, I should not do so without a specific application for that purpose, to which Mr. Shaw personally, rather than in his capacity as administrator, is the respondent; still less should I make any order in relation to the two former administrators, who are not presently before the court, and who are therefore not officers of the court for any relevant purpose, particularly in circumstances where they have had no advance notice of that application, which has not actually even formally been reduced to an application notice or ordinary application. So I say no more about those matters.

The effect of it all is – although the precise terms of the order can be the subject of discussion – that I will make winding up orders against both Leyland Printing Company Limited and Leyprint Limited. I will discharge the administration orders. I will give the existing administrator his release three months from now; and I will deal with any other consequential matters.

I do not know if you have the terms of the order you are seeking?

On the issue of costs, there is a considerable measure of agreement. It is not disputed – and indeed could not be disputed in the light of the terms of my August order – that the costs of and occasioned by this application and petition should be paid as an expense of the administration, insofar as they have been borne by the administrator.

Miss Sandbach accepts that the costs of the members should also be treated as an expense of the administration. The only real issue arises in relation to the costs of Scenestock Limited. Mr. Doyle submits that as a statute-barred, unsecured creditor, Scenestock Limited was entitled to put its views and submissions before the court.

It seems to me that I have to ask myself to what extent anything more has been put before the court by Mr. Doyle, acting for Scenestock as well as for the members of the two companies. I have to ask myself whether I have been assisted in any way by Miss Clark’s witness statement – short as it was – and the substantial exhibit. It does seem to me that, knowing that its line was going to be the same as that of the members, there was really no need for Scenestock Limited to be represented before me today. It could simply have put its views in writing, as other creditors did. I do not consider that I was assisted in any way by having Scenestock here, or that Mr. Doyle put matters before the court which he would not have put had he been instructed solely on behalf of the members of the two companies.

In those circumstances, it seems to me that it would be unfair on the creditors, or indeed the members (depending upon who receives the ultimate surplus assets), for me to say that Scenestock Limited should be entitled to its costs in appearing before me, and in challenging the compulsory winding up orders. So I am not prepared to treat the costs of Scenestock Limited in the same way as Miss Sandbach is content to treat the costs of the members.

So my order will apply to the costs of the administrator, and of the members, but not of Scenestock Limited.