Marches Credit Union Ltd, Re

JUDGE PURLE: This is an application brought on with great urgency to wind up Marches Credit Union Ltd (“the Union”). The petition has been presented today. It is expressed to have been presented by “the directors”. They are not identified by name in the petition. However, in the accompanying witness statement of one of the directors, Mr Widowson, there is exhibited a copy of the latest annual return. This identifies six directors. Mr Widowson points out that as things currently stand, the Union is run by five (not six) directors. The reason for that is that one of the directors, Michael John James Rant (“Mr Rant”), is for practical purposes no longer acting as a director though he still may, as a matter of law, hold office as such. He is suspected of embezzlement and appears to have attempted to commit suicide in December of 2012. The result of the apparent embezzlement is that the Union is plainly insolvent because its assets are less than its liabilities. Once any of the problems now facing the Union are widely known, there is every risk that there will be a run on the Union which will cause (to put it at its lowest) disorder and dismay.

The five directors (excluding “Mr Rant”) and their advisers have been in discussions with the Prudential Regulation Authority (“the PRA”), which is the branch of the Bank of England that now regulates the Union, and the Financial Services Compensation Scheme (“the FSCS”). There is unanimity amongst all these people and bodies as to the appropriate way to proceed, which is to seek an immediate order winding the Union up. If a winding up order can be made today, there is a strong likelihood that the FSCS will ensure that all creditors (who are generally speaking the less sophisticated members of the public) will be paid out in full within seven days or so. In consequence, the FSCS will become the largest single creditor of the company by subrogation. That is a very desirable result, if it can be achieved. The discussions have obviously been handled with, so far as one can tell, great tact and skill.

I am certainly minded to make an order winding the Union up today, waiving the requirement for service and advertisement of the petition, if it is open to me to do so. There are, however possible technical difficulties. Section 55 of the Industrial and Provident Society Act 1965 provides that a registered society (which the Union is under the Credit Union Act 1979) may be dissolved on its being wound up in pursuance of (amongst other things) an order made as is directed in regard to companies by the Insolvency Act 1986 (“the 1986 Act”), the provisions of which apply to such an order as if the society were a company, subject to immaterial modifications. It is clear both from this section and from Re Norse Self Build Association Ltd [1985] BCLC 219, confirmed by In Re Dairy Farmers of Britain Ltd [2010] Ch 63 at [14], that section 55 can be used to wind up an Industrial and Provident Society in exactly the same way as if it were a registered company. It is not necessary to have recourse to the power to wind up unregistered companies as (now) contained in Part 5 of the 1986 Act. There is therefore power in the Court to wind up the Union under the 1986 Act.

Turning to the provisions of the 1986 Act, section 124 enables an application to the court to be made by (amongst others) “the directors”. It has, however, been held that unanimity among the directors is required for that purpose: Re Instrumentation Electrical Services Ltd (1988) 4 BCC 301. In the present case, Mr Rant has had no involvement in the decision because he has no longer been participating as a director though, as I have said, he may still be a director in law. It has also been held that once a proper resolution has been passed by a majority of the directors at a board meeting, that is sufficient because all directors become under an obligation to support the resolution. Therefore, any one director can present a petition on behalf of them all: Re Equitycorp International Ltd [1989] 1WLR 1010.

There has, I am told, been a board resolution in this case authorising the proceedings but the indications are that Mr Rant played no part in the passing of that resolution and that he was given no notice of the board meeting. Accordingly, it might be said that the meeting itself at which the resolution was passed was invalidly convened, and that the present petition is therefore flawed. That would be most regrettable.

Mr Weaver, facing up to this difficulty, referred me to Lancefield v Lancefield, a decision of Neuberger J reported at [2002] BPIR 1108. In that case Neuberger J, who was in fact dealing with an insolvent partnership, held that the court had jurisdiction to wind up a company of its own motion and that the same applied for an insolvent partnership. He then proceeded to wind up the insolvent partnership. At page 1111, having noted the requirements of section 124, he went on as follows:

“However, I do not see why that should mean that where a matter concerning the company is before the court and the court is quite satisfied that there is jurisdiction to make a winding up order because one or more of the circumstances in section 122(1) apply, the court is in every case powerless to act simply because nobody has petitioned for the winding up under section 124(1). I do not see why in the case of a registered company the court should not in an appropriate case of its own motion decide on the facts before it that it has power to make a winding up order under section 122(1) and that it should make such an order.”

That reasoning must apply just as much in the case of winding up an Industrial and Provident Society as it does in the case of a registered company. Accordingly, I have jurisdiction to proceed in this case even if the petition is in some way vitiated by the absence of the consent of all the de jure directors.

Mr Justice Neuberger emphasised in the Lancefield case that very exceptional facts were required to justify the court acting of its own motion. Subsequently, Judge Behrens in re BTR (UK) Limited [2012] EWHC 2398 (Ch), following Lancefield, made an immediate winding up order without requiring the presentation of a petition in circumstances where creditors had approved of a compulsory winding up of a company then in administration but the administrator, lacking funds, was unwilling to make that application himself.

In my judgment, the present facts justify my acting under the court’s inherent jurisdiction. Five directors being, in practice, the only active directors have resolved upon a winding up and have petitioned the court. They have done so with the support, as I have said, of the PRA and the FSCS. The objective is to introduce an orderly means by which the investors in the Union can be paid out what is due to them in the immediate future, avoiding an unseemly scramble. That is very much in the public interest.

In the case of a registered company, it would be possible to appoint administrators, but the Dairy Farmers of Britain Ltd case confirms that that is not an available option here. That is a shame, as two insolvency practitioners of undoubted repute have been identified and would plainly be suitable office holders. As I am asked to make a winding up order, in the first instance, the Official Receiver becomes the liquidator. However, I am told that there is likely to be a more or less immediate appointment of the two office holders in question. More significantly, the mere making of a winding up order will be sufficient to trigger the ability of the payment of compensation by the FSCS.

In those circumstances, I will, upon various undertakings to complete minor gaps in the evidence that I have identified with counsel, make an immediate winding up order in the terms that I have discussed with counsel, acting under the court’s inherent jurisdiction if the petition by five out of six directors, if that is in truth the case, is in some way insufficient.