Where a winding up petition is pending against a company, the company is able to enter into administration under Schedule B1 of the Insolvency Act 1986 (‘Schedule B1’), either through the court making an administration order in respect to the company, or through an appointment under paragraph 14 to Schedule B1 (where no provisional liquidator has been appointed and no administrative receiver is in office[1]). When the company does enter administration, the pending winding up petition is affected.
This article will consider that effect, which varies depending on the statutory basis founding the winding up petition, and which of the above two routes to administration has been utilised. In doing so, this article will discuss Schedule B1 and the cases of Re J Smiths Haulage Ltd [2007] BCC 135 (‘Haulage’), John Harlow (Administrator of Blak Pearl Limited) v Creative Staging Limited [2014] EWHC 2787 (Ch) (‘Harlow’) and Re Portsmouth City Football Club Ltd (in liquidation) (also known as Neumans LLP (a firm) v Andronikou [2013] EWCA Civ 916 [2013] Bus LR 1152 (‘Portsmouth City’)
Schedule B1 Provisions
A good starting point for considering the effect of administration on a pending winding up petition (sometimes referred to as an ‘undisposed of winding up petition’[2] or an ‘extant petition’[3]), is Schedule B1 and in particular, paragraph 40. Paragraph 40 is headed ‘Dismissal of pending winding-up petition’ (not a complete description of its contents) and paragraph 40 (1) and (2) (subparagraph (3) is not relevant) state:
’40(1) A petition for the winding up of a company–
(a) shall be dismissed on the making of an administration order in respect of the company, and
(b) shall be suspended while the company is in administration following an appointment under paragraph 14.
(2) Sub-paragraph (1)(b) does not apply to a petition presented under–
(a) section 124A (public interest),
(aa) section 124B (SEs), or
(b) section 367 of the Financial Services and Markets Act 2000 (c.8) (petition by Financial Conduct Authority or Prudential Regulation Authority).’
Disapplication of Paragraph 40(1) for certain Winding Up Petitions
Paragraph 40(1) is, of course, the key provision and this will be discussed below; but as will be apparent, paragraph 40(1) does not apply to all petitions; its application is limited by paragraph 40(2), a provision that disapplies paragraph 40(1) in respect to petitions based on 3 statutory provisions. The statutory provisions themselves are set out in a footnote[4] but in short, they are winding up petitions presented: (1) by the Secretary of State on the basis it appears to him ‘…that it is expedient in the public interest that a company should be wound up…’; (2) by the Secretary of State on the basis that it appears to him ‘that the [Societas Europaea] should be wound up…’; (3) (a) by the Financial Conduct Authority against (i) present or former authorised persons or recognised investment exchanges; (ii) present or former appointed representatives; or (iii) persons carrying on, or persons who have carried on, a regulated activity in contravention of the general prohibition; or (3)(b) by the Prudential Regulation Authority against a PRU-regulated person.
For the purposes of this article, it will be assumed that the winding up petition is not founded upon one of these 3 statutory provisions.
Winding Up Petition Dismissed on Making of Administration Order
Returning then to the key paragraph, paragraph 40(1) to Schedule B1, it is clear that Parliament decided to prescribe different affects depending on how the company came to enter administration. On the making of an administration order (of course, made by a court) in respect to the company, the pending winding up petition against the company will be dismissed pursuant to paragraph 40(1)(a). Since the winding up petition is dismissed, no winding up order can be made on the winding up petition, and no transactions will be avoided under section 127 of the Insolvency Act 1986 ('1986 Act').
Winding Up Petition Suspended on Paragraph 14 Appointment
Paragraph 40(1)(b) relates to a company being placed into administration by an out of court appointment. Paragraph 14(1) is headed ‘Power to appoint’ and reads:
‘The holder of a qualifying floating charge in respect of a company’s property may appoint an administrator of the company.’
Therefore, only a qualifying floating charge holder may utilize this route, to put a company into administration; this route is not available to the company or the company’s directors[5]. Paragraphs 14(2) and (3) define[6] what a qualifying floating charge holder is. Paragraph 15 contains some restriction on this wide appointment power[7] and paragraphs 18 and 19 provide that the appointment takes effect from the time when a notice of appoint is filed at court (including/accompanied by certain documents)[8]. There is a special procedure[9] for filing the notice of appointment with the court when the appointment is out of business hours[10].
Where therefore the holder of a qualifying floating charge in respect to the company’s property validly appoints an administrator of the company pursuant to paragraph 14(1), paragraph 40(1)(b) is engaged and the effect is to ‘suspend’ the pending winding up petition and keep suspended the winding up petition while the company is in that administration regime.
Effect of Suspension
During the currency of the suspension:
(1) the winding up petition has no legal effect. Judge Norris QC, sitting as a Judge of the High Court, reached this conclusion in Haulage. HHJ Purle, also sitting as a Judge of the High Court, in Harlow, summarised this, at paragraph 8:
‘The effect of suspension was considered by [HHJ Norris QC] in …Haulage… who concluded that the effect of suspension was that the petition had no legal effect during the period of suspension only.’
(2) no winding up order ought to be made by the court on the petition[11].
Potential for Revival of the Winding Up Petition
With the pending winding up petition only suspended while the company is in administration, when the administration comes to an end, the suspension to the winding up petition will cease[12], with the winding up petition revived /restored and available to be pursued, ultimately, through to the court making a winding up order against the company.
Source of Court’s power to make an Order on the Revived Winding Up Petition
An administrator’s appointment can end for multiple reasons[13] and the legal basis for cessation affects the source of the court’s post termination of administration, powers.
Under paragraph 55, where an administrator: (a) reports to the court under paragraph 53 that a company’s creditors have failed to approve the administrator’s proposals; or (b) reports to the court under paragraph 54 that a company’s creditors have failed to approve a revision of the administrator’s proposals, under paragraph 55(2):
‘The court may -
‘(a) provide that the appointment of an administrator shall cease to have effect from a specified time;
…
(d) make an order on a petition for winding up suspended by virtue of paragraph 40(1)(b)’
This however is the extent of the clear provisions in Schedule B1. In Haulage, Judge Norris QC said, at paragraph 6:
‘Where the administration is terminated because the creditors fail to approve the administrator's proposals then the court is specifically empowered to make an order on the suspended winding-up petition: see para.55(2)(d) of Sch. B1. But otherwise the treatment of the suspended petition seems not to be expressly addressed in Sch. B1.’
In Haulage, Petroplus Refining (Teeside) Ltd (‘Petroplus’), the petitioning creditor, presented on 13.3.06 a winding up petition against J Smiths Haulage Ltd (‘the Company’). On 19.4.09, while the winding up petition was still pending, a qualifying floating charge holder appointed, out of court, Mr Morris as administrator of the Company. Mr Morris then caused the Company to dispose of the Company’s business. Though Mr Morris was aware of the pending winding up petition, Petroplus were not notified of Mr Morris’ appointment under (the then applicable) r.2.27(2)(b) of the Insolvency Rules 1986 (‘IR 1986’). Consequently[14], Petroplus proceeded with the pending winding up petition and on 26.4.06 the Company was made subject to a winding up order (‘the April Order’).
When Mr Morris came to learn of the April Order, he applied[15] to the court for an order that the administration cease under Schedule B1 paragraph 79(1), so that the winding up petition could revive and become effective, and the official receiver assume office. Judge Norris QC approached the matter, firstly, as if the April Order had not been made.
Being an application under paragraph 79(1), not paragraph 55, Judge Norris QC had to identify the relevant provision within Schedule B1, empowering the court to make, in such circumstances, an order on the revived winding up petition. Schedule B1, paragraph 79(1) states:
‘On the application of the administrator of a company the court may provide for the appointment of an administrator of the company to cease to have effect from a specified time.’
And paragraph 79(4) provides:
‘On an application under this paragraph the court may–
(a) adjourn the hearing conditionally or unconditionally;
(b) dismiss the application;
(c) make an interim order;
(d) make any order it thinks appropriate (whether in addition to, in consequence of or instead of the order applied for).’
Focusing in on (d) in the prescribed list (as, co-incidentally, was required in paragraph 55(2)), Judge Norris QC discerned that this provision provided the necessary statutory basis. At paragraph 6 in Haulage, Judge Norris QC said:
'For my part I have no doubt that if in order to terminate an administration an administrator makes an application under para.79(1) of Sch. B1 that his appointment shall cease to have effect from a specified time then the court has power under para.79(4)(b) likewise to make an order on the suspended petition: either dismissing it or making a compulsory winding-up order, depending on the course taken by the administration and the necessity for distributions or investigations. That is an approach I would have adopted here had the April order not been made.’[16]
In Harlow, Judge Purle accepted that ‘para.79(4)(b)’ in the above quote was suppose to be ‘para.79(4)(d)’ [17].
Avoidance of Property Dispositions
The prospect of the (original) winding up petition reviving and subsequently a winding up order being made by the court on the petition, raises an important issue as to the application of the avoidance of property dispositions (and any transfer of shares, or alteration in the status of the company's members) [18] provision contained within section 127 of the 1986 Act. Subsection (1) of which provides:
‘In a winding up by the court, any disposition of the company's property, and any transfer of shares, or alteration in the status of the company's members, made after the commencement of the winding up is, unless the court otherwise orders, void.’
Typically, this provision must be read with section 129(2), which provides:
‘…the winding up of a company by the court is deemed to commence at the time of the presentation of the petition for winding up.’
The above section 129(2) applies unless sections 129(1) or (1A) apply[19].
The combined effect of these sections 127(1) and 129(2) is that, prima facie any disposition of the company’s property, after the date the winding up petition was presented, will be void, unless the court orders otherwise (by making a validation order[20]). In Harlow, Judge Purle said, at paragraph 11:
‘Under section 127 of the Act, in a winding up by the court, any disposition of the company's property made after the commencement of the winding up, (which is ordinarily the date of presentation of the petition) is void unless the court otherwise orders.’
Two Time Periods
There are two time periods that warrant consideration in respect to potentially voidable company property dispositions:
(a) after the original now revived winding up petition was presented, to the date the company entered administration; and
(b) during the currency of the administration;
These will be addressed in reverse order.
Dispositions during the Currency of the Administration
The position in respect to (b) can be established easily. Section 127(2) of the 1986 Act reads:
‘This section has no effect in respect of anything done by an administrator of a company while a winding-up petition is suspended under paragraph 40 of Schedule B1.’
Without making express reference to s.127(2), Judge Norris, QC in Haulage considering this point, said at paragraph 5:
‘Since the term used in the Act is “suspended” not “stayed”, in my judgement this means that as regards the administration the existence of the petition (including its potential to avoid dispositions) is without legal effect for the period of administration. When property lawyers talked of a right being “suspended” during the unity of possession they considered it “not in esse for a time … but may be revived or awaked”: see Co. Litt. 313A. In my judgment that accurately expresses the intent of the paragraph. Section 127 will therefore not avoid a disposition by an administrator validly appointed under para.14 of Sch. B1.’ [emphasis in original in italics rather than bold]
Judge Purle in Harlow held that Judge Norris QC’s approach had been ‘clearly correct’ (see paragraphs 8, 17 and 26)[21].
Accordingly, in the event that a winding up order is subsequently made on the original (now revived and again pending) winding up petition, s.127(1) and its voiding provision, will have ‘no effect’ on any dispositions which occurred during the currency of the administration.
Dispositions occurring Pre-Suspension of Original Winding Up Petition
Turning to period (a) above – the effect of a winding up order being made on the original (now revived) winding up petition is the same as in normal circumstances, without the interposition of the administration phrase. Section 127 of the 1986 Act will void any disposition of the company’s property made after the commencement of the winding up, unless the court otherwise orders.
Should the Court make a Winding Up Order on the Original Revived Winding Up Petition
The court can make a winding up order on a original (now revived) winding up petition, but may be urged not to, for instance, by the petitioning creditor of the company, who has received payment from the company after the presentation of the winding up petition, but before the company entered administration, and so is concerned that that payment will be avoided by section 127 if a winding up order is made on its original winding up petition. This was the situation in Harlow.
In Harlow, on 24.8.12 Creative Staging Limited (‘CSL’) presented a winding up petition against Blak Pearl Limited (‘BP’) on the basis of £63,000 of unpaid debt. Pursuant to an arrangement between BP and CSL, BP transferred to CSL £88,000, made up of £50,000 paid on 15.10.12 and £38,000 early on 29.11.12. Later on 29.11.12, Thincaps, a qualifying floating charge holder and creditor appointed, out of court, Mr Harlow as administrator. Subsequently, in transpired that about £600,000 of BP’s property had been transferred out of BP between 24.8.12 and 29.11.12 to various parties, though some were clearly in the ordinary course of business without notice of the petition to the recipient. CSL applied to withdraw the winding up petition and Mr Harlow applied to court for:
‘..an order that his appointment as administrator should cease to have effect from the making of the order….also….for dismissal of the application of [CSL] to withdraw its petition for the winding-up of the company…. for the company to be wound up on the petition by the court pursuant to paragraph 79 (4) of Schedule B1.’[22]
CSL resisted the administrator’s application, seemingly concerned that the £88,000 CSL had received would, unless a validation order were made, be avoided, upon the winding up order being made on the original winding up petition.
Judge Purle said:
‘Once the court has a petition before it, it is seized of the matter. It cannot…be withdrawn without the consent of the court, even if all parties agree, as happened (as between the actual parties to the petition) in this case.
The court when it comes to consider the exercise of its power upon the hearing of the petition must do so from the perspective of the class which a winding-up order is meant to benefit, namely the creditors as a whole: see Crigglestone Cole Co. [1906] 2 Ch. 327 per Buckley J. at 331.’
Judge Purle then (a) held that Thincaps was a creditor and its interests were entitled to ‘…have priority over the private interests of CSL, whose interest now is to avoid repayment of the sum received after presentation of its own petition…’ (b) noted that the unsecured creditors, as so often happens, had lost interest in the insolvency; (c) Thincaps has released £1,000 from under its floating charge security and had applied to be substituted as petitioning creditor; (d) reasoned that ‘…these additional steps are unnecessary and merely add to the costs of finally putting to rest what is undoubtedly an insolvent company, already subject to an insolvency process. The less expense that is undertaken in that regard the better.’
Judge Purle then said, at paragraphs 33 and 34:
‘It is a highly material factor that the course proposed by the administrator would be in the interests of creditors, whether Thincaps alone as secured creditor or the general body of creditors, because the full retrospective effect of section 127 of the Act would be preserved back to the date of presentation of the suspended petition.
That was a material factor that affected Judge Norris in the J. Smiths Haulage case and led him to conclude that he would have adopted that course had the April winding up order not been made.’
While CSL had put forward a ‘procedural thicket’ (paragraph 42) to resist a winding up order on the original winding up petition, Judge Purle held, at paragraphs 40 to 43:
‘There is an extant petition, which will shortly no longer be suspended, and the barriers erected by [counsel for CSL] are essentially procedural, not of substance. The court is often faced with applications concerning companies which have ceased to have any ongoing commercial viability but are in administration, where it is sought to proceed to a liquidation. It is commonplace in such cases for immediate orders to be made and for procedural requirements to be waived under Rule 7.55.
It may be that the administrator in the present case could be sent off to find a creditor who would wish to take over the petition. There might then be another hearing (possibly disputed) in relation to that. It may be that the administrator themselves could (as on the figures I have seen is certainly so) join in as a supporting creditor in respect of their unpaid fees.
All that is just a procedural thicket, guaranteed to enhance costs and make the ultimate result more needlessly distant than it should be.’
As to the motivation of the administrator to obtain a winding up order on the original winding up petition, in order to engage the section 127 avoiding effect, Judge Purle, criticized the DJ below’s approach, holding that far from section 127’s application being a reason to refuse to make a winding up order on the original winding up petition, it could be a perfectly proper reason for making one on the original winding up petition. Judge Purle, at paragraphs 43, 52 and 53 said:
‘There is a perfectly proper reason for the administrator to wish to proceed in the way he proposes rather than by way of a new petition under paragraph 21 of Schedule 1 of the Act, namely the desire to preserve the consequences of section 127 of the Act. For reasons best known to Parliament, but which no-one has explained to me, express provision has been made in the case of a QFH appointment for a pending petition to be preserved, albeit suspended. As it has been preserved and revives once the administrator ceases to hold office, the proper course must be to enable anyone who has an interest in seeking a winding-up order on that petition to do so. The administrators clearly have a sufficient interest, as Parliament has expressly given them power to present their own petition, but why do that when one is already in place, with its own more advantageous commencement date?
As to the prejudice caused to a significant body of creditors, as I have said, a number of the potentially challengeable payments obviously are or may be payments in the ordinary course of business which are unlikely to be disturbed, but there are others which are not. If there are proper claims, Parliament must have intended them to be retained by suspension of the petition rather than its dismissal, and it is not incumbent upon the administrator or myself to adopt or impose a course which would take that away. It is not a proper discretionary factor against the exercise of the power which I have found that the court has.
In all the circumstances it does seem to me that this court ought to recognise that Parliament must have intended to keep the petition in being for a reason and one of the reasons is so that an order might be made on the suspended petition, taking advantage of the doctrine of relation back, despite any objections of the Petitioner’
Returning to the ‘procedural thicket’, Judge Purle:
(i) noted that the court has jurisdiction make a winding-up order, if necessary of its motion or initiative[23], reasoning at paragraph 47, that:
‘…if the court could make a winding-up order without so much as a petition, then it seems to me that the court can more readily accept that it has that jurisdiction to make a winding-up order upon the existing petition, which remains in being, relying upon the administration coming to an end and the wide powers conferred by paragraph 79(1)(d).’ and then
(ii) held, at paragraph 54, that:
‘The court is seized of the petition. The company is plainly insolvent and it ought to be put into liquidation now and not at some future time after further costs and expenses have been incurred dealing with substitutions and the like. Accordingly, I will allow the appeal and grant a winding-up order upon the petition, waiving all procedural requirements that have not otherwise been complied with.’
Portsmouth City
A winding up order was made on the original winding up petition in Portsmouth City. HMRC presented a winding up petition 23.12.09. While pending, a secured creditor appointed an administrator out of court on 26.2.10, resulting in the automatic suspension of the winding up petition under paragraph 40(1)(b). Later, in 0.2.11, the court made an order terminating the administration and ordering the company to be wound up on the original HMRC petition (see paragraphs 11, 12 and 14).
Conclusion
Where a winding up petition is pending against a company, and the company enters administration under Schedule B1 of the Insolvency Act 1986, then unless the petitioner is the Secretary of State, Financial Conduct Authority or Prudential Regulation Authority and the petition comes with paragraph 40(2) of Schedule B1, then the winding up petition will either be dismissed (where the company entered administration by an administration order) or suspended (where the company entered administration through an appointment under paragraph 14 to Schedule B1).
Where the winding up petition is suspended, it is of no legal effect during the currency of that suspension. Dispositions of company property during the period of suspension are not vulnerable to avoidance under section 127 of the Insolvency Act 1986. When the administration ceases, the suspended winding up petition will be revived and a winding up order may be made pursuant to it. Where a winding up order is made on the original, revived winding up petition, section 127 (with section 129) will avoid all company property dispositions, made between the commencement of the winding up – the date the winding up petition was presented, and the company entering admininstration, unless the court orders otherwise. When determining whether to make a winding up order on the original, revived winding up petition, it is a perfectly proper reason to seek such an order in order to trigger section 127’s avoiding effect, from the date of the original winding up petition.
The outcome in both Haulage and Harlow, was that winding up orders were left in place/made on the original winding up petitions – with all the resultant avoidance of company property transactions under section 127, from presentation of the respective winding up petitions, to the time the companies entered administration (subject to any validation orders obtained).
SIMON HILL © 2019
BARRISTER
33 BEDFORD ROW
NOTICE: This article is provided free of charge for information purposes only; it does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by any member of Chambers or by Chambers as a whole.
[1] Insolvency Act 1986, Schedule B1, paragraph 17 reads:
‘An administrator of a company may not be appointed under paragraph 14 if–
(a) a provisional liquidator of the company has been appointed under section 135, or
(b) an administrative receiver of the company is in office.’
The authors to Bailey and Groves, Corporate Insolvency: Law and Practice 5th Ed, 2017, state under ‘Other restrictions’, at paragraph 10.34:
‘…no appointment may be made under Schedule B1 para 14(1) if a provisional liquidator has been appointed or an administrative receiver is in office. There is no provision enabling the consent of the appointer of the administrative receiver to be given to enable an out-of-court appointment of an administrator to proceed. Where the company is already in liquidation, an out-of-court appointment may not be made, but an administrator can be appointed by the court in certain circumstances.’
Section 135 of the Insolvency Act 1986 is entitled ‘Appointment and powers of provisional liquidators’, and reads:
‘(1) Subject to the provisions of this section, the court may, at any time after the presentation of a winding-up petition, appoint a liquidator provisionally.
(2) In England and Wales, the appointment of a provisional liquidator may be made at any time before the making of a winding-up order; and either the official receiver or any other fit person may be appointed.
(3) In Scotland, such an appointment may be made at any time before the first appointment of liquidators.
(4) The provisional liquidator shall carry out such functions as the court may confer on him.
(5) When a liquidator is provisionally appointed by the court, his powers may be limited by the order appointing him.’
The authors to Sealy & Milman, Annotated Guide to the Insolvency Legislation, 22nd Edition, 2019, state in their commentary to Schedule B1, paragraph 17 that:
‘It would obviously create difficulties to have two office-holders in post at the same time administering the company’s affairs with conflicting objectives. It would, of course, be open to the charge holder to apply to the court under r.7.39 to have the appointment of a provisional liquidator terminated and the company put into administration instead, e.g. with a view to rescuing the company as a going concern. (See the exceptional Scottish case of Ultimate Invoice Finance Ltd, Petitioner [2017] CSOH 72 where the court was prepared to take this approach after noting differences in the procedural rules between Scotland and England on appointment of administrators, but cautiously reserved certain ancillary matters.)’
There are now very few administrative receivership. This is because of section 72A of the Insolvency Act 1986, but that provision is not retroactive to apply to charges created prior to 15.9.03. There could be cases where Schedule B1, paragraph 17(b) is engaged.
On this point about liquidation, see Schedule B1 paragraph 8 and paragraphs 37 and 38.
[2] See HHJ Norris QC (sitting as a Judge of the High Court) in Re J Smiths Haulage Ltd [2007] BCC 135, at paragraph 5, and HHJ Purle QC (sitting as a Judge of the High Court) noting this in John Harlow (Administrator of Blak Pearl Limited) v Creative Staging Limited [2014] EWHC 2787 (Ch), at paragraph 17.
[3] See John Harlow (Administrator of Blak Pearl Limited) v Creative Staging Limited [2014] EWHC 2787 (Ch), at paragraph 5.
[4] Schedule B1 to Insolvency Act 1986, paragraph 40(2) sets out 3 excluded types of winding up petitions:
(a) section 124A (public interest),
(aa) section 124B (SEs), or
(b) section 367 of the Financial Services and Markets Act 2000 (c. 8) (petition by Financial Conduct Authority or Prudential Regulation Authority).
For completeness, paragraph 40 (3) reads:
‘(3) Where an administrator becomes aware that a petition was presented under a provision referred to in sub-paragraph (2) before his appointment, he shall apply to the court for directions under paragraph 63.’
Taking the 3 types of (excluded) petition in turn:
‘Section 124A - Petition for winding up on grounds of public interest.
(1) Where it appears to the Secretary of State from—
(a) any report made or information obtained under Part XIV (except section 448A) of the Companies Act 1985 (company investigations, &c.),
(b) any report made by inspectors under—
(i) section 167, 168, 169 or 284 of the Financial Services and Markets Act 2000, or
(ii) where the company is an open-ended investment company (within the meaning of that Act), regulations made as a result of section 262(2)(k) of that Act;
(bb) any information or documents obtained under section 165, 171, 172, 173 or 175 of that Act,
(c) any information obtained under section 2 of the Criminal Justice Act 1987 or section 52 of the Criminal Justice (Scotland) Act 1987 (fraud investigations), or
(d) any information obtained under section 83 of the Companies Act 1989 (powers exercisable for purpose of assisting overseas regulatory authorities), that it is expedient in the public interest that a company should be wound up, he may present a petition for it to be wound up if the court thinks it just and equitable for it to be so.
(2) This section does not apply if the company is already being wound up by the court.’
Section 124B - Petition for winding up of SE
'(1) Where–
(a) an SE whose registered office is in Great Britain is not in compliance with Article 7 of Council Regulation (EC) No 2157/2001 on the Statute for a European company (the “EC Regulation”) (location of head office and registered office), and
(b) it appears to the Secretary of State that the SE should be wound up, he may present a petition for it to be wound up if the court thinks it is just and equitable for it to be so.
(2) This section does not apply if the SE is already being wound up by the court.
(3) In this section “SE” has the same meaning as in the EC Regulation.’
Section 367— Winding-up petitions.
'(1) The FCA may present a petition to the court for the winding up of a body which–
(a) is, or has been, an authorised person or recognised investment exchange;
(b) is, or has been, an appointed representative; or
(c) is carrying on, or has carried on, a regulated activity in contravention of the general prohibition.
(1A) The PRA may present a petition to the court for the winding up of a body which is a PRA-regulated person.
(2) In subsections (1) and (1A) “body” includes any partnership.
(3) On such a petition, the court may wind up the body if–
(za) in the case of an insurance undertaking or reinsurance undertaking, the PRA has cancelled the body's Part 4A permission pursuant to section 55J(7C);
(a) the body is unable to pay its debts within the meaning of section 123 or 221 of the 1986 Act (or Article 103 or 185 of the 1989 Order); or
(b) the court is of the opinion that it is just and equitable that it should be wound up.
(4) If a body is in default on an obligation to pay a sum due and payable under an agreement, it is to be treated for the purpose of subsection (3)(a) as unable to pay its debts.
(5) “Agreement” means an agreement the making or performance of which constitutes or is part of a regulated activity carried on by the body concerned.
(6) Subsection (7) applies if a petition is presented under subsection (1) or (1A) for the winding up of a partnership–
(a) on the ground mentioned in subsection (3)(b); or
(b) in Scotland, on a ground mentioned in subsection (3)(a) or (b).
(7) The court has jurisdiction, and the 1986 Act (or the 1989 Order) has effect, as if the partnership were an unregistered company as defined by section 220 of that Act (or Article 184 of that Order).’
[5] The alternative route of Schedule B1, paragraph 22 is not available to the company or its directors either. Schedule B1, paragraph 22 reads:
‘(1) A company may appoint an administrator.
(2) The directors of a company may appoint an administrator.’
However, paragraph 25 reads:
‘An administrator of a company may not be appointed under paragraph 22 if–
(a) a petition for the winding up of the company has been presented and is not yet disposed of,
(b) an administration application has been made and is not yet disposed of, or
(c) an administrative receiver of the company is in office.’
Paragraph 25(a) is of course engaged in the situation under discussion in this article.
For more restrictions, see Schedule B1 paragraph 23 and 24.
For an illistration of this, see Causer v All Star Leisure (Group) Ltd [2019] EWHC 3231 (Ch), where the subsidary companies were placed into administration by the directors, but the parent company was placed into administration by the holder of a qualifying floating charge holder because there was a winding up petition pending against the parent company. HHJ Cooke (sitting as a Judge of the High Court) said, at paragraphs 4 and 5:
'The appointments in relation to the subsidiaries raised no issues and were effected by their directors pursuant to para 22 of Sch B1 Insolvency Act 1986. The notice of appointment required by para 29 was filed at the court in Birmingham using CE File, within normal court hours.
In relation to the parent company however, because of the pending winding up petition the directors were not entitled to make an appointment. They approached its bank to do so as the holder of a Qualifying Floating Charge, pursuant to para 14 of Sch B1.'
Where the company/company’s directors wish to place the company into administration, and there is a winding up petition pending, it/they could make an application to court for an administration order. In John Harlow (Administrator of Blak Pearl Limited) v Creative Staging Limited [2014] EWHC 2787 (Ch), HHJ Purle, QC, sitting as a Judge of the High Court, said, at paragraph 6:
‘When there is a competition between administration initiated by the directors, or the company, and a creditor who wants a winding-up petition, the court ultimately decides which is to go ahead and, in the event that an administration order is made, then under paragraph 40(1)(a) of Schedule B1 the petition has to be dismissed.’
[6] Schedule B1 of Insolvency Act 1986, paragraph 14 (2) and (3) read:
‘(2) For the purposes of sub-paragraph (1) a floating charge qualifies if created by an instrument which–
(a) states that this paragraph applies to the floating charge,
(b) purports to empower the holder of the floating charge to appoint an administrator of the company,
(c) purports to empower the holder of the floating charge to make an appointment which would be the appointment of an administrative receiver within the meaning given by section 29(2), or
(d) purports to empower the holder of a floating charge in Scotland to appoint a receiver who on appointment would be an administrative receiver.
(3) For the purposes of sub-paragraph (1) a person is the holder of a qualifying floating charge in respect of a company’s property if he holds one or more debentures of the company secured–
(a) by a qualifying floating charge which relates to the whole or substantially the whole of the company’s property,
(b) by a number of qualifying floating charges which together relate to the whole or substantially the whole of the company’s property, or
(c) by charges and other forms of security which together relate to the whole or substantially the whole of the company’s property and at least one of which is a qualifying floating charge.’
[7] Schedule B1 of Insolvency Act 1986, paragraph 15 is entitled ‘Restrictions on power to appoint’ and reads:
’15 (1) A person may not appoint an administrator under paragraph 14 unless–
(a) he has given at least two business days’ written notice to the holder of any prior floating charge which satisfies paragraph 14(2), or
(b) the holder of any prior floating charge which satisfies paragraph 14(2) has consented in writing to the making of the appointment.
(2) One floating charge is prior to another for the purposes of this paragraph if–
(a) it was created first, or
(b) it is to be treated as having priority in accordance with an agreement to which the holder of each floating charge was party.
(3) Sub-paragraph (2) shall have effect in relation to Scotland as if the following were substituted for paragraph (a)–
“(a) it has priority of ranking in accordance with section 464(4)(b) of the Companies Act 1985 (c. 6),”’
See Insolvency Rules 2016, r.3.16 and r.3.17
[8] The formalities centre around filing with the court (a) a notice of appointment; and (b) such other documents as may be prescribed. The notice of appointment must contains a statutory declaration and the notice of appointment must be accompanied by a statement from the administrator consenting.
Schedule B1 paragraph 18 reads:
‘(1) A person who appoints an administrator of a company under paragraph 14 shall file with the court–
(a) a notice of appointment, and
(b) such other documents as may be prescribed.
(2) The notice of appointment must include a statutory declaration by or on behalf of the person who makes the appointment–
(a) that the person is the holder of a qualifying floating charge in respect of the company’s property,
(b) that each floating charge relied on in making the appointment is (or was) enforceable on the date of the appointment, and
(c) that the appointment is in accordance with this Schedule.
(3) The notice of appointment must identify the administrator and must be accompanied by a statement by the administrator–
(a) that he consents to the appointment,
(b) that in his opinion the purpose of administration is reasonably likely to be achieved, and
(c) giving such other information and opinions as may be prescribed.
(4) For the purpose of a statement under sub-paragraph (3) an administrator may rely on information supplied by directors of the company (unless he has reason to doubt its accuracy).
(5) The notice of appointment and any document accompanying it must be in the prescribed form.
(6) A statutory declaration under sub-paragraph (2) must be made during the prescribed period.
(7) A person commits an offence if in a statutory declaration under sub-paragraph (2) he makes a statement–
(a) which is false, and
(b) which he does not reasonably believe to be true.’
Schedule B1, paragraph 19 reads:
‘The appointment of an administrator under paragraph 14 takes effect when the requirements of paragraph 18 are satisfied.’
See Fliptex Ltd v Hogg [2004] EWHC 1280 (Ch); [2004] BCC 870.
[9] See Insolvency Rules 2016, r.3.20-3.22, 3 rules under the general title ‘Appointment taking place out of court business hours…’. See the two recent cases: Edwards v. SJ Henderson & Company Limited (Edwards v SJ Henderson and Co Ltd (In Administration), Powell v Triumph Furniture Ltd (In Administration) [2019] EWHC 2742 (Ch) (ICCJ Burton) and Re Skeggs Beef Ltd [2019] EWHC 2607 (Ch) (Marcus Smith J).
[10] Out of business hours means at a time when the court office is closed.
[11] Strictly speaking, it is not impossible for the court to make a winding up order upon a suspended pending winding up petition. In Re J Smiths Haulage Ltd [2007] BCC 135 (‘Haulage’), a winding up order (the ‘April Order’) was made by Salisbury County Court after the company entered administration out of court. However, Judge Norris QC said of this, at paragraph 7:
‘The April order is a valid order (though it ought not to have been made since the petition was suspended at the date of the hearing in the Salisbury County Court).’
In such circumstances, the court is likely to hold that it has the power to rescind the winding up order, since it ought not to have been made. In Haulage, Judge Norris QC said of the April Order, at paragraph 7:
‘I think it is procedurally possible to rescind it on the grounds that it ought not to have been made…’
On the facts in Haulage, it was pointless to rescind the April Order (which had a relation back to 13.3.06), when Judge Norris QC reasoned he would then make a ‘fresh’ winding up order as part of the administration (under paragraph 79(4)(d) – see paragraph 8 of Haulage) which would also relate back to 13.3.06 (that being pending winding up petition’s commencement date under section 129 of the Insolvency Act 1986). Judge Norris QC said, at paragraph 7 (quoting again the first part of the passage):
‘I think it is procedurally possible to rescind it on the grounds that it ought not to have been made, and then to make a fresh order as part of the administration. But any such fresh order on that petition would still relate back to [13.3.06], because of the provisions of s.129. So there seems no point to the exercise.’
While acknowledging that procedurally the court might:
(i) rescind the April Order;
(ii) allow the petitioning creditor to withdraw the winding up petition; then
(iii) impose a winding up order,
this would generate a different commencement date for the winding up (and so relate back period):
(a) The April Order would have a commencement date of 13.3.06; whereas,
(b) a winding up order made under the court's initiative, would have a commencement date of - the date the court made the order – that was 2.10.06.
The effect of this would clearly be to remove from the scope of section 127 of the Insolvency Act 1986, any company transaction which occurred between 13.3.06 and 1.10.06. Judge Norris QC was not confident that nothing material had happened during that period, so he decided to leave the April Order in place and undisturbed. Judge Norris QC explained this, in paragraph 7:
‘It is also I think procedurally possible to rescind the April order and to allow the petitioning creditor to withdraw the suspended petition, so that I could make a winding up order as if a petition had been presented on [2.10.06]. At the hearing that appealed to me as an orderly succession of insolvency regimes which did not entail anyone having to wrestle with the “relation back provisions” arising on the suspended petition. But on reflection I am concerned that that might affect rights accruing on or dependent on presentation of the petition on [13.3.06]. The state of the evidence does not permit me to be confident that the date of commencement of the liquidation is completely immaterial; accordingly I should not proceed to write the present petition out of history.’
[12] Whether the end of the suspension is automatic or requires an order of the court is somewhat unclear:
- paragraph 40(1)(b) indicates that the suspension will cease automatically. The provision reads that the winding up petition ‘shall be suspended while the company is in administration…’ Upon the administration ending, this provision's suspensory effect would seem to automatically lapse.
- whereas, in Re J Smiths Haulage Ltd [2007] BCC 135, Judge Norris QC saw fit to make an express order – that the suspension should lapse. In paragraph 8, Judge Norris QC indicated his proposed order included:
‘…under para.79(4)(d) that the suspension of the winding-up petition effective at 10:10am on April 19, 2006, shall thereupon cease’
It may have been that this order was made out of an abundance of caution.
Finally, it is noteworthy that Judge Purle in John Harlow (Administrator of Blak Pearl Limited) v Creative Staging Limited [2014] EWHC 2787 (Ch) said, at paragraph 8, that Haulage had concluded:
‘That period of suspension however lasted only as long as the company remained in administration, and the petition revived upon its ceasing to be in administration.’
[13] For instance:
(1) Under paragraph 55 of Schedule B1;
(2) Under paragraph 76(1) of Schedule B1, by efluxion of time;
(3) Under paragraph 79 of Schedule B1, a paragraph entitled 'Court ending administration on application of administrator'
(4) Under paragraph 80(3) of Schedule B1, where paragraph 80 is entitled 'Termination of administration where objective achieved'
(5) Under paragraph 81(1) of Schedule B1, where paragraph 81 is entitled 'Court ending administration on application of creditor'
(6) Under paragraph 82(3)(a) of Schedule B1, where paragraph 82 is entitled 'Public interest winding-up'
(7) Under paragraph 83(6)(a) of Schedule B1, where paragraph 83 is entitled 'Moving from administration to creditors’ voluntary liquidation'
(8) Under paragraph 84(4) of Schedule B1, where paragraph 83 is entitled 'voluntary liquidation'Moving from administration to dissolution'
(9) Where the appointment of the administrator is out of court and out of business hours, and Insolvency Rules 2016, r.3.20 is not followed. IR r.3.22(b).
[14] Judge Norris QC in Re J Smiths Haulage Ltd [2007] BCC 135 states, at paragraph 1 that:
‘The evidence establishes that if it had known of an extant administration the petitioning creditor would not have proceeded with the petition.’
[15] It should be noted that the application was not made under Schedule B1, paragraph 55 (1), which provides at paragraph 55(2)(d) that:
‘The court may…(d) make an order on a petition for winding up suspended by virtue of paragraph 40(1)(b)’.
[16] For an explanation of Re J Smiths Haulage Ltd [2007] BCC 135, and what Judge Norris QC did on the facts before him – with the April Order (the winding up order in existence), see footnote 11.
[17] See John Harlow (Administrator of Blak Pearl Limited) v Creative Staging Limited [2014] EWHC 2787 (Ch), paragraph 22.
[18] Section 127 of the Insolvency Act 1986 is entitled ‘Avoidance of property dispositions, etc.’ and reads:
‘(1) In a winding up by the court, any disposition of the company's property, and any transfer of shares, or alteration in the status of the company's members, made after the commencement of the winding up is, unless the court otherwise orders, void.
(2) This section has no effect in respect of anything done by an administrator of a company while a winding-up petition is suspended under paragraph 40 of Schedule B1.’
[19] Subsections 129(1) and (1A) of the Insolvency Act 1986, read:
‘(1) If, before the presentation of a petition for the winding up of a company by the court, a resolution has been passed by the company for voluntary winding up, the winding up of the company is deemed to have commenced at the time of the passing of the resolution; and unless the court, on proof of fraud or mistake, directs otherwise, all proceedings taken in the voluntary winding up are deemed to have been validly taken.
(1A) Where the court makes a winding-up order by virtue of paragraph 13(1)(e) of Schedule B1, the winding up is deemed to commence on the making of the order.’
[20]On the test on an application for a validation order, see Sales LJ in Court of Appeal in Express Electrical Distributors Limited v Beavis [2016] EWCA Civ 765, in particular, paragraph 56, where he said:
‘Save in exceptional circumstances, a validation order should only be made in relation to dispositions occurring after presentation of [a] winding up petition if there is some special circumstance which shows that the disposition in question will be (in a prospective application case) or has been (in a retrospective application case) for the general body of unsecured creditors, such that it is appropriate to disapply the usual pari passu principle’
The above was recently quoted by ICC Jones in Hood v HMRC [2019] EWHC 2236 (Ch) (a bankruptcy case). See also Hollicourt (Contracts) Ltd v Bank of Ireland [2001] Ch. 555
[21] In John Harlow (Administrator of Blak Pearl Limited) v Creative Staging Limited [2014] EWHC 2787 (Ch), Judge Purle said of Judge Norris QC in Haulage, at paragraph 17:
‘The undisposed of winding-up petition was suspended. He contrasted that with a stay of the petition and ruled that the existence of the petition, including its potential to avoid dispositions, was without legal effect for the period of administration, because of the suspension. Section 127 of the Act would therefore not avoid a disposition by an administrator validly appointed under paragraph 14 of Schedule B1.’
[22] The administrator in John Harlow (Administrator of Blak Pearl Limited) v Creative Staging Limited [2014] EWHC 2787 (Ch) also applied for an order dismissing an application from another creditor of Blak Pearl Limited, Rock Star Opportunities Ltd (‘Rock Star’), to be substituted as petitioner. Rock Star did not attend the 1st instance hearing before DJ Williams on 24.3.14 to pursue its substitute application.
[23] The court has power to impose a compulsory winding up order, even if there is not a formal winding up petition before it.
The Court's exceptional jurisdiction to make a winding up order against a company is explained in Lancefield v Lancefield [2002] BPIR 118, by Neuberger J at 1111F to 1111D:
'If one looks at the commonest case, that of registered companies, s.122 of the 1986 Act empowers the court to wind up a company if one or more of the circumstances set out in s.122(1) applies. Section 124 then provides how an application for the winding-up of a company can be made by certain categories of person. It seems to me, therefore, that two propositions are clear. First, if one or more of the circumstances in s.122 exist, the court has power—not an obligation; note the word ‘may’ in s.122(1) —to make a winding-up order. Secondly, if a person seeks a winding-up, then by virtue of s.124 , he has to apply by petition, and has to be within the ambit of that section.
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 s.122(1) applies, the court is in every case powerless to act simply because nobody has petitioned for the winding-up under s.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 s.122(1) and that it should make such an order. … Having said that, I think it would require a thoroughly exceptional case before the court would even consider making a winding-up order in relation to a company where there is no petition. It would be plainly undesirable if parties to litigation thought that there was, in normal circumstances, even a real possibility of the court, of its own motion, at the risk of prejudicing people who were not before the court, making an order winding up a company. In virtually any case where the possibility of a winding-up order is to be considered—whether a registered company, an unregistered company or a partnership—it seems to me clear that the court should require a properly presented petition.
However, there will be circumstances in which a petition will not be necessary because the circumstances are so plain, and the inevitability, appropriateness and urgency of a winding-up order are so clear, that it would be a denial of justice, and a waste of time and money, for the court to refuse to make an order there and then.'
Indeed, this exceptional jurisdiction has been used to transform an administration into a liquidation in situations where an administration has failed or been terminated - see Re BTR (UK) Ltd [2012] EWHC 2398 (Ch); [2012] BCC 864 and Re Graico Property Co Ltd (in admin.) [2016] EWHC 2827 (Ch); [2017] BCC 15. See Mackenzie v Crowdstacker Corporate Services Ltd [2021] BCC 133, paragraphs 38 and 39.