Summary

Where a director opposed a petition to wind up a company, and that opposition was withdrawn at a late stage, whether the director was entitled to his costs was a discretionary matter for the court which turned on the facts of the case in issue.

Facts

Petitions by the Secretary of State for Trade and Industry to wind up Century Mortgages Ltd ('CML') and Mortgage Control Services Ltd ('MCS'). CML was a mortgage broker specialising in remortgaging facilities. CML used licensees to market mortgage acceleration packages ('MAPs'). Licensees were recruited via mailshots and newspaper advertisements and were recruited following an initial fee and an annual subscription. MCS was an associated company of CML in that it managed the administrative duties of MAPs. In October 1999, provisional liquidators were appointed for the two companies. The secretary of state presented petitions under s.124A Insolvency Act 1986 to wind up CML and MCS. The directors of the companies opposed those petitions until June 2000 when their oppositions were withdrawn. The grounds of the secretary of state's petitions were that: (i) CML made misrepresentations in its recruitment of licensees; (ii) CML failed to ensure licensees were properly trained to give mortgage advice; (iii) CML failed to adequately explain to clients the disadvantages and advantages of MAPs; (iv) CML failed to take adequate steps to ensure monies paid to another company were properly accounted for; (v) CML's affairs were intertwined with those of associated entities; (vi) CML breached the Financial Services Act 1986 ('FSA 1986') with regards to offers of shares; (vii) CML failed to keep proper statutory records and registers; (viii) CML's directors failed to cooperate fully with enquiries made by the DTI; and (ix) CML was likely to be insolvent. With regard to MCS, the secretary of state sought to show that it was an integral part of CML whose clients paid mortgage payments to MCS. Those monies therefore needed to be safeguarded and brought under control. The issue for the court on this unopposed application was whether, taking into account information obtained by the secretary of state under s.447 Companies Act 1985, it was appropriate to order winding-up orders against CML and MCS. Further, it was necessary for the court to consider an appropriate costs order having regard to the recent withdrawal of the oppositions raised by the directors of the companies against the winding-up petitions.

Held

(1) The court took into account the fact that this was an unopposed application and was therefore, evidentially one-sided. However, it was satisfied on the evidence before the court, that CML and MCS were at fault in the manner expressed in the applicant's grounds. There were criticisms concerning CML's recruitment and training of its licensees. Further, on the balance of convenience, CML was in breach of s.57(2) of the FSA 1986 with regard to offers of shares and it did seem that the company was insolvent. There was satisfactory evidence to make an order to wind up CML. A sufficient case had also been made out that MCS was an integral part of CML and did run the administrative side of the MAPs. In order to safeguard and control the moneys paid by clients it was appropriate to wind up MCS. (2) Provisions for costs of a petitioner were dealt with under r.4.218H Insolvency Rules 1986 SI 1986/1925, but costs were always discretionary. In this case however, there were grounds made out so as to award the secretary of state costs for the winding-up and those costs were a priority under r.4.218. (3) As regards costs against the directors for opposing the petitions, the court drew principles from authorities (Re Bathampton Properties Ltd (1976) 1 WLR 168; Re a Company, ex parte Doe Sport Ltd (1991) BCLC 865; Aiden Shipping Ltd v Interbulk Ltd (1986) 1 AC 965; In The Matter Of Aurum Marketing Ltd (1999) BCLC 498 and Re Northwest Holdings plc (Unreported, 24/9/99)). (a) The court had a general discretion as to costs which was not displaced by any provisions of the 1985 Act, the 1986 Act or the Rules. (b) Whilst there may have been an established procedure in court (as suggested in Bathampton (supra)), the court had to make sure such procedures had not been overridden by other considerations (ex parte Doe Sport Ltd (supra)). (c) When considering the costs of parties objecting to petitions or applications, there was nothing which bound the court's hands. Each case turned on its own facts. (4) In this case, there was no reason why the directors had the right to have their costs from the companies.

Petitions to wind up companies allowed. Secretary of State's costs awarded. No order as to directors' costs.