Summary

The secretary of state had not established that it was expedient in the public interest that two companies whose business involved the offering to clients of opportunities to invest in property should be wound up.

Facts

The secretary of state presented petitions against the respondent companies (P and T) seeking an order for their compulsory winding-up under the Insolvency Act 1986 s.124A. P and T were run by the same two individuals. The business of both companies was the offering to clients of opportunities to invest in property. The secretary of state argued that (1) P had induced members of the public to participate in a scheme for an annual fee of some £50,000 on the basis of a deliberately false representation that the client would acquire a portfolio of property worth £1 million within 12 months; (2) P and T were so closely connected with C, a company whose business had been conducted fraudulently, that C's wrongdoing had tainted them; (3) T had diverted its clients to P and to C, knowing the nature of the business of those companies.

Held

(1) The secretary of state had not made out a case of mis-selling against P. While P could be legitimately criticised for providing insufficient information to investors as to the risk that they might not acquire a £1 million portfolio, that did not constitute a deliberate misstatement or omission of the significance necessary for the severe sanction of a compulsory winding-up. Once it was accepted that P's role was to offer properties for purchase, it was impossible, on the available evidence, to say whether the reasons for the investor not attaining a £1 million portfolio were his own personal difficulties or unwillingness or some wrongdoing on P's part. (2) P and T had, through their officers, been closely involved with C and should not have encouraged investors into C. C had been wound up, but because it was a different business run by a different company, there was not the same imperative to wind up P or T. If there had been impropriety in C's affairs, the liquidator could bring the necessary proceedings and could refer the conduct of directors and shadow directors to the secretary of state with a view to disqualification proceedings being brought. If the officers of P and T had acted as shadow directors of C, there was already an appropriate means for dealing with any misconduct on their part. In those circumstances, the "taint" of C was not sufficient to justify the making of a winding-up order against P and T. (3) The success of the petition in respect of T was dependent on the success of the petition relating to P. As the latter petition had failed, the former should as well. (4) Further, P had made significant reforms. Those reforms had not been implemented with a view to staving off a petition brought by the secretary of state. They were consistent with a desire to run a properly conducted business and lent further support for the view that winding-up was not appropriate.

Judgment accordingly.