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involve misfeasance actions,68 deprivations of costs69 and actions for negligence.70 Duties that must be discharged include keeping proper accounts and lodging, with the Insolvency Service’s account at the Bank of England, any funds realised. The accounts of the liquidator will be audited by the Secretary of State and there is an obligation to file accounts and returns under section 170 of the Insolvency Act 1986. It is, moreover, the duty of the liquidator to keep minutes of meetings and administrative records, to act independently and to avoid conflicts of interest.

The end of a compulsory liquidation occurs when the liquidator has realised all the potential assets of the company and distributed all available funds. The liquidator will then report to the final meeting of creditors which may release him. If the liquidator is not so released he or she may apply to the Secretary of State.71 The liquidator must report the outcome of the final meeting to the court and the Companies Registry and, when three months have elapsed, the company will automatically dissolve.72

Public interest liquidation

The BERR and the Financial Services Authority (FSA) have powers to petition the court to wind up a company on ‘just and equitable’ grounds.73 These powers, typically, would be used to stop enterprises trading where they engage in practices that defraud customers and swindle the vulnerable – where, for example, worthless insurance policies or non-existent products are sold to the public or dubious financial schemes are marketed.74 They are powers that bypass the requirement

68Ibid., s. 212. See Re Centralcrest Engineering Ltd [2000] BCC 727; Whitehouse v. Wilson

[2007] BPIR 230.

69Re Silver Valley Mines (1882) 21 Ch D 381.

70IRC v. Hoogstraten [1985] QB 1077. 71 Insolvency Rules 1986 r. 4.121.

72An expedited process for dissolving a company is available in Insolvency Act 1986 s. 202 where the company’s realisable assets will not cover the cost of the liquidation and where full investigation of the company’s affairs is not required. Here the OR may apply to the Registrar of Companies for an early dissolution order, though twenty-eight days’ notice of the intention to apply has to be given to the company’s creditors and contributories and administrative receiver (if there is one).

73In 2006–7 the Insolvency Service of BERR secured 95 winding-up orders following 174 investigations: Insolvency Service, Annual Report 2006–7.

74For discussion see Report of the Review Committee on Insolvency Law and Practice (Cmnd 8558, 1982) (‘Cork Report’), paras. 1745–51, noting the particular problem of ‘pyramid selling’, which involves purchasers of products being induced (usually by commissions) to sell to others and to recruit these persons in turn as sales operatives:

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that creditors must be owed in excess of £750 if they are to petition the court for a winding up and are especially useful where it comes to light that a company is defrauding large numbers of creditors of relatively small sums of money: as where 40,000 football World Cup tickets were sold by a company but no tickets were supplied.75

The Secretary of State for BERR has powers under section 124A of the Insolvency Act 1986 to present a petition to the court to wind up a company. This may be done where it appears to the Secretary of State that it is ‘expedient in the public interest that a company should be wound up’.76 The basis for the Secretary of State’s conviction on this front must be a report or information obtained under Part XIV of the Companies Act 1985; a report made by inspectors under sections 167, 168, 169 or 284 of the Financial Services and Markets Act 2000 (FSMA 2000); any information or documents obtained under sections 165, 171, 172, 173 or 175 of FSMA 2000;77 information obtained under section 2 of the Criminal Justice Act 1987;78 or information obtained under section 83 of the Companies Act 1989. The court, in turn, is empowered to wind the company up ‘if the court thinks it just and

see, for example, Re Secure and Provide plc [1992] BCC 405, 406; Re Drivertime Recruitment Ltd [2005] 1 BCLC 411. For an example of a pyramid-selling winding up see Re Alpha Club (UK) Ltd, Judgment, 23 April 2002 (noted: (2002) 8 Sweet & Maxwell’s Company Law Newsletter 7). See also V. Finch, ‘Public Interest Liquidation: PIL or Placebo?’ (2002) Ins. Law. 157; C. Campbell, ‘Protection by Elimination: Winding Up of Companies on Public Interest Grounds’ (2001) 17 IL&P 129; A. Keay, ‘Public Interest Petitions’ (1999) 20 Co. Law. 296; D. Milman, ‘Winding Up in the Public Interest’ (1999) 3 Palmer’s In Company 1–2; Cork Report, paras. 1745–51.

75See Campbell, ‘Protection by Elimination’, p. 131.

76The Secretary of State thus acts not to protect his or her own interests but in the interests of the public: see Keay, ‘Public Interest Petitions’, p. 297; Re Lubin Rosen and Associates Ltd [1975] 1 WLR 122 at 129. On defining the public interest as the interest of ‘the public at large’ see Megarry J in Re Lubin Rosen at 129 and see also Nicholls LJ in Re Walter L. Jacob & Co. Ltd [1989] 5 BCC 244 at 256.

77See Insolvency Act 1986 s. 124A(b), as amended by the Financial Services and Markets Act 2000 (Consequential Amendments and Repeals) Order 2001 s. 305. Section 305 further details that where the company is an open-ended investment company (within the meaning of FSMA 2000), regulations made as a result of section 262(2)(k) of FSMA 2000 are relevant for the Secretary of State’s decision.

78The Serious Fraud Office (SFO) has a specific remit to investigate serious or complex fraud and to prepare reports that may be used as a basis for winding-up petitions. Information and evidence collected by the SFO (under section 2 of the Criminal Justice Act 1987) may be passed to the CIB for the purposes of a winding-up petition under s. 124(a) of the Insolvency Act 1986: see Campbell, ‘Protection by Elimination’, p. 131.

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equitable’. Indeed, the court may make any order it thinks fit, including an interim order.79

As for the Financial Services Authority (FSA), this body possesses powers to petition for a winding up under FSMA 2000. Section 367(1) of FSMA 2000 provides that the FSA may ask the court to compulsorily wind up any company or partnership which is or has been an authorised person80 or an appointed representative81 or is carrying on or has carried on a regulated activity without authorisation in contravention of the general prohibition on this in FSMA 2000. On such a petition, the court may wind up the body if it is unable to pay its debts82 or if the court ‘is of the opinion that it is just and equitable that it should be wound up’.83 The Secretary of State has some of the same powers that the FSA possesses under FSMA 2000, but not the FSA’s insolvency powers.

The philosophies underpinning PIL do, however, vary both between petitioning institutions and across the processes of securing and enforcing a PIL. To start with the BERR, this Department acts through the Companies Investigation Branch (CIB) (which is located within the Insolvency Service, an executive agency of BERR). The ruling objective of the CIB is to protect the public from the activities of unscrupulous or otherwise errant companies and their directors or employees. The purpose here is not necessarily to trigger the liquidation of a company that is insolvent. The company does not have to be shown to be insolvent in order to petition the court.84 Nor, indeed, is the major purpose of the CIB to put the company out of business – it is to put an end to a practice or way of conducting business that is harmful to the public, though not necessarily illegal.85

79 The court may, as an alternative to winding up, extract an undertaking from the company or its directors: see Bell Davies Trading Ltd v. Secretary of State for Trade and Industry [2005] BCC 564 and (on the court’s general discretion) Re Supporting Link Ltd [2004] BCC 764.

80Per s. 31(2) FSMA 2000 (a person within Part IV FSMA 2000 permitted to carry on one or more regulated activities, a firm qualifying for authorisation under Schedule 3 or 4 or a person otherwise authorised under FSMA 2000).

81Per s. 39(2) FSMA 2000 (a party contracted by an authorised person to engage in business of a prescribed description).

82FSMA 2000, s. 367(3)(a). 83 Ibid., s. 367(3)(b).

84 On why it might be in the public interest to wind up a solvent company see Re A Company (No 007923 of 1994) [1995] BCC 634, 637; Keay, ‘Public Interest Petitions’, p. 300.

85 Re SHV Senator Hanseatische Verwaltungs Gesellschaft mbH [1997] BCC 112, 119 (Millett LJ).

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The FSA’s position might be contrasted as being more explicitly ‘regulatory’. When the FSA petitions the court, it does so in relation to regulated parties and activities and it does not petition in pursuit of ‘the public interest’ as stated in those terms. The Secretary of State has, as noted, to make a section 124A petition on the basis of evidence derived from specified reports or sources of information. The FSA, in contrast, has neither the obligation to refer to such designated bodies of evidence nor the duty to apply the ‘expedient in the public interest’86 test in deciding whether to apply for a winding up. Under FSMA 2000 the court may look to whether the body is insolvent or whether it is just and equitable to wind it up87 but the FSA petitions in pursuit of its statutory objectives, namely of maintaining confidence in the financial system, promoting public understanding of the financial system, securing the appropriate degree of protection for consumers and reducing financial crime.88 The FSA thus proceeds with a more particular focus than the CIB, which may act in order to uphold principles of commercial morality quite generally, but which is not concerned to sustain the health of a particular sector or to retain confidence in a particular market.

Differences in the legal powers of the FSA and CIB create potential differences of approach. The FSA has a wider range of specific statutory powers than the CIB. These allow it to stop an objectionable commercial practice by an individual or company within the financial services sector. These powers may thus rule out the need to apply for PIL in many instances. If, for instance, the FSA is concerned about the trading behaviour of an individual or company which is an authorised person, it can use its administrative powers and does not need to seek court approval before it acts. For instance, it may exercise its ‘own initiative’ power to vary an authorised person’s permission to carry on regulated activity – as set out in Part IV of FSMA 2000. Under section 53(2)(a) of this Act the FSA may exercise this power so that a variation is of immediate effect and the Authority is likely to act urgently where this is necessary to protect consumer interests, where financial crime is involved, where the person or company has submitted misleading information to the FSA, or there is concern about the company’s ability to continue to meet its conditions of carrying out business.89 Where, similarly, there are worries about the practices of persons (whether authorised or not), section 380 FSMA 2000 allows the FSA (and, to a more limited extent, the Secretary of State) to

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apply to court for an injunction to restrain a contravention of a relevant regulatory requirement. Section 381 also allows the FSA (but not the Secretary of State) to apply to the court to injunct a person to restrain a market abuse. In addition to section 380 or 381 restraining injunctions, the FSA (and, in some cases, the Secretary of State) may ask the court to restrain a person from disposing of or dealing with assets. Restraining injunctions may be sought in a precautionary manner – where the FSA has evidence that there is a reasonable likelihood that a person will contravene a requirement of the 2000 Act – and these and asset freezing orders may be obtained from the court on an interim basis. Nor should it be forgotten that conduct that might be the subject of an injunction application may also be an offence or a regulatory breach for which the FSA has prosecutorial or disciplinary powers under the 2000 Act.

To return to CIB-instituted petitions to wind up in the public interest, philosophical differences are also encountered at different stages in the process from application to enforcement. The CIB’s central concern may be to protect the public from the actions of an individual or firm, but it cannot be assumed that the courts will take an identical or purely protective view when considering if it is ‘just and equitable’ to wind up. It is clear from decided cases that the courts will not accept the Secretary of State’s arguments unquestioningly, but will consider and test these in the same manner as the submissions of other parties.90 The courts, moreover, will not look in a narrow fashion at the interests of the public but will balance the interests of all parties involved – the company, the members, creditors and investing members of the public.91 There is, in addition, some evidence that certain judges may temper their instincts to protect the public by demanding evidence of some culpability on the part of the company or its directors. Courts generally stress that ordering the winding up of an active company is a very serious step92 and, in declining a winding up in Re Secure and Provide plc,93 Hoffmann J seemed to lay particular stress on the issue of blameworthiness. In that case, the

90See Campbell, ‘Protection by Elimination’, p. 132; Keay, ‘Public Interest Petitions’, p. 298; Re Secure and Provide plc [1992] BCC 405; Re Walter L. Jacob & Co. Ltd [1989]

5 BCC 244, 251–2.

91Re SHV Senator Hanseatische Verwaltungs Gesellschaft mbH [1997] BCC 112, [1997] 1 WLR 515; Re Market Wizard Systems (UK) Ltd [1998] 2 BCLC 282.

92Re Walter L. Jacob & Co. Ltd [1989] 5 BCC 244, 252; Re Golden Chemical Products Ltd

[1976] 1 Ch 300, 310–11.

93[1992] BCC 405. See also Secretary of State for Trade and Industry v. Travel Time (UK) Ltd [2000] BCC 792.

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commercial practice at issue was that of using pyramid selling schemes to market insurance packages. The Secretary of State’s petition alleged fraud on the part of the company but Hoffmann J refused the petition. He accepted that some of the statements used in the sales literature were either exaggerated or wrong but he also believed the evidence of the scheme’s designer who claimed that he had acted in good faith and had not intended to deceive. His Lordship thought that winding up was not justified as it would have been a ‘grossly disproportionate response’ to the errors involved.94

Hoffmann J’s approach here might be interpreted as inconsistent with a strict public protection rationale – which would seek to shield the public from potentially harmful conduct whether the behaviour involved was deliberate or not. It might be countered that in Re Secure and Provide plc the court was really taking exception to the quality of the evidence that the DTI had amassed against the company.95 In another case, however, Secretary of State for Trade and Industry v. Travel Time (UK) Ltd,96 the court was again concerned with whether the public had been deliberately defrauded or misled and suggested that where a petition was presented it was desirable, though not essential, that there be evidence of some intentional or dishonest deceit of the public.

Such judicial reasoning leaves certain questions hanging, notably whether issues of culpability are relevant because the courts are reluctant to take the serious step of winding up without there being some blameworthiness to merit this, or whether the courts are interested in deliberation and blameworthiness because the courts are concerned to protect the public by upholding standards of commercial morality – which, in turn, calls for evidence on the degree of culpability that a particular practice involves. Consistent with the latter approach is the judgment of Nicholls LJ in Re Walter L. Jacob & Co. Ltd.97 A key issue in that case was whether the petition for winding up should be refused because the company had ceased trading in securities immediately before the presentation of the petition and therefore no longer presented a threat to the investing public. His Lordship was unpersuaded by this line of

94See also Re A Company (No. 007923 of 1994) [1995] BCC 634 and Re A Company (No. 007924 of 1994) [1996] 15 Lit. 201–3 – petitions refused, giving credit to the fact that the directors involved had all honestly believed that they were acting lawfully.

95See Campbell, ‘Protection by Elimination’, p. 132, who notes that such ‘antipathy to the DTI’s poorly researched argument presented ex parte’ was further manifested by the court allocating the provisional liquidator’s costs against the Secretary of State.

96[2000] BCC 792. 97 [1989] 5 BCC 244.

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argument, stating that it would ‘offend ordinary notions of what is just and equitable that, by ceasing to trade on becoming aware that the net is closing around it, a company which has misconducted itself on the securities market can thereby enable itself to remain in being despite its previous history’.98 Nicholls LJ granted the petition, stating that the public interest required that individuals or companies who deal in securities should maintain at least the generally accepted minimum standards of commercial behaviour and that those who, for whatever reason, fall below those standards should have their activities stopped.99 He emphasised that his judgment sent a message to the financial services community: ‘of spelling out … that the court will not hesitate to wind up companies whose standards of dealing with the investing public are unacceptable’.100

When awarding costs, the courts, it seems, will be prepared to advert to issues of culpability and to take even retribution into account. Directors whose defences to petitions cause unnecessary losses to other parties are plainly liable to be penalised by the courts.101 Where a petition to wind up is sought, it is common for a provisional liquidator to be appointed and the Insolvency Service has considerable experience in fulfilling this role. Again, however, the approach of the Insolvency Service (IS) may not be identical to that of the CIB. An official of the IS made the point at interview: ‘The purpose, from the CIB’s point of view, of appointing Official Receivers as provisional liquidators is to close the business down and we can’t do that because, as a provisional liquidator,

we are acting as an officer of the court not as a liquidator and we are as answerable to the company as we are to the petitioner.’102

There is thus a divergence here between the approaches of the IS and its sub-department: ‘The CIB want to stop the company trading, stop the wrongdoing, but we [the IS] have to be sure that it isn’t a viable concern – our job is to protect the estate, only that – to collect and protect the assets pending the determination of the court. There is a certain tension there

98 Ibid. at 257H. 99 Ibid. at 256E. 100 Ibid. at 258A.

101Secretary of State for Trade and Industry v. Aurum Marketing Ltd [1999] 2 BCLC 498; Re North West Holdings plc; Secretary of State for Trade and Industry v. Backhouse

[2002] BCC 441 – the Court of Appeal ordered that the owner-controller of two companies (B) should pay the costs of the section 124A liquidation because B had not given any serious consideration as to what was in the interests of the companies and their creditors apropos defending the petition. Per Aldous LJ the costs had been expended for B’s individual interests and it was therefore just that B paid the Secretary of State’s costs even though B was not a party to the proceedings.

102Interview, Insolvency Service, 15 March 2002.