UNADKAT & Co (Accountants) Ltd. v Bhardwaj & Anor

Section 651 of the Companies Act 1985 gives the court broad discretion, when declaring a company’s dissolution void, to order that the applicant’s costs be paid by the restored company and treated as expenses of its voluntary winding up. The jurisdiction is discretionary and should be exercised only where the circumstances justify diminishing the assets available for distribution. Necessary costs of restoring an estate may be recoverable where the restoration benefits creditors generally. Preparatory investigations and costs incurred by a creditor pursuing a personal advantage are ordinarily not recoverable. Costs of proceedings brought successfully against or through the company’s liquidator may attract the protection in Insolvency Rule 4.220(2), although the court may order that they rank with, rather than ahead of, the liquidation expenses.

Isher Fashions Ltd entered creditors’ voluntary liquidation and was later dissolved. Unadkat & Co, a creditor, applied under section 651 of the Companies Act 1985 to revive the company so that potential claims against former officers could be pursued. The dissolution was declared void, a liquidator was appointed, and proceedings against the former officers produced a £60,000 settlement.

The remaining issue concerned the costs incurred by the Accountants in obtaining the revival order and supporting the misfeasance proceedings. The court had to determine whether it had jurisdiction to order payment by the restored company and to treat those costs as expenses of the voluntary winding up, and how the discretion should be exercised.

1. Jurisdiction. The court held that section 651 of the Companies Act 1985 is sufficiently broad to permit an order that the applicant’s costs be paid by the restored company. The statutory terms may also include a condition that those costs be treated as expenses of the voluntary winding up. The jurisdiction is not restricted by the heads of expense in Insolvency Rule 4.218.
2. Successful litigant principle. A revival application is proceedings against the company for the purposes of Insolvency Rule 4.220(2), because the company is represented through its liquidator once restored. The Accountants therefore obtained the status of successful litigants. Their costs would ordinarily be payable immediately and in full, subject to the liquidator showing that the net assets were insufficient. They sought only parity with the general liquidation expenses, which the court could order.
3. Discretion. Recovery is not automatic. Costs will ordinarily remain with an applicant where revival is sought principally to pursue a claim against the company, or where the applicant undertakes uncontrolled investigations for its own purposes. The relevant question is whether charging the estate is justified in the circumstances, particularly by a benefit to the general body of creditors.
4. Application. The revival proceedings secured a class benefit and resulted in the recovery of a substantial asset. Justice therefore required the necessary costs of obtaining the revival order, including costs paid to other parties, to be treated as expenses of the voluntary winding up. The Accountants’ investigation costs and costs relating to resisting the former officers’ attempted intervention were excluded. Costs of preparing the misfeasance proceedings, assessed at £300, were also treated as liquidation expenses, producing the ordered total of £2,000.

District Judge Cooke declared the dissolution void, appointed David Bottomley as liquidator and reserved costs. The present court determined the reserved costs issues. Permission to appeal was granted.