Inertia Partnership LLP, Re

The Financial Services Authority petitioned under FSMA s.367 for the winding-up of The Inertia Partnership LLP (TIP) on the basis that TIP had carried on regulated activities in breach of the general prohibition in FSMA s.19 and was insolvent. The court construed the Regulated Activities Order (RAO) and concluded that RAO article 25 covers the making of arrangements which bring about share purchases and that the article 26 exception applies only where the arrangements would not bring about the transaction.

Applying that test, the court found that TIP did not participate in the sale of Vivadi shares beyond a remote introduction, but that TIP did make arrangements and provide completion and receiving-agent services which brought about transactions in relation to Plasma and Police 5, in breach of RAO article 25 and thus the FSMA general prohibition. TIP was also insolvent. Balancing the public interest, scale of activity, TIP's role and knowledge of the broker network, the court held it was just and equitable to wind TIP up.

This was a first-instance contested petition by the Financial Services Authority under FSMA s.367 seeking a court winding-up of The Inertia Partnership LLP. The FSA alleged TIP acted as a receiving agent in share placements for a number of public companies and thereby carried on regulated activities in breach of the FSMA general prohibition (FSMA s.19), and that TIP was insolvent within the meaning of the Insolvency Act 1986. The court was asked to decide (i) whether TIP carried on a regulated activity contrary to the general prohibition (focusing on RAO articles 25 and 26), (ii) whether TIP was insolvent, and (iii) alternatively whether it was just and equitable to wind TIP up.

The facts found were that TIP had introduced Porterland Associates to certain UK public companies and had acted as a receiving agent under written agreements for placements in Plasma and Police 5, issuing application forms, collecting cheques and distributing proceeds. TIP did not materially participate in sales of Vivadi beyond a remote introduction. The court framed the legal issue as the scope of RAO article 25 (making arrangements) and the article 26 exception (arrangements that do not or would not bring about the transaction). The judge adopted a causation-based factual test for article 26 and concluded that the administrative and receiving-agent services provided by TIP in relation to Plasma and Police 5 did bring about the sales and so fell within article 25. The court accepted that TIP was insolvent and exercised its discretion on the just and equitable ground, concluding that a compulsory winding-up order would serve public interest objectives (FSMA ss.3-6), mark disapproval of the conduct, and protect consumers. The judge therefore ordered that TIP be wound up. The court also granted the FSA leave to amend the petition to rely on insolvency.

The petition was allowed and a winding-up order was appropriate. The court held that TIP did not go beyond a remote introduction in relation to Vivadi, but that in relation to Plasma and Police 5 TIP provided receiving-agent and administrative services which amounted to "making arrangements" under RAO article 25 and thus breached the FSMA general prohibition. TIP was insolvent and, on the just and equitable ground, a compulsory winding up was warranted to protect the public interest and consumers.