Inertia Partnership LLP, Re

Under Financial Services and Markets Act 2000, arrangements may fall within the regulated activity of arranging investments even where they do not execute every step of the transaction. The question under article 26 of the Regulated Activities Order is factual and causal: whether the arrangements brought about the purchase, sale or subscription.

A general introduction may be too remote, but administration which issues application forms, collects payment and transfers subscription money may bring about the transaction. On a public-interest winding-up petition, the court must balance all relevant interests. A compulsory winding-up may properly mark disapproval of unlawful financial activity, even where the body is already in voluntary liquidation.

The Financial Services Authority petitioned under section 367 of the Financial Services and Markets Act 2000 for the winding-up of Inertia Partnership LLP. The LLP was neither authorised nor exempt and had acted as receiving agent in arrangements for consumers to subscribe for shares in three companies.

The petition raised three issues: whether the LLP had breached the general prohibition; whether it was insolvent; and whether it was just and equitable to wind it up. Before trial, the LLP entered creditors’ voluntary liquidation. The central questions were whether its activities amounted to arranging investments and whether a compulsory winding-up remained appropriate.

1. Disposition. The petition succeeded. The LLP was insolvent and it was just and equitable that it be wound up by the court.
2. Regulated activity. Under section 22 of the Financial Services and Markets Act 2000, the relevant shares were specified investments and the LLP carried on business. Article 25 of the Regulated Activities Order had to be interpreted in context and by reference to the legislative objective. “Arrangements” could have a wide meaning and was used in contrast with “transaction”. The arrangements need not facilitate every step required to complete the transaction.
3. The article 26 exception required a factual causation inquiry: whether the arrangements brought about the purchase, sale or subscription. Introducing Vivadi to Porterland was too nebulous and remote. In relation to Plasma, however, the LLP’s agreement to provide administration services, including handling application money, brought about completion of the share transactions, even if binding contracts had already been formed. In relation to Police 5, the application forms, collection of cheques and payment of money showed that the LLP was making arrangements for agreements with investors to be entered into.
4. Just and equitable ground. The court applied by analogy the public-interest approach under section 124A of the Insolvency Act 1986. The court had to balance all relevant interests. Relevant considerations included the statutory objectives of the FSA, the scale and significance of the LLP’s role, its knowledge that offshore brokers were cold-calling consumers, the misleading nature of the documentation and the public value of a formal winding-up.
5. The existing creditors’ voluntary liquidation did not make a compulsory order inappropriate. Following Re Walter L Jacob & Co Ltd [1989] BCLC 345, the court could mark its disapproval of misconduct in the securities market. The fact that investors might obtain compensation, the alleged conduct of the FSA, and the asserted opposition of creditors did not outweigh the public-interest considerations. The petition was therefore granted and the LLP ordered to be wound up.