Secretary of State for Business Enterprise & Regulatory Reform v Amway (UK) Ltd

The court’s task on a public-interest winding-up petition is to decide whether, on the totality of the evidence at the hearing, it is just and equitable to wind up the company. “Inherent objectionability” is a convenient description, not a separate legal test. A company may be wound up where its business is conducted below generally accepted minimum standards of commercial behaviour, including by encouraging or benefiting from serious misrepresentations made in recruitment. However, the court must assess the company’s current position and may take account of effective reforms and enforceable undertakings. A multilevel marketing scheme is not necessarily a lottery or unlawful trading scheme. The substance of the rewards structure, including whether rewards depend on genuine product sales and whether participants must make qualifying sales, is decisive.

The Secretary of State petitioned for the compulsory winding up of Amway under the public-interest jurisdiction. The petition alleged that Amway’s business was inherently objectionable, constituted an unlawful lottery under the Lotteries and Amusements Act 1976, and constituted an unlawful trading scheme under Part XI of the Fair Trading Act 1973.

The evidence concerned Amway’s multilevel marketing structure, recruitment practices, business support material, bonus arrangements and the financial outcomes for independent business owners. During the proceedings Amway introduced a substantially revised, retail-focused business model and offered voluntary undertakings. The central questions were whether the former conduct justified winding up, whether the revised model was unlawful, and what weight should be given to the reforms and undertakings.

1. Disposition. The petition was dismissed conditionally. Amway was not ordered to be wound up, provided it gave undertakings concerning business support material, fees, income disclosure and induction of new business owners.
2. Winding-up jurisdiction. Under section 124A of the Insolvency Act 1986, the court itself had to decide whether winding up was just and equitable, having regard to the totality of the evidence and the circumstances at the hearing. “Inherent objectionability” was not an independent test. Relevant matters included whether the business failed to meet generally accepted minimum standards of commercial behaviour and whether it encouraged wrongdoing by others.
3. Past conduct and reform. On the facts as they stood before the reforms, serious misrepresentations by IBO organisations and at recruitment meetings, together with Amway’s inadequate supervision and enforcement, would have justified winding up. Amway could bear responsibility where recruitment was a central part of its business model and it benefited from misconduct encouraged by that model. The revised model made radical changes, including stronger retail requirements, central control of business support material, income disclosure, induction and removal of registration and renewal fees. Those changes, together with the undertakings, made winding up disproportionate at the hearing.
4. Lottery. The revised scheme was not a lottery. It required no payment to obtain the opportunity, and its rewards were allocated by reference to genuine product sales rather than by the equivalent of drawing lots. The court adopted a commonsense approach. A multilevel structure could constitute a lottery if the commercial opportunity was in reality only an opportunity to recruit, but that was not the revised Amway model.
5. Trading scheme. Section 120(3) of the Fair Trading Act 1973 required a payment to the promoter induced by the prospect of benefits in respect of introducing other participants. “In respect of” meant “relating to”. Amway’s payments related to product sales and sales volume, not simply to introductions. Moreover, the revised model required no payment. The Secretary of State therefore failed to establish a breach under the old or new model.

First-instance decision. No earlier judicial decision in the same proceedings is stated.