Abacrombie & Co Ltd, Re

On a petition under section 124A of the Insolvency Act 1986, the court must balance the public-interest grounds established against factors opposing a winding-up and decide whether it is just and equitable to make the order. The jurisdiction is not confined to unlawful conduct. Activities contrary to a clearly identified public interest, including conduct falling below minimum standards of commercial morality, may justify winding-up. Little weight will generally be given to changes made after an actual or imminent petition. Undertakings concerning future conduct will rarely provide an alternative to winding-up unless acceptable to the Secretary of State. Proper accounting records are fundamental to company administration, and the misuse of client funds through a company account may constitute serious impropriety.

The Secretary of State petitioned under section 124A of the Insolvency Act 1986 for the winding-up of Abacrombie & Co Ltd in the public interest. The petition followed an investigation under Part XIV of the Companies Act 1986, during which information was obtained under section 447.

The company advised insolvent clients, including clients with interests in jointly owned homes. The Secretary of State alleged that the company’s arrangements diverted property proceeds into excessive fees, disadvantaged creditors, involved misleading or back-dated documents, misused client money, lacked proper accounting records and involved persons in the management of the company despite disqualification. The central issue was whether, having regard to all established matters and the company’s proposed undertakings, it was just and equitable in the public interest to order a winding-up.

1. Winding-up order. The company was ordered to be wound up. The court was satisfied on all the grounds advanced, and the lack of commercial benefit to debtors and creditors was independently sufficient.
2. Section 124A of the Insolvency Act 1986 confers a discretion. The court must balance the grounds established in the public interest against factors telling against the order and decide whether winding-up is just and equitable. Unlawful conduct is not required. Conduct contrary to a clearly identified public interest, including conduct falling below minimum standards of commercial morality, may suffice, applying re Walter L. Jacob & Co Ltd (1989) 5 BCC 244 and re Senator Hanseatische Vervaltungsgesellschaft MbH [1997] 1 WLR 515.
3. The property arrangements were structured so that spouses or partners acquired the debtor’s equity cheaply, while the company retained a substantial part of the proceeds as fees. The arrangements gave no corresponding commercial benefit to debtors or creditors and undermined the proper administration of bankruptcy. The composition offers were effectively illusory because they required universal creditor acceptance and were known not to have a realistic prospect of success.
4. The fees were excessive and were determined principally by the funds available, rather than by work undertaken. The company’s use of its current account for client funds, while the account was frequently overdrawn and used for the controller’s personal expenditure, created a real risk to the company’s ability to account for those funds. Reliance on new clients’ receipts to meet existing obligations was unacceptable where the obligations concerned money held for clients.
5. Back-dating memoranda, invoices and other documents was intended to deceive office-holders in bankruptcy. The proposed asset transaction involving Aidis 24 Limited was an intended sham. The company’s preparation of memoranda of trust, combined with inadequate understanding of concepts including the equity of exoneration discussed in re Pittortou [1985] 1 WLR 58, posed a serious risk to bankruptcies.
6. The company was in clear breach of section 221 of the Companies Act 1985. Proper accounting records were fundamental, both to management and to the investigation of the company’s affairs. Mr Harrison was, with Mr Buchanan’s knowledge and approval, involved in management despite his disqualification.
7. Undertakings were not an appropriate alternative. Unless acceptable to the Secretary of State, it would be unusual for undertakings to dispose of a petition: In re Bamford Publishers Ltd (2 June 1977, unreported), In re Supporting Link Alliance Ltd [2004] 2 BCLC 486 and Secretary of State for Trade and Industry v Bell Davies Trading Ltd [2005] 1 All ER 324 (CA).

First-instance decision. No prior appellate decision is stated in the judgment.