Secretary of State for Business, Enterprise & Regulatory Reform v Charter Financial Solutions Ltd & Ors

Under section 124A of the Insolvency Act 1986, the court has a complete discretion whether to wind up a company in the public interest, having regard to the facts existing when the petition is heard. This includes past misconduct and any undertakings or assurances about future conduct. It is rare for the court to refuse relief where the Secretary of State rejects the proposed undertakings and continues to seek winding up. Serious and continuing commercial dishonesty, including misleading representations and concealment of adverse business history, may demonstrate that the company’s controllers lack the probity required to remain in business. Expressions of willingness to change after intervention do not necessarily make winding up inappropriate.

The Secretary of State petitioned for the winding up of five companies under section 124A of the Insolvency Act 1986, on the ground that winding up was expedient in the public interest and just and equitable. Winding up orders were conceded for four companies. The contested issue concerned Finance Select (UK) Limited, which had continued substantially the business of Charter Financial Solutions Limited after the latter became subject to County Court judgments.

The Secretary of State alleged misleading franchise advertising, a false testimonial, concealment of adverse business history from a bank and the Office of Fair Trading, and a general lack of commercial probity. The central issue was whether the established misconduct justified winding up despite the company’s asserted willingness to alter its practices and the absence of some proven allegations.

1. Statutory discretion. Section 124A(1) of the Insolvency Act 1986 permits the Secretary of State to petition where information obtained under Part XIV of the Companies Act 1985 indicates that winding up is expedient in the public interest, provided the court considers it just and equitable. The court has a complete discretion, assessed by reference to the facts existing at the hearing. Those facts may include past conduct and undertakings offered for future conduct.
2. Effect of undertakings. It will be rare for the court to refuse a winding up order where the Secretary of State rejects the proposed undertakings and presses for relief. Nevertheless, the court retains power to do so where the circumstances require it. The approach in Re Amway (UK) Limited [2008] EWHC 1054 (Ch), and the subsequent Court of Appeal review, established that future assurances must be considered but do not automatically prevent an order.
3. Application. Most of the allegations against Finance Select were established. They included materially misleading franchise promotions, publication of a fabricated or misleading testimonial, and deliberate concealment of County Court judgments when opening a bank account. The evidence also showed that the company had been created to carry on the business of the earlier company after adverse judgments had impaired that business.
4. The conduct demonstrated a serious lack of commercial probity by the company’s controllers. Their stated willingness to correct future breaches, without formal undertakings and without evidence of voluntary reform, was insufficient. It was not enough to say that mistakes had been made and that future changes would follow official intervention.
5. The court ordered the winding up of Finance Select (UK) Limited. It also made the unopposed winding up orders against Charter Financial Solutions Limited, Charter Financial Solutions (UK) Limited, Bounce World Limited and Trash Express (UK) Limited.