Internet Investment Corporation Ltd, Re Insolvency Act 1986

Where a company is already subject to a voluntary winding-up, the court may order a compulsory winding-up at the petition of a contributory if the contributory’s rights would be prejudiced by the voluntary process. A reasonable need for the company’s affairs to be scrutinised through the compulsory liquidation process may strongly support that course. Prejudice may arise where those controlling the voluntary liquidation have themselves managed the company’s affairs in a manner requiring investigation, particularly where they may influence the choice of liquidator or the conduct of claims belonging to the company.

Philip Goldsmith, a minority ordinary shareholder and the holder of non-voting preference shares in Internet Investment Corporation Ltd, petitioned for its compulsory winding-up on the just and equitable ground. Richard Scott, the majority shareholder and sole director, opposed the petition and relied on a resolution for a members’ voluntary liquidation.

Mr Goldsmith alleged that his £100,000 investment had not been properly accounted for and that Mr Scott had refused meaningful information about the company’s affairs. Mr Scott contended that a voluntary liquidation would better preserve the company’s alleged business opportunity. The central issue was whether the contributories’ rights would be prejudiced by a voluntary winding-up and whether a compulsory liquidation was required for proper investigation of the company’s affairs.

1. Order. The company was ordered to be wound up compulsorily. Advertisement of the petition was dispensed with.
2. Statutory test. Section 116 of the Insolvency Act 1986 preserves the right of a creditor or contributory to seek a compulsory winding-up despite a voluntary winding-up. For a contributory’s petition, the court must be satisfied that the contributories’ rights would be prejudiced by the voluntary winding-up.
3. Scrutiny of affairs. A reasonable requirement that the company’s affairs be scrutinised through the compulsory liquidation process may weigh strongly in favour of a compulsory order. The principle applies to a contributory’s petition, subject to the statutory requirement of prejudice.
4. Application. Mr Scott had obstructed reasonable inquiries by the company’s principal financial investor, had given no meaningful explanation of the investment, and had admitted receiving the money personally and spending it without paying it into an account in the company’s name. That conduct disclosed apparent breaches of agreement and fiduciary duty. The company’s only identified assets appeared to be rights against Mr Scott personally, requiring investigation.
5. A voluntary liquidation controlled by Mr Scott and his son could prejudice the contributories as a whole, including Mr Goldsmith, because they could have decisive influence over matters such as the choice of liquidator. The asserted prospect that voluntary liquidation would preserve a beneficial outcome from the project was speculative and did not outweigh the need for investigation.