In re Sky Land Consultants plc

The Secretary of State presented a petition under s.124A of the Insolvency Act 1986 for the company to be wound up as it was operating an unlawful collective investment scheme contrary to the Financial Services and Markets Act 2000. The key statutory test was s.235 FSMA: whether the arrangements in respect of land enabled participants to receive profits arising from acquisition, holding, management or disposal of the property, whether participants lacked day-to-day control (s.235(2)) and whether the property was managed as a whole by the operator (s.235(3)(b)).

The court found that investors bought small plots within larger sites on the clear understanding that the company would seek planning permission and market the site as a whole; investors did not have day-to-day control; and the company in practice managed the planning and marketing effort for the whole site. Although the company amended documentation after FSA intervention, the court found that in substance the company continued the same business model and continued to present the scheme to investors as before. On those grounds the court exercised its discretion under s.124A to make a winding-up order.

Background and parties: The petition was brought by the Secretary of State for Business, Innovation and Skills to wind up Sky Land Consultants Plc under s.124A Insolvency Act 1986. The principal allegation was that the company operated and promoted a collective investment scheme in land (commonly called "landbanking") without authorisation, contrary to FSMA.

Facts: The company acquired options over two agricultural sites (Crewe and Winterton) and marketed small plots (about 200–300 sq. metres) to the public. The option agreements and transfer drafts enabled the company to obtain planning permission for the site and provided powers (including enduring powers of attorney) to transfer plots to third parties. The FSA investigated in November 2006 and concluded the arrangements were a collective investment scheme. The company agreed to change its arrangements and to send investors a letter offering either a refund/compensation or continuation under revised terms that removed the company’s role in planning and marketing the plots. The FSA provisionally accepted the proposed changes, but the court found the company continued in substance to represent and act as if it would obtain planning permission for, and market, the whole site including investors’ plots.

Issues for decision:

• Whether the arrangements amounted to a collective investment scheme within s.235 FSMA, having regard to s.235(1), (2) and (3)(b).
• Whether the company’s post-FSA documentary changes altered the substance of the arrangements or whether the company continued to operate the scheme as before.

Reasoning and findings:

• The judge explained the statutory structure of s.235 and emphasised that the enquiry is directed to how arrangements operate in practice, not merely to formal documents. "Arrangements" need not be legally binding.
• The company’s marketing, documentation and conduct showed investors were to participate by becoming owners of plots with the purpose or effect of obtaining profits from sale or development of the land; investors did not have day-to-day control of management (s.235(2)); pooling was unnecessary because s.235(3)(b) was satisfied: the property was managed as a whole by the company in seeking planning permission and marketing the site.
• Although the company altered documents after FSA intervention, the court found on the factual evidence that the company continued in substance to promote and act as though it would obtain planning permission and market the whole site, including plots sold to investors. The judge rejected the company’s explanations and found the director’s evidence unreliable.

Outcome: The court concluded the arrangements were a collective investment scheme and, exercising its discretion under s.124A, made a winding-up order because the company’s only business was unlawful and it had deliberately continued those activities.

The petition was allowed and an order was made to wind up the company. The court held that the arrangements marketed and operated by the company satisfied s.235 FSMA because investors lacked day-to-day control and the land was managed as a whole by the company; documentary changes after FSA intervention did not alter the substance of the scheme, and the company deliberately continued the unlawful business, warranting winding-up under s.124A of the Insolvency Act 1986.