Caledonian Ltd & Anor, Re

On a public-interest winding-up petition, the court must decide for itself, on the totality of the evidence, whether winding up is just and equitable. It must balance the interests of members, creditors and the public. The Secretary of State’s expertise merits consideration, but his view is not determinative.

Serious mis-selling, misleading investment communications, inadequate due diligence, insolvency and a real prospect of further public loss may together justify winding-up orders. The court may also take account of past misconduct and the need to mark its disapproval. A company’s cessation of some objectionable trading, cooperation with investigators or informal offer to creditors will not necessarily outweigh those factors.

The Secretary of State petitioned for the winding up on public-interest grounds of Caledonian Ltd and Caledonian Commodities Ltd under Insolvency Act 1986. Caledonian had marketed carbon credits, rare earth metals, coloured diamonds, precious metals and storage pods to members of the public. The Secretary of State alleged unsuitable products, misleading marketing, excessive commissions and inadequate records.

Caledonian disputed the allegations concerning precious metals and relied on its cessation of some trading, cooperation with investigators and proposed settlement with investors. Commodities had been struck off and dissolved, and its role in the trading was disputed. The central issue was whether, having regard to all the circumstances, it was just and equitable to wind up each company.

1. Winding-up orders. The petitions were allowed. Caledonian was ordered to be wound up. Commodities was restored to the register and ordered to be wound up.
2. Applicable approach. The court adopted the approach explained in Re Walter L Jacob Co [1989] BCLC 345 and Re Senator Hanseatische Verwaltungsgellschaft m.b.H. [1997] 1 WLR 515. It had to evaluate the evidence for itself and weigh the factors supporting and opposing winding up. The Secretary of State’s submissions were not determinative.
3. Commercial misconduct. The sale of carbon credits, rare earth metals and coloured diamonds involved seriously misleading conduct and inadequate due diligence. The Companies had no proper basis for representing that investors could obtain capital growth or realise their investments. The precious-metals business was also objectionable: the communications conveyed that investors would acquire physical gold, while there was a substantial and growing shortfall between customer entitlements and the metals held.
4. Public protection and insolvency. The Companies’ conduct fell below minimum standards of commercial behaviour. They were insolvent, and there was a strong prospect of further public loss if trading continued. The informal offer to creditors did not justify dismissal, and the proposed personal compensation from future salary was of no value to the court because it could not be supervised.
5. Past conduct. In the circumstances, winding up was also appropriate as punishment for past behaviour and to mark the court’s disapproval. The fact that Commodities had been dissolved did not prevent an order because it had been party to contracts and its affairs were intertwined with Caledonian’s.