Re Border Counties Farmers Limited

The liquidators applied under section 112 of the Insolvency Act 1986 for directions about distributions to personal representatives of deceased or dissolved members and about unclaimed distributions to untraced members of a company limited by guarantee. The court held that membership in a company limited by guarantee is governed by the definition in section 112 of the Companies Act 2006 and that section 250 of the Insolvency Act 1986 (which treats transmittees as members) does not apply because it is directed at companies with share capital. The court concluded that membership terminates on death or dissolution unless the death or dissolution occurs after the commencement of the winding up; membership for distribution purposes crystallises at the commencement of the voluntary winding up under section 86 of the Insolvency Act 1986. The court declined to exercise section 112 powers to alter members' rights so as to redistribute unclaimed dividends to other members, directing instead that the liquidators give final notice, identify deceased/dissolved members entitled (those who ceased to be members only after commencement of the winding up), make reasonable further tracing attempts, and, after a final period, pay any remaining unclaimed sums into the Insolvency Services Account. Costs of the application and consequent steps were to be paid as an expense of the liquidation and a transcript was authorised.

Background and parties. Border Counties Farmers Limited was a company limited by guarantee incorporated in 1918. Membership arose historically from holders of insurance policies; membership was crystallised by reference to a members' list in about 2012. The company was placed into a members' voluntary liquidation on 14 August 2015. The joint liquidators, Mr Daryl Warwick and Mr Mark Ranson, applied for directions under section 112 of the Insolvency Act 1986 concerning distribution of surplus funds.

Nature of the application. The liquidators sought directions (i) whether distributions should be made to personal representatives of deceased or dissolved members, and (ii) what should be done with unclaimed distributions for untraced members. A declared dividend of £1,135,440 (£570 per member) had been issued by cheque on 31 May 2016; 251 cheques totalling £143,070 remained un-cashed (187 untraced/unresponsive members representing £106,590; 64 deceased or dissolved members representing £36,480).

Issues framed. The primary issues were: whether personal representatives or successors of deceased/dissolved members are entitled to participate in the distribution; the date at which membership and entitlement crystallise for distribution purposes; whether section 250 of the Insolvency Act 1986 applies to a company limited by guarantee; and whether the court may, under section 112, direct redistribution of unclaimed sums to known members.

Court's reasoning and conclusions. The court found that section 250 of the Insolvency Act 1986 applies to share transfers and transmittees in companies with a share capital and is not applicable to a company limited by guarantee. The company’s articles adopted the section 112 Companies Act 2006 definition of member; there was no article providing for transfer of membership on death or dissolution. On construction, membership terminates on death or dissolution unless the event occurs after the commencement of winding up. The commencement of a voluntary winding up is the natural crystallisation point for membership and entitlement (section 86). Therefore only persons who were members at the commencement of the winding up (or whose membership was transmitted after that date) are entitled to participate.

The court considered whether section 112 (Insolvency Act 1986) allowed it to reallocate unclaimed dividends to other members but concluded that section 112 does not permit adjustment of members' substantive rights under section 107. The court directed practical steps: (i) the liquidators should send a further and final letter/notice (and include the order) giving a final period for claiming or providing information; (ii) the liquidators should investigate whether deceased/dissolved members died or were dissolved before or after the commencement of the winding up and identify those entitled; (iii) further reasonable attempts should be made in relation to traced but uncashed cheques and the unsighted member; (iv) after the final notice period, any remaining unclaimed sums should be paid into the Insolvency Services Account under the Insolvency Regulations 1994 procedure; (v) costs of the application and implementing directions are an expense of the liquidation; and (vi) a transcript of the judgment may be obtained and anyone notified may apply to vary or set aside the order within 14 days.

Practical context. The court accepted the liquidators had taken reasonable steps to notify members (advertisements, Gazette notices, letters) and that further costly attempts to notify personal representatives of low-value dividends would be disproportionate. The court balanced fairness to potential claimants against the practicalities and costs of further enquiries and administration.

This was a first instance application for directions under section 112 of the Insolvency Act 1986. The court granted the application in part. It held that (a) membership of a company limited by guarantee is governed by section 112 of the Companies Act 2006 and membership generally terminates on death or dissolution unless the event occurs after the commencement of the winding up; (b) section 250 of the Insolvency Act 1986 does not apply to companies limited by guarantee; (c) membership and entitlement to distribution crystallise at commencement of the winding up under section 86; (d) the court will not, under section 112, reallocate unclaimed dividends so as to alter members' rights under section 107; and (e) the liquidators were directed to give final notice, to make reasonable further tracing enquiries and to pay remaining unclaimed sums into the Insolvency Services Account after the final period. Costs were ordered as an expense of the liquidation and a transcript was authorised. The order included a 14-day period to apply to vary or set aside the order.