Warwick & Anor (Joint Liquidators)

In a members’ voluntary liquidation of a company limited by guarantee, membership ceases on a member’s death or dissolution unless the articles provide otherwise. The deceased or dissolved member therefore cannot participate in a distribution under the Insolvency Act 1986. The persons entitled to participate are identified at the commencement of the winding up, when the right to an eventual dividend crystallises. The court’s directions jurisdiction does not permit it to alter members’ rights and interests by redistributing unclaimed dividends among other members. After a final reasonable opportunity to claim, unclaimed sums should be paid into the Insolvency Services Account. Costs reasonably incurred in obtaining and implementing the directions may be treated as expenses of the liquidation.

The joint liquidators of Border Counties Farmers Limited, a company limited by guarantee in members’ voluntary liquidation, applied for directions under section 112 of the Insolvency Act 1986. A surplus distribution of £1,135,440 had been declared, but cheques totalling £143,070 remained uncashed. The outstanding amounts concerned untraced or unresponsive members, and members or former members who had died or been dissolved.

The application raised three issues: whether deceased or dissolved members, or their successors, were entitled to receive distributions; what should be done with unclaimed distributions; and whether further notice or representation was required.

1. Notice and representation. The steps already taken gave appropriate notice to potentially interested parties. Given that each disputed distribution in the deceased or dissolved category was only £570, it was disproportionate to require further individual notification of personal representatives or persons interested in dissolved entities.
2. Deceased and dissolved members. Section 107 of the Insolvency Act 1986 requires the company’s assets, unless the articles provide otherwise, to be distributed among members according to their rights and interests. Section 250 of that Act, which treats certain persons to whom shares have been transferred or transmitted as members, applies to companies with share capital. It does not extend membership of a company limited by guarantee. Section 112 of the Companies Act 2006 supplied the relevant definition, and neither the articles nor the model articles provided for transfer of membership on death or dissolution.
3. Accordingly, death or dissolution terminated membership and entitlement to participate. The relevant membership crystallised when the winding up commenced, under section 86 of the Insolvency Act 1986, rather than when the liquidators later declared the distribution. Only members who died or were dissolved after commencement of the winding up could therefore participate. The liquidators were directed to establish the relevant dates and to set a long-stop date for further information.
4. Unclaimed distributions. Section 112 did not empower the court to redistribute unclaimed money to persons who were not otherwise entitled to it. That would conflict with section 107. The liquidators should send a final letter allowing a reasonable period for untraced or unresponsive members to claim or request a replacement cheque. Any remaining sums should then be paid into the Insolvency Services Account. Further attempts should be made for the traced members who had not cashed their cheques and for the member unable to accept payment.
5. The application and the costs of implementing the consequential directions were payable as expenses of the liquidation. The liquidators were authorised to obtain a transcript, and the order was to permit an application to vary or set it aside within 14 days after notice.