Qureshi (Liquidator of Edgware Constitutional Club Ltd) v Association of Conservative Clubs Ltd

On a solvent members’ voluntary winding up, Insolvency Act 1986, s 107 requires surplus assets to be distributed among the members unless the company’s constitutional rules make an alternative provision. A rule governing discretionary applications of surplus while a company is a going concern does not, without more, create an accrued entitlement in a third party or confer the discretion on the liquidator after winding up begins. Procedural irregularities do not invalidate a corporate decision where the company made a genuine attempt to follow the prescribed process, the protective purpose of the rules was not materially defeated, and the same result would inevitably have followed from proper compliance. The court may sanction the resulting distributions and allow properly incurred liquidation expenses.

The claimant, the liquidator of Edgware Constitutional Club Ltd, sought declarations concerning interim and proposed distributions of the club’s surplus assets following a members’ voluntary winding up. The defendant Association of Conservative Clubs Ltd claimed that the club’s rules either prohibited distribution to members, required or permitted distribution to the Association before winding up, or that procedural defects meant the club had never entered an effective winding up.

The court considered the interaction between Insolvency Act 1986, s 107, the club’s registered 1982 Rules, alleged accrued rights, unregistered amended rules, procedural irregularities in the winding-up process, ratification, and the liquidator’s remuneration.

1. Surplus assets. Section 107 of the Insolvency Act 1986 is a default rule requiring distribution of surplus property among members unless the articles or equivalent constitutional rules otherwise provide. Rule 74 prohibited distribution to members while the club was a going concern, but expressly excepted dissolution or winding up and supplied no alternative destination for the surplus. It therefore did not displace s 107. The liquidator was obliged to distribute the surplus to members.
2. No accrued entitlement in the Association. The Association had no proprietary interest and acquired no entitlement merely because the committee had not previously applied surplus under Rule 74(a). The committee had a discretion concerning use of surplus while the club was operating, but an unexercised discretion did not pass to the liquidator. The members’ apparent support for unregistered 2011 Rules did not fetter the committee’s discretion or create an obligation to distribute to the Association.
3. Procedural irregularities. Corporate procedural rules protect affected persons by ensuring an appropriate voice in decision-making. The relevant question is what protection the rules require and what adverse effect the non-compliance caused. The court will not require a process to be repeated where there was a genuine attempt to follow it, the same result would inevitably have been achieved, and the irregularity caused no relevant harm. This principle does not validate a decision where there was no attempt to engage with the protective process, and inevitability must be demonstrated rigorously.
4. The club had actively attempted to enter a members’ voluntary winding up, repeatedly approved that course, paid its creditors and distributed assets to members. The defects were irregularities, not a complete absence of process, and harmed neither the members, creditors nor the Association. The distributions already made and those proposed were therefore sanctioned.
5. The later meeting could ratify any ineffective earlier resolutions, and the liquidator’s properly incurred expenses and remuneration were payable from the club’s assets under s 115.