Secretary of State for Business, Energy and Industrial Strategy v PAG Asset Preservation Ltd

In a public-interest winding-up petition, the court must identify a clearly defined public interest promoted by winding up and balance that interest against the consequences of winding up an active and solvent company.

A lawful arrangement is not rendered an abuse of insolvency legislation merely because it is artificial or designed to obtain a fiscal advantage. An MVL must objectively involve the collection, realisation where necessary, and distribution of genuine assets. It may still serve an artificial commercial scheme, provided its statutory purpose is genuinely performed and the transactions are not shams.

Using an MVL to shelter an artificial asset while that asset is collected and realised is materially different from maintaining a liquidation solely as an asset shelter with no intended realisation or distribution.

The Secretary of State petitioned under section 124A of the Insolvency Act 1986 to wind up PAG Asset Preservation Ltd and MB Vacant Property Solutions Ltd on public-interest grounds.

The companies operated a business-rates avoidance scheme. Landlords granted leases of empty commercial properties to special-purpose vehicles, which were then placed into members’ voluntary liquidation. The resulting exemption from business rates was said to arise from the rating legislation.

The Secretary of State alleged that the scheme misused and subverted the insolvency legislation. The companies relied on differences between their scheme and an earlier scheme considered in Secretary of State for Business, Innovation and Skills v PAG Management Services Ltd, and argued that their liquidations genuinely involved the collection and realisation of lease assets.

The central issue was whether the companies’ use of members’ voluntary liquidations amounted to a lack of commercial probity justifying public-interest winding-up orders.

1. Outcome. The petitions were dismissed. The Secretary of State failed to establish that either company should be wound up on public-interest grounds.
2. Public-interest jurisdiction. The court adopted the principles summarised in the earlier PAGMS judgment. The court retains a discretion despite the Secretary of State’s view that winding up is expedient. The burden lies on the Secretary of State to establish that winding up is just and equitable. The court must balance the competing considerations, identify the public interest promoted by the order, and require reasons of sufficient weight before winding up an active and solvent company.
3. Purpose of an MVL. Sections 91(1) and 107 of the Insolvency Act 1986 establish that the purpose of a voluntary liquidation, whether an MVL or CVL, is the collection, realisation where appropriate, and distribution of assets. Section 110 does not alter that purpose merely because assets may be transferred in return for shares or other benefits.
4. Artificiality and motive. Artificial transactions, pre-arranged steps and a motive of obtaining a lawful fiscal advantage do not by themselves constitute misuse of insolvency legislation. The court should examine objectively whether the MVL genuinely performs its statutory purpose and whether the transactions are legally effective rather than shams.
5. Application. The determination-premium provisions created genuine contingent assets in the SPVs. The liquidators were therefore entitled to maintain the MVLs while the leases remained extant, collect any premiums, discharge liabilities and distribute the residue. This materially distinguished the scheme from the earlier arrangement, where the liquidations functioned solely as shelters and no real collection or realisation of assets was intended.
6. The artificiality of the scheme, including the use of the MVL to avoid business rates, did not itself establish commercial impropriety or a sufficiently clear public-interest objection. Something more was required. That additional element was absent here.