Court of Appeal (David Richards LJ) – Restoration Application

The Court of Appeal allowed the appeal in part and remitted the matter for directions to convene meetings of members. The court endorsed that restoration applications under section 1029 of the Companies Act 2006 are effectively ex parte and attract a duty of full and frank disclosure, but held that the inadvertent misstatement to the trial judge about the registrar’s position was immaterial and would not have changed the outcome. The court held that members and former liquidators have standing to appear in restoration and set-aside applications, but emphasised that standing does not entitle a person to obstruct legitimate investigations. The court accepted that the material before the court raised serious issues worthy of investigation and that the appointment of independent liquidators under section 108 of the Insolvency Act 1986 was therefore appropriate. However, because the restoration and appointment had been made on the application of very small shareholders without consultation of the wider membership, the court concluded that meetings of members should now be convened so that the members as a body can decide whether the companies should remain restored for the purpose of investigations and whether the incumbent liquidators should continue.

Background and procedural posture.

The appeal concerned three dissolved members’ voluntary liquidation companies (Core VCT plc, Core VCT IV plc and Core VCT V plc) which had been restored to the register and new liquidators appointed by an ex parte application made under section 1029 Companies Act 2006 to Fancourt J on 20 July 2018. The restoration was sought by one member (Mr Grattan), supported by another (Mr Hussey), after they had raised concerns about the management of investments and the conduct of the liquidations. The former liquidators (Mr Fry and Mr Mather) had delivered final accounts and been released by overwhelming member majorities in August 2016 and the companies were dissolved in November 2016 pursuant to the requirements of the Insolvency Act 1986. The present liquidators (Pagden and Underwood) were appointed on restoration and began investigative steps; the former liquidators and a member (Mr Fakhry) applied to set aside the restoration order and/or remove the present liquidators and/or direct meetings of members. The High Court (Deputy Judge Jeremy Cousins QC) dismissed that application ([2019] EWHC 540 (Ch)).

Nature of the application / relief sought.

• Primary: set aside the ex parte restoration order made by Fancourt J.
• Alternative: under section 108 Insolvency Act 1986, remove the present liquidators and appoint the former liquidator Mr Fry.
• Further alternative: direct meetings of members under section 171(3)(b) Insolvency Act 1986 to determine whether to continue the companies in liquidation and to decide the liquidator(s).

Issues framed by the Court of Appeal.

• Whether the ex parte application was irregular or involved non-disclosure or material misstatement (duty of full and frank disclosure on restoration applications).
• Whether members and former liquidators had locus standi to apply to set aside or vary restoration orders.
• The proper balance between majority member decision-making in a solvent company (members’ autonomy in a members’ voluntary liquidation) and the court’s powers to restore companies and to appoint/remove liquidators to enable independent investigations.
• Whether the appointment of the present liquidators should be set aside or they should be removed because they lack member support.
• Whether meetings of members should be convened before the court confirms or varies the restoration order.

Court’s reasoning and decision.

The court accepted that restoration applications are effectively ex parte and require full and frank disclosure (Welsh Ministers v Price applied), but found the erroneous statement that the registrar consented to non-service of the former liquidators was immaterial because the judge had been expressly informed that the former liquidators had not been served and given reasons why they should not be reappointed. The Court of Appeal upheld the High Court’s finding that the material before the court raised serious issues worthy of investigation (relying on the Clydesdale approach) and that independent liquidators were appropriate. The court rejected the submission that members and former liquidators lacked standing: former members and former liquidators are persons with interest and therefore may be parties to restoration and set-aside applications. Nevertheless, the court considered it essential that the wider body of members be consulted before final decisions were taken because the restoration and investigations impact the members’ economic interests and the companies’ continued existence. The appeal was therefore allowed in part: the Court of Appeal remitted the matter to the Companies and Insolvency list for directions to convene meetings of the members to decide whether the companies should remain restored for investigation and whether the present liquidators should continue. The court declined to remove the present liquidators at this stage and did not set aside Fancourt J’s order without first consulting the members.

Appeal allowed in part and remitted for directions. The court held that (1) the ex parte restoration application attracted a duty of full and frank disclosure but the incorrect statement about the registrar was immaterial and would not have changed the result; (2) members and former liquidators have standing to oppose restoration or to apply to set aside orders; (3) the evidence raised serious issues worthy of independent investigation and justified appointment of independent liquidators under section 108; but (4) because the restoration and appointment were obtained without consultation of the wider membership, meetings of members should be convened so the members as a body can decide whether the companies remain restored for investigation and whether the incumbent liquidators should continue.

Appeal from Mr Jeremy Cousins QC (sitting as Deputy Judge of the High Court), CR-2018-007079, judgment below reported at [2019] EWHC 540 (Ch), [2019] BCC 845. The restoration order under challenge was made by Fancourt J on 20 July 2018. Permission to appeal was granted by Patten LJ.