Fakhry v Pagden & Anor

On an application to restore a solvent company and appoint liquidators to investigate its former management and liquidators, the court must treat the wishes of the members as a central consideration. Where a small minority seeks restoration for investigations intended to benefit the membership, the members should ordinarily be consulted before a final decision.

The members’ control is not absolute. The court retains statutory powers to appoint and remove liquidators, and may exclude or disregard votes influenced by the personal interests of proposed investigation subjects. A member and a former liquidator have standing to challenge restoration and appointment orders which directly affect their legitimate interests.

Three venture capital trusts entered members’ voluntary liquidation and were dissolved after their members approved the former liquidators’ final accounts and release. On the application of a member holding small minority interests, Fancourt J restored the companies and appointed new liquidators to investigate concerns about their management and previous liquidations. The applications had not been served on the former liquidators.

Mr Fakhry, a member and proposed subject of investigation, and Mr Fry, a former liquidator, unsuccessfully applied to set aside the restoration order, remove the new liquidators or convene members’ meetings. Jeremy Cousins QC dismissed that application in [2019] EWHC 540 (Ch).

The appeal concerned standing, the significance of members’ control in a solvent liquidation, and whether the companies’ members should have been consulted before restoration and investigative liquidators were finally approved.

1. Appeal allowed and applications remitted. The High Court’s decision could not stand. Meetings of each company’s members had to be convened before the court finally determined whether to confirm or set aside the restoration and appointment orders. The applications were remitted to the Chief Insolvency and Companies Court Judge for directions concerning those meetings.

2. A former member has standing to appear on a restoration application under section 1029 of the Companies Act 2006. Restoration revives the company, the member’s status and the member’s shares. The member is therefore directly affected for the purposes of rule 40.9 of the Civil Procedure Rules 1998. Members of a company in members’ voluntary liquidation likewise have sufficient interest in the appointment of its liquidator.

3. A former liquidator also has standing. The applicable Practice Note reflected the longstanding practice of serving and joining the former liquidator when a company dissolved after liquidation was restored. Service enables the former liquidator to place relevant matters before the court, including reasons concerning the proposed appointment of a different liquidator. Waiving service does not remove that standing.

4. Members’ control of a solvent liquidation is important but qualified. Under section 108 of the Insolvency Act 1986, the court may appoint or remove liquidators. Members cannot direct a liquidator’s conduct and may instead seek directions under section 112. The members’ earlier approval of the final accounts and dissolution therefore did not bar restoration, particularly where most had not received the concerns on which restoration was later sought.

5. It was nevertheless essential to consider whether and how the members should be consulted. A very small minority sought to revive the companies and undertake extensive investigations ostensibly for the members’ benefit. The members were entitled to decide, or at least be consulted about, what served that benefit. Delaying consultation until after completion of the investigations was an error of principle.

6. The meetings should consider ordinary resolutions on continued restoration, the investigations and retention of the present liquidators. Absent exceptional circumstances, the court could be expected to give effect to the resolutions. Votes of proposed investigation subjects and closely associated members could be excluded or recorded for possible disregard. Full disclosure of the investigation-funding arrangements was required before the meetings.

1. Court of Appeal (Civil Division): Allowed the appeal in [2020] EWCA Civ 1207. The set-aside and restoration applications were remitted for directions concerning meetings of the companies’ members.
2. High Court, Insolvency and Companies List: Jeremy Cousins QC, sitting as a Deputy Judge, dismissed the application to set aside the restoration order, remove the present liquidators or direct members’ meetings: [2019] EWHC 540 (Ch), [2019] BCC 845.
3. High Court, Insolvency and Companies List: Fancourt J restored the three companies to the register and appointed the respondents as liquidators on applications made without notice to the former liquidators.