SECRETARY OF STATE FOR BUSINESS, ENERGY AND INDUSTRIAL STRATEGY v VANGUARD INSOLVENCY & Ors

Public interest winding-up orders may be made where a company’s business model lacks commercial probity and transparency, particularly where monies held for stakeholders are channelled through third parties for the benefit of the company’s controller or connected persons.

The court must balance all relevant interests and ask whether winding up is expedient in the public interest to protect members of the public from inevitable loss. Lack of active trading may remove any countervailing reason against winding up. Disclosure must enable debtors, creditors and relevant office-holders to understand the financial connections and value underlying payments from insolvency estates.

The Secretary of State presented four related public interest winding-up petitions under section 124 A of the Insolvency Act 1986 against companies forming an insolvency business group controlled by Mr Michael Noblett.

The petitions alleged that payments from individual voluntary arrangement estates were made to third-party companies and then passed, directly or indirectly, to companies owned or controlled by Mr Noblett or persons connected with him. The respondents ceased opposing the petitions, while making no admissions. The central issues were whether the arrangements demonstrated commercial impropriety and lack of transparency, and whether compulsory winding up was expedient in the public interest.

1. The court made compulsory winding-up orders in respect of all four companies. The Secretary of State had established that winding up was expedient in the public interest.
2. The evidence showed that substantial payments had been made from IVA estates to third-party companies, with onward payments or benefits for Mr Noblett, his brother-in-law, or companies controlled by Mr Noblett. There was insufficient evidence that the payments represented value to IVA debtors or creditors. Some payments appeared inflated or related to services that were unsubstantiated or non-existent.
3. The arrangements lacked transparency. Debtors, creditors and the relevant insolvency practitioner were not informed of the financial connections, revenue-sharing arrangements, informal loans, commissions or management charges. The fact that payments were routed through companies described as third parties did not remove the need for disclosure or objective scrutiny.
4. The arrangements also operated contrary to the letter, or at least the spirit, of SIP 9 because they created a potential threat to the insolvency practitioner’s objectivity. The practitioner was an employee of the business, had not negotiated the arrangements, and was unaware of the financial benefits derived by the company’s controller.
5. The court accepted the analogy drawn with secret commissions in Varden Nuttall Limited v Nuttall [2018] EWHC 3868 (Ch), although the decision was not treated as establishing a separate statutory test.
6. The complaints concerning the period when Mr Noblett was not formally recorded as a director, and the uncertainty surrounding management and dealings with third parties, added weight but were not independently sufficient to justify winding up.
7. In exercising the public-interest jurisdiction, the court had to balance the reasons for and against compulsory winding up. No sufficient competing reason existed here, particularly because none of the companies was actively carrying on business.