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

The Secretary of State presented public interest winding-up petitions under section 124A of the Insolvency Act 1986 arising from investigations under section 447 of the Companies Act 1985. The court found that the trading model of Vanguard Insolvency Practitioners Limited and its related companies lacked commercial probity and transparency: substantial sums from individual voluntary arrangement (IVA) estates were paid to third parties and then passed, directly or indirectly, for the benefit of the director and his related companies. The payments were insufficiently evidenced as conferring value on the IVA estates, were not adequately disclosed to debtors, creditors or the supervising insolvency practitioner, and thus breached the spirit (if not the letter) of SIP 9. Balancing public interest considerations, the court concluded that compulsory winding up orders were appropriate for all four companies.

Background and parties. The petitions, each presented on 15 January 2021 under section 124A of the Insolvency Act 1986, related to Vanguard Insolvency Practitioners Limited (VIP) and three related companies (Newtco Limited, MDN Consultancy Limited, and KIS Financial Consultancy Limited). The Secretary of State relied principally on investigations under section 447 of the Companies Act 1985. VIP provided IVA services and managed a substantial IVA book which was subsequently outsourced; the companies were controlled by Mr Michael Noblett.

Nature of the application. Public interest winding-up petitions seeking compulsory winding up of each company on grounds of lack of commercial probity and lack of transparency in the handling of IVA funds.

Key factual findings. The court found that IVA estate monies were paid to multiple third party suppliers (claims management companies, software and portal providers and a Dubai company), significant proportions of which were then passed on to MDN and KIS (companies controlled by the director) or otherwise benefitted the director and his close associates. Large payments to a Dubai entity (Insolvency Analysis Consultants FZC) were insufficiently evidenced and appeared opaque. The supervising insolvency practitioner was unaware of the financial connections; debtor and creditor communications did not disclose those connections.

Issues framed. (i) Whether the payments from IVA estates had adequate evidential basis and conferred value on the estates; (ii) whether the payments provided undisclosed benefits to the director or connected persons; (iii) whether the arrangements were disclosed to debtors, creditors and the insolvency practitioner; and (iv) whether the conduct complied with SIP 9 (or its spirit).

Court’s reasoning and disposition. The court analysed the payments and documentary evidence and was satisfied there was no sufficient evidence of value for many of the third-party payments, that the arrangements operated to confer substantial benefits on the director and connected persons, and that the connections and arrangements were not adequately disclosed. The arrangements therefore offended the transparency and objectivity required by SIP 9. Considering the public interest jurisdiction under section 124A, and balancing competing factors, the court concluded that compulsory winding up orders were justified for all four companies and made the usual orders.

Procedural posture. First instance hearing at the High Court (Chancery, Insolvency and Companies List); respondents ceased to defend for commercial reasons; the Secretary of State led extensive witness evidence and submissions.

The court ordered compulsory winding up of all four companies. The judge found that the companies, and their director, had operated a business model by which substantial payments from IVA estates were routed to third parties and then in part to companies controlled by the director, lacking sufficient evidence of value, lacking disclosure to debtors, creditors and the supervising insolvency practitioner, and thereby breaching the spirit of SIP 9. Balancing public interest considerations, there were insufficient countervailing reasons to refuse winding up orders.