LAURENCE PAGDEN v SOHO SQUARE CAPITAL LLP

The court’s power to interfere with members’ voting rights in a members’ voluntary liquidation is limited and must be exercised cautiously. The relevant question is whether the majority decision was brought about by unfair or improper means, fraud, illegality or oppressive conduct, and whether no reasonable person could regard the vote as being cast for the company’s benefit. Personal interest alone is insufficient. Removing liquidators because they are pursuing claims against the voting members will not ordinarily justify intervention where the claims remain capable of independent review and replacement liquidators can pursue them. A liquidator’s interest in recovering fees from litigation proceeds does not usually create a disqualifying conflict.

The joint liquidators of three restored investment companies applied under Insolvency Act 1986, section 112, for directions following members’ meetings ordered by the Court of Appeal. The members voted to retain the liquidators of two companies but rejected their retention in the third, Core VCT plc. The Soho respondents, who were among the proposed defendants to claims issued by the companies, had voted against retaining the liquidators. The principal issue was whether their votes should be counted, or disregarded because of their alleged self-interest and the effect of their votes on the proposed litigation.

1. Application dismissed. There were no grounds to intervene in the votes cast by the Soho respondents at the meeting of Core’s members. The restoration order was confirmed, but the votes against retaining the joint liquidators were effective.
2. The court’s jurisdiction under section 112 of the Insolvency Act 1986 to give directions in a members’ voluntary liquidation does not make the hearing equivalent to an application under section 108 to remove a liquidator. The court’s jurisdiction to interfere with members’ proprietary voting rights remains limited and closely guarded.
3. The governing principles were drawn from Children’s Investment Fund Foundation (UK) v Attorney General & others and North-West Transportation Company v Beatty. The court must consider whether the majority decision was procured by unfair or improper means, fraud or illegality, or was oppressive towards opposing shareholders, and whether no reasonable person could regard the vote as cast for the company’s benefit.
4. The Soho respondents’ votes were not procured by unfair or improper means, fraud or illegality. Their opposition to the liquidators was not oppressive in the legally relevant sense. The claims were at an early stage, their funding remained uncertain, and replacement liquidators could independently review whether they should continue.
5. The court rejected the alleged lack of independence and conflict of interest. An insolvency office-holder pursuing proceedings will necessarily adopt a partisan approach, and the prospect that fees may be recovered from litigation proceeds will not usually require retirement.
6. Even on the alternative approach applicable to an application to remove liquidators, the result would not materially differ. The case was distinguishable from Raithata v Arnold Holstein GmbH because the proposed replacement liquidator had not been selected by the targets of imminent claims and replacing the joint liquidators would not necessarily stifle the claims.

The judgment records that the Court of Appeal had previously ordered meetings to determine whether the companies should remain restored and whether the joint liquidators should remain in office. The present court conducted the subsequent sanction hearing and determined how the votes were to be treated.