In the matter of Torotrak Plc (in liquidation)

Under Insolvency Act 1986, section 112, the court may give directions concerning a surplus in a voluntary winding-up only where the proposed exercise of power is just and beneficial. That power does not permit the court to alter members’ substantive rights or distribute surplus assets selectively to those holding the largest shareholdings. Section 107, reinforced by the company’s articles, requires distribution according to members’ rights and interests.

The court may, however, adopt proportionate mechanisms to identify members and invite claims. It may set a reasonable longstop date, use letters, Gazette advertising and an online portal, adjust remuneration, and grant prospective relief to liquidators where the statutory conditions are met.

Joint liquidators of a company in creditors’ voluntary liquidation applied for directions concerning a surplus of approximately £304,859 after all creditors had been paid. There were about 8,759 members, most of whom would receive less than £1 if the surplus were distributed according to their shareholdings. The liquidators proposed distributing the surplus only to the largest shareholders, or alternatively sought directions for a distribution to all members and approval of additional remuneration.

The issues included the extent of the court’s power under section 112 of the Insolvency Act 1986, the proper recipients and proportions of any distribution, proportionate tracing and notification steps, and protection for the liquidators in making the distribution.

1. Selective distribution refused. The court held that section 112 of the Insolvency Act 1986 did not permit a distribution limited to members holding the largest number of shares. Section 107 required surplus assets in a voluntary winding-up to be distributed among members according to their rights and interests. Article 184 of the company’s articles reinforced that requirement. The court could not readjust the rights between individual members. The approach in Re Courts plc and Re International Sections Ltd supported the same conclusion.
2. Proportionate distribution mechanism. The court nevertheless considered that a cost-effective and pragmatic distribution was appropriate. The liquidators were directed to write to known members at their last-known addresses, invite claims within a specified period, explain the limited likely dividend, and require evidence from persons claiming through deceased or dissolved members. A single notice was to be placed in the London Gazette, and notice was also to be given through the liquidators’ portal. Claims after the longstop date were not to be considered.
3. Remuneration and notice. Because the required steps would exceed the existing remuneration cap, the court approved additional remuneration on a time-costs basis for work beyond that contemplated by the existing cap and its caveats. Since all creditors had been paid, no creditor was required to receive notice of the application. The order was instead to give interested members a limited period to apply to vary or set it aside.
4. Prospective relief. The court held that it had power to provide that distributions made in accordance with the order would constitute good and sufficient receipts and to grant the liquidators prospective relief from liability. This was consistent with Re MF Global UK Limited (No 3), Re Benjamin principles and the prospective relief recognised in Re Powertrain Ltd under section 1157 of the Companies Act 2006.
5. The application was therefore granted in the alternative form proposed by the court, subject to approval and sealing of the final order.