Judgments - Official Receiver (Appellant) v. Wadge Rapps & Hunt (a firm) and another and two other actions

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    65. I would endorse the observations of Vinelott J in Re Polly Peck International plc, Ex p the joint administrators [1994] BCC 15, p 16:

    ". . . it is quite clear that the purposes of the administration must include the gathering of information as to the conduct of the affairs of the company and those responsible for it by an administrator in order that he can report to the Secretary of State as he is required to do. He must do so in order that the Secretary of State can perform his duty, which is the important one of taking proceedings if it appears that a disqualification order should be made."

    66. Moreover, there is no justification for the assumption that the official receiver's powers are circumscribed by the reference to the functions of a liquidator in a voluntary winding up. Significantly in this context section 236(1) authorises the official receiver to make the application whether or not he is the liquidator. If he is not the liquidator, he is not responsible for the collection and distribution of the assets. Yet he is expressly authorised to invoke the section. This makes it impossible to say that the section can be invoked only for this limited purpose. It must be available to the official receiver to enable him to carry out his investigative and reporting functions.

    67. In my opinion, the only limitation which is implicit in section 236 is that it may be invoked only for the purpose of enabling the applicant to exercise his statutory functions in relation to the company which is being wound up. Whether the applicant is the official receiver or the liquidator or other office-holder these include the provision of information to the Secretary of State or the official receiver which is relevant to the bringing or continuing of disqualification proceedings.

    68. The second strand to the reasoning depends upon the unspoken assumption that by not permitting the Secretary of State to invoke section 236 directly Parliament evinced an intention that he should not have recourse to the section at all whether directly or indirectly. But there is another and more plausible explanation, viz that Parliament considered that it was neither necessary nor desirable that the application should be made by the Secretary of State and that it was better made by the official receiver. The liquidator is closest to the company whose affairs are under investigation; the official receiver, when not the liquidator, is at one step removed. The Secretary of State is still further removed, and there are only limited functions which he is obliged to exercise personally. He cannot, for example, delegate the decision whether it is expedient in the public interest to bring disqualification proceedings; but once he decides that it is he is not obliged to bring them himself. He can and usually does direct the official receiver to bring them. Historically he has usually been authorised to take action only where there is no official receiver to do so. It has never been the function of the Secretary of State to conduct an investigation or to gather information. He relies on information obtained by others; hence the investigative and reporting duties imposed on the official receiver and the responsible office-holder.

    69. This brings me to section 7(4) of the Disqualification Act. This authorises the Secretary of State or the official receiver to require the liquidator or other office holder to furnish the Secretary of State with such information and documents as the Secretary of State may reasonably require for the purpose of determining whether to exercise, or for the purpose of exercising, his function in relation to disqualification proceedings. Section 7(4) is not expressly limited to information and documents in the office holder's possession; and I see no ground for implying such a limitation. I do not think that section 7(4) obliges the office-holder to invoke section 236 in order to obtain the information for which the Secretary of State has asked: it may not be reasonable for him to do so at the expense of the estate. But section 7(4) certainly does not forbid it; on the contrary, it brings the provision of such information to the Secretary of State for the purpose of disqualification proceedings squarely within the functions of the liquidator.

The Second Reason

    70. The second reason is based on the fact that section 7(4) of the Disqualification Act authorises the official receiver to require the office-holder to provide information in relation to disqualification proceedings. This, Chadwick LJ reasoned, would be otiose if the official receiver could invoke section 236 for this purpose.

    71. There are, I think, two reasons why section 7(4) is not otiose. In the first place, it may not be unreasonable in a particular case for the office-holder to refuse to invoke section 236 at the expense of the estate where the sole purpose of the application is to enable the Secretary of State or the official receiver to bring or continue disqualification proceedings. In the second place, and perhaps more cogently, disqualification proceedings often concern the conduct of a director in relation to more than one company. Section 6(1) of the Disqualification Act obliges the court to make a disqualification order against a person where it is satisfied that he has been a director of a company which has at any time become insolvent and that:

    "his conduct as a director of that company (either taken alone or taken together with his conduct as a director of any other company or companies) makes him unfit to be concerned in the management of a company." (Emphasis added)

    72. The other company or companies need not have become insolvent, but they usually will have done, since otherwise the person's misconduct as a director of those other companies is unlikely to have come to the attention of the Secretary of State or the official receiver. But unless the other companies are also in compulsory liquidation and the official receiver of the lead company obtains authority to act as official receiver of those companies, section 236 will not enable him to obtain information in respect of them.

    73. Section 7(4) of the Disqualification Act replaces section 9(6) of the Insolvency Act 1976, under which similar powers were conferred on the Secretary of State alone. As the amicus curi' observed, disqualification proceedings under that Act required two insolvent liquidations. There must have been many cases where one company was in voluntary liquidation and the other in compulsory liquidation. If the official receiver of the company in compulsory liquidation were to bring disqualification proceedings, he could not invoke section 236 to obtain information in relation to the other company, because the section is not available to obtain information in relation to matters which are unconnected with the company in respect of which the application is made. The inclusion of the official receiver in section 7(4) of the Disqualification Act closes this lacuna.


    74. The consequences of the Court of Appeal's decision would be most unfortunate and cannot have been intended by Parliament. Where the company had no assets worth recovering, neither the official receiver nor the office-holder would be able to invoke section 236 for the purpose of investigating the conduct of former directors, since this would not be incidental to "his functions in the winding up" as the Court of Appeal conceived them to be. Serious misconduct would go undetected and the public unprotected. Moreover applications under section 236 would be complicated by the need for detailed consideration of the reasons for the application, and in particular whether the information was sought for the benefit of creditors and contributories (and only incidentally for the purpose of disqualification proceedings) or solely for the purpose of disqualification proceedings. Not only would this inevitably delay the disqualification proceedings, which ought to proceed with expedition, but it would make the collection of the necessary evidence serendipitous and the protection of the public adventitious.

    75. I reject the assumption that the powers conferred by section 236 are conferred only for better discharge of the applicant's functions "in the winding up", if these are confined to the recovery of the company's assets and their distribution among the creditors and contributories. In my opinion they are conferred for the better discharge of the applicant's wider statutory functions, both powers and duties, in relation to the company being wound up; and these include the provision of information to the Secretary of State for the purpose of disqualification proceedings. I would allow the appeal and make a declaration to this effect.


My Lords,

    76. I have had the advantage of reading in draft the speech of my noble and learned friend Lord Millett. I agree with his speech and for the reasons which he gives I would allow this appeal and make the order which he proposes. I add some observations of my own because of the interest and importance of the issue.

    77. The decision of the Court of Appeal appears to have been based on an assumption, not fully spelled out in the judgment of Chadwick LJ, as to the relatively limited nature of the official receiver's functions in a winding up. It seems to have been assumed that those functions do not include the conduct of disqualification proceedings under section 6 of the Company Directors Disqualification Act 1986 ("the Disqualification Act"). Any such assumption would in my view be incorrect. It would overlook the fact that winding up has, and has had almost throughout the history of company law, a dual purpose. One purpose is the orderly settlement of a company's liabilities and the distribution of any surplus funds, prior to the company being dissolved. The other is the investigation and the imposition of criminal or civil sanctions in respect of misconduct on the part of persons (especially directors of an insolvent company in compulsory liquidation) who may be shown to have abused the privilege of incorporation with limited liability. The first function is primarily a concern of a company's creditors and shareholders; the second function serves a wider public interest.

    78. Mr. Philip Jones, appearing to assist the House in the absence of any respondent, has indeed provided valuable assistance with a clear, detailed and scholarly survey of the development of corporate insolvency, including the office of official receiver, first instituted (initially for purposes connected with individual bankruptcy) by the Bankruptcy Act 1883. His survey shows that what I might call the public element in winding up has changed a good deal in the course of a century and a half. That is not surprising. The development of the law has responded to major social changes, including the establishment of prosecuting authorities, the emergence of a body of skilled and responsible professionals undertaking work as insolvency practitioners, and the recognition that the protection of the public against reckless or dishonest businessmen may be better attained by civil procedures (in particular disqualification of persons unfit to act as company directors) rather than by criminal proceedings. But although the practice and procedure has varied over the years the need to protect the public against the abuse of limited liability is a clear and constant theme.

    79. There have been three principal procedures available on winding up for the protection of the public: the initiation of criminal proceedings, originating in section 167 of the Companies Act 1862 ("the 1862 Act"); summary proceedings for misfeasance or some other breach of duty in the course of the winding up, originating the section 10 of the Companies (Winding up) Act 1890 ("the 1890 Act"); and proceedings for disqualification, originating in section 75(4) of the Companies Act 1928 (but only in respect of a director found guilty of fraudulent trading). The modern forms into which these three procedures have evolved are now found respectively in section 218 of the Insolvency Act 1986, sections 212-214 of the Insolvency Act and the Disqualification Act. It is unnecessary to set out the intermediate history. Ever since the 1862 Act the court has made clear that these procedures exist for the protection of the general public, not in the interests of the creditors or shareholders of the particular company which is in liquidation. Indeed it may be contrary to the financial interests of the creditors and shareholders for these procedures to be invoked.

    80. That can be illustrated by the observation of Buckley J In re London and Globe Finance Corporation Ltd [1903] 1 Ch 728. That was the case of a company which had gone from voluntary winding up, first to winding up under supervision and then to compulsory winding up, with the official receiver as liquidator. The company's former managing director was suspected of fraud, but the law officers declined to prosecute. Some of the shareholders wished to prosecute him, mainly at the expense of the company's assets (although they offered to pay into court at least £1,250 of their own money) while others opposed the prosecution as a waste of money. Buckley J authorised a prosecution at the expense of the company (so far as the subscribed fund was insufficient). He said at page 734,

    "…the general scheme of the Acts with reference to the liquidation of a company no doubt is that the assets are to be realised to the best advantage for the benefit of those who are entitled to share in their distribution. But indications are not wanting that the assets may under the Acts be applied for some purposes other than these. Section 167 of the [1862 Act] is, having regard to the reasons which I have just given, one example of this, and in the [1890 Act] the same intent may be traced in sections 7 and 8 of that Act. These are sections which require the preparation of a statement of the company's affairs at the expense of the assets leading to a preliminary report, which is to show whether further inquiry is desirable as to matters relating to the promotion and the like, and, if necessary, to a public examination of parties incriminated, with the purpose, of course, of enforcing commercial morality. It is, therefore, in my judgement plain that the principle upon which I am to apply, or refuse to apply, section 167 is not measured or limited or even concerned with pecuniary benefit to be obtained for the shareholders or creditors".

    81. Similarly Farwell LJ said In re John Tweddle & Company Ltd [1910] 2 KB 697,707, in relation to the official receiver's enquiries and report leading up to the public examination of former directors:

    "Now those are functions of a judicial character which are cast upon him, not in the liquidation of the company for the benefit of the assets, but primarily at any rate for the protection of the public. One has to bear in mind that in 1890 there had been various company failures, and it was thought that more drastic legislation was required against directors and promoters and people standing in that position, and I have no doubt that this section was passed for that purpose.

    It is said, and with some truth, perhaps, that it is a little hard on the company if the view that we take is correct that the costs of all this should come out of the company's assets; but a company only exists by favour of and on the conditions imposed by the legislature, and it is not immaterial to observe that as long ago as 1862, under the 167th section of the Act of 1862, if directors were prosecuted (as mentioned in that section) the expense of the prosecution came out of the assets of the company".

    82. Much more recently the same considerations carried weight with the Court of Appeal in Bishopsgate Investment Limited v Maxwell [1999] Ch 1 in deciding that a person required to answer questions under section 236 of the Insolvency Act may not refuse to answer on the ground of self-incrimination. Dillon LJ said at page 31,

    "It is plain to my mind - and not least from the Cork Report - that part of the mischief in the old law before the Insolvency Act 1985 was the apparent inability of the law to deal adequately with dishonesty or malpractice on the part of bankrupts or company directors…That was a matter of public concern, and there is a public interest in putting it right. As steps to that end, Parliament has, by [the Insolvency Act 1986], greatly extended the investigative powers available to office-holders, with the assistance of the court, and has expressly placed the officers of the company and others listed in section 235(3), under a duty to assist the office-holder".

    83. Having identified the three main public elements in winding up as prosecution, remedies for misfeasance and disqualification, I must go back to identify the investigatory duties and powers which Parliament has conferred at different times, and the persons by whom they have been exercisable. The starting point is section 115 (together with section 117) of the 1862 Act, in a part of that Act headed "Extraordinary Powers of Court". In those days there was no insolvency service ("official liquidator" simply meant a liquidator appointed in a compulsory liquidation) and no body of licensed insolvency practitioners. The court seems to have been ready to take a hands-on approach. But it was (in an age which may have set a higher value on privacy) conscious that its powers under sections 115 and 117 ought not to be used oppressively (see for instance Re North Australian Territory Co (1890) 45 Ch D 87).

    84. The office of official receiver was introduced by the Bankruptcy Act 1883. Official receivers were organised so that each was attached to a particular court exercising jurisdiction in bankruptcy. The 1890 Act extended this arrangement to courts exercising winding up jurisdiction, and when a court ordered a company to be wound up the official receiver attached to that court became provisional liquidator, although another liquidator might subsequently be appointed.

    85. Section 8 of the 1890 Act required the official receiver to submit a preliminary report to the court as soon as possible, including (section 8 (1)),

    "(b) if the company has failed, as to the causes of the failure; and (c) whether in his opinion further inquiry is desirable as to any matter relating to the promotion, formation, or failure of the company, or the conduct of the business thereof".

A further report might lead to the public examination of a company promoter, director or officer, but only if the official receiver stated that in his opinion fraud had been committed. The provisions of section 8 of the 1890 Act can be traced through to sections 132 and 133 of the Insolvency Act, although the making of a report by the official receiver is now optional, and is fairly rare in practice. The procedure for public examination was little used in the middle of the 20th century but the Cork Committee perceived possible advantages in reinvigorating it: see In re Seagull Manufacturing Co Ltd (in liquidation) [1993] Ch 345 (especially the submissions of counsel for the official receiver at p.349).

    86. Although the court has always been concerned to see that its extraordinary powers should not be exercised oppressively, the 19th-century and early 20th-century cases do not show any inclination to limit investigation to matters of direct concern to creditors and shareholders. Nor do they reveal any 'Rubicon' test being applied (for the history of that supposed test, see paragraph 26 of the judgment of Chadwick LJ in the Court of Appeal in this case). On the contrary, the process of public examination (which was regarded as the most stringent and intrusive weapon in the court's armoury) was available only when the official receiver had already formed the opinion that fraud had taken place. That requirement has not been preserved in section 133 of the Insolvency Act, but public examination remains a measure of last resort.

    87. Under the Disqualification Act the official receiver is very often the applicant for an order under section 6. That course has obvious convenience because the official receiver's report is prima facie evidence of its contents (rule 3(2) of the Insolvent Companies (Disqualification of Unfit Directors) Proceedings Rules 1987). The official receiver can apply to the court only if directed to do so by the Secretary of State, but when a direction is made the application is the official receiver's, not the Secretary of State's. Conducting disqualification proceedings is certainly a mainstream function of the official receiver. Parliament's decision to set out the code relating to the disqualification of company directors in a separate statute might be thought to give some superficial support to the view that the official receiver's functions under the Disqualification Act are not functions in a winding up. But in my opinion that view is mistaken. The provisions of the Disqualification Act are part of the same body of law as the Insolvency Act: see the observations of Vinelott J In re Jeffrey S Levitt Ltd [1992] Ch 457, 473-4, approved by the Court of Appeal in Bishopsgate Investment Management Ltd v Maxwell [1993] Ch 1, 31.

    88. For these reasons and for the further reasons set out in the speech of Lord Millett, I would allow this appeal. I would emphasise that the appeal was argued on the question of jurisdiction only, without reference to the very important element of discretion, considered by your Lordships' House in In re British & Commonwealth Holdings plc (Nos 1 & 2) [1993] AC 426. It will be rare for any application under section 236 of the Insolvency Act to be made for the sole purpose of proceedings under the Disqualification Act, and in such a case the court will be well aware of the need to avoid any oppressive exercise of its powers. In this case the official receiver's concession, before Judge Weeks, that the application was made solely for the purposes of the disqualification proceedings, appears in retrospect rather surprising, as Mr Crow acknowledged in the course of his reply. The liquidator who was mistakenly appointed (after the company had been struck off the register) had intended to issue misfeasance proceedings claiming £387,000. But it is unnecessary to go further into that aspect of the matter, since your Lordships are concerned only with the issue of jurisdiction.

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