Winding up a company in the public interest

Secretary of State for Business Energy And Industrial Strategy v Sentor Solutions Commercial Ltd & Ors [2022] EWHC 2734 (Ch) (31 October 2022)When will a company be wound up in the public interest?

Sampson Property Developments Ltd (“SPD“) and Fabcourt Developments Limited (“FD“) claimed to be financial institutions raising money for development projects within the UK, offering fixed rate investment products (convertible loan notes) with high monthly or quarterly interest rates for a duration of 2 to 3 years. SPD and FD took investment monies from investors, but after making one or two monthly interest payments to such investors at the outset, they consistently failed to pay the remainder of promised monthly interest payments, ceased communications with investors and failed to return the initial investment at the end of the term.

The full extent of losses to investors is not known, as the companies have failed to deliver up their books and records, to the extent that any proper books and records were maintained in the first place. From enquiries made of investors identified and located during the investigation, the total investment sum is at least £1,698,000 and $500,000 USD for the scheme operated by SPD and £789,885 for the scheme operated by FD. The true total figure is likely to be much higher.

Maintaining that the companies operated without required FCA authorisation and with the intention to conduct investment fraud, the Secretary of State sought to have the companies wound up in the public interest pursuant to s.122(1)(g) IA 1986.

The Court noted that even if the Secretary of State thinks it expedient in the public interest to wind up a company, the Court still has a discretion whether or not to make an order, and the burden of proof lies on the Secretary of State to persuade the Court that it is just and equitable to wind the company up.

The Secretary of State put forward three grounds upon which to make the order:

• Trading with a lack of commercial probity and/or objectionable business activities

  • The schemes in question involved SPD and FD representing (through telephone calls and marketing material, such as brochures and presentations) that they were financial institutions raising money for development projects in the UK and offering fixed rate investment products. Under these schemes, members of the public could subscribe to 2-3 year convertible loan notes, which it was (variously) expressly and impliedly represented would provide SPD and FD with the funding required to purchase and develop real property. In reality, the investment monies were not employed in the purchase or development of property – by SPD or FD at least – as represented to investors. The investigators undertaking the investigation were unable to identify any properties that are or were at any material time owned by SPD or FD.

  • It was also put forward that the companies were trading whilst insolvent. They had entered into contractual obligations with investors to pay monthly interest on the loan notes and to return the initial investment at the end of the term but had failed to do so. On a cashflow basis, they were therefore plainly insolvent.

• Failure to cooperate with the investigation and deliver up adequate accounting records

  • Communications were sent by the investigators to addresses identified as connected with officers of the companies and were signed for by individuals in the names of officers or former officers of all of the companies. Yet no-one from any of the companies has made contact with the investigators. On the contrary, the ‘flurry of resignations’ indicates a clear intent to avoid cooperation.

• Lack of Transparency

  • Several factors were put forward, including:

    • None of the companies have any visible presence at their registered offices.

    • When the investigators attempted to make contact with the companies via the ten known telephone numbers for the companies, six were disconnected, two were answered by individuals with no present connection to the companies, one was unanswered and one rang through to a basic EE voicemail message.

    • Email correspondence sent by the investigators to email addresses formerly used by the companies failed to elicit a reply.

    • Photographs on one of the company’s websites which are purportedly of senior employees are cloned photographs of unconnected third parties.

The Court was satisfied that it was just and equitable for each of the companies to be wound up. The companies collectively operated with the intention to conduct investment fraud. They operated without required FCA authorisation, in breach of regulatory requirements and to the detriment of ordinary members of the public. All the companies were found to have traded with a lack of commercial probity and to have undertaken objectionable business activities. This first ground, of itself, would have sufficed to warrant the winding up of the companies. The second and third grounds relied upon in the petitions, which the Court also found to have been made out, merely served to fortify the Court’s conclusion that these companies should be wound up.

Judges: ICC Judge Barber

Counsel: Ms. Giselle McGowan of 9 Stone Buildings (instructed by The Insolvency Service) for the Petitioner. The Respondents did not appear and were not represented.