Mr Justice Norris:
- In October 2008 all the issued ordinary shares in Burnden Holdings (UK) Limited ("the Company") were registered in the name of Burnden Group Holdings Limited ("Group"). The Company was compulsorily wound up on 7 December 2009. Stephen Hunt ("Mr Hunt") was appointed liquidator of the Company on 11 December 2012. The question for determination on this appeal is whether District Judge Benson erred in law in deciding that Group (as sole shareholder in the Company) was entitled to inspect all proofs of debt in the liquidation of the Company; and his consequential decision that Mr Hunt should personally pay Group's costs incurred in obtaining such an order.
- The answer to that question involves deciding two issues :-
(a) Did Group have standing to apply to inspect the proofs?
(b) If so, did the judge properly order inspection?
- It is necessary to flesh out the bare bones of the factual background to the appeal. To do so I draw both upon the evidence filed on the application out of which the appeal arises, and upon the judgment of David Richards LJ in Burnden Holdings (UK) Ltd v Fielding [2017] 1 WLR 39 in related proceedings to which I will refer.
- The Company had itself been a holding company with a number of trading subsidiaries operating in the fields of the manufacture and sale of conservatories and in the power and energy business. Two of the directors of (and the controlling shareholders in) the Company had been Mr and Mrs Fielding. In October 2007, following an offer from a third party to acquire an interest in the power and energy business of one of the Company's subsidiaries, there was a restructuring of the businesses involving a distribution in specie. Under that restructuring Group became the sole shareholder in the Company, and Mr and Mrs Fielding became the controlling shareholders of Group.
- The Company went into administration in October 2008 with (according to Mr and Mrs Fielding) an estimated deficiency as regards creditors of £5.3 million, and as regards members of £9.3 million. Group (the Company's sole shareholder) was dissolved on 11 August 2009 pursuant to the voluntary strike-off procedure. The Company then entered compulsory liquidation on 7 December 2009. Mr Hunt's appointment as liquidator followed on 11 December 2012.
- On 15 October 2013 Mr Hunt, as liquidator of the Company, commenced proceedings against Mr and Mrs Fielding for breach of fiduciary duty or breach of statutory duty in relation to the restructuring, in particular relating to the distribution in specie, seeking equitable compensation in a sum of about £21 million ("the Claim"). The Claim is the only significant asset in the liquidation of the Company. Mr and Mrs Fielding completely deny the Claim. But as a threshold matter they pleaded that the Claim was barred by limitation and sought its summary dismissal. In this they succeeded before HHJ Hodge QC: but Mr Hunt appealed, and was granted permission to appeal on 30 March 2015. (The appeal has since succeeded and directions have been given for the prosecution of the Claim. A further appeal by Mr and Mrs Fielding to the Supreme Court has failed).
- Whilst the hearing of the appeal to the Court of Appeal was pending Mr and Mrs Fielding applied to restore Group to the register of companies. The effect of restoration would be to preserve the entitlement of Group (of which Mr and Mrs Fielding are the controlling shareholders) to receive any surplus in the liquidation of the Company if the Claim (being brought against Mr and Mrs Fielding) were to succeed. In the restoration application Mr Fielding described the success of Mr Hunt's appeal and of the Claim itself as "unlikely", but said that there was
"…the possibility of sufficient recoveries in [the Claim] to result in a distribution to [Group] as shareholder."
A distribution to Group would, of course, only occur if Mr and Mrs Fielding were good for any judgment made against them in the Claim (at least to the extent of debts proved in the liquidation, including interest, and the expenses of the liquidation). This prospect of surplus realisations Mr Fielding also described as "unlikely" (in paragraph 12 of his witness statement in support of the restoration application).
- On 15 October 2015 the Court restored Group to the register. The Order contained undertakings by Mr and Mrs Fielding. In essence they undertook that Group would not carry on business or operate in any way other than to
(a) await the outcome of the appeal;
(b) if the appeal was successful, await the outcome of the Claim;
(c) "Exercise any rights conferred on [Group] as a shareholder or contributory of [the Company] pursuant to the Insolvency Act 1986 and the Insolvency Rules 1986 and receive the proceeds of any awards of the Court arising out of the [Claim]";
(d) settle its debts; and
(e) distribute the balance of any awards of the Court.
- Ten days later Mr Fielding wrote to Mr Hunt to say that Group wished to examine all proofs of debt lodged in the liquidation of the Company. When Mr Hunt enquired as to the basis for the request he was told that Group was "entitled to inspect" by virtue of Rule 4.79(b) of the Insolvency Rules 1986 ("IR"), because Group was "the shareholder/contributory".
- Mr Hunt said he thought a difficulty arose over whether a fully-paid shareholder was or was not a "contributory" for the purposes of IR r. 4.79(b). But he was met with the answer from Group's solicitors that a shareholder was a "contributory" whether or not the shares were fully paid, and that IR r.4.79 was peremptory in its terms, so that Mr Hunt had no discretion in the matter. Mr Hunt advanced a contrary legal argument, and asked for an explanation why Group wanted to inspect the proofs and for provision of the evidence on the basis of which restoration of Group to the register had been ordered. Neither of these had been provided when the application for an order that Mr Hunt allow inspection of the proofs of debt lodged in respect of the Company was launched on 16 October 2016. The application was subsequently amended to challenge (under IR r.12A.51(3)) the grounds upon which (as disclosed in the course of his evidence) Mr Hunt had refused inspection.
- In his evidence in support of the application Mr Fielding stated that there was a possibility of sufficient recoveries in the liquidation of the Company and that "the existence of other (sic) creditors who might also be entitled to a distribution is therefore of interest to [Group]": and he added that there was no requirement to provide reasoning for Group's request.
- In his evidence in opposition to Group's application Mr Hunt stated:-
(a) that, whilst he had yet to adjudicate creditor claims, the quantum of submitted claims (excluding statutory interest) exceeded £9.5 million, and on top of that there were substantial costs of the liquidation;
(b) that the Company's only substantial asset was the Claim, and that he did not know if Mr and Mrs Fielding had sufficient financial resources to satisfy a judgment;
(c) that Mr and Mrs Fielding had declined to provide him with a copy of the evidence in support of their application to restore Group to the register in order that it might make the request to inspect proofs;
(d) that Group had no need to inspect the proofs in order to preserve its right to receive any surplus in the liquidation, and that "[his] primary concern [was] that Mr and Mrs Fielding [were] attempting to use Group as a means of obtaining a litigation advantage in the [Claim]"; and
(e) that he refused the request to inspect proofs "on grounds of confidentiality".
- On 12 January 2017 DJ Benson delivered judgment on Group's application. It was common ground before him that Group had standing to make the application (though that issue was reserved to be argued on appeal). The judge held:-
(a) that the burden of proof lay upon Group;
(b) that Group did not have to await adjudication of proofs before requesting inspection;
(c) that it was not necessary for Group to show that Mr Hunt's decision to withhold inspection was made in bad faith or was perverse (such that no reasonable liquidator could have made it);
(d) that, whilst Mr Hunt could refuse inspection on the ground of confidentiality, a proof of debt form was not confidential in nature and no persuasive argument had been advanced as to why it should be treated as such;
(e) that no evidence had been advanced by Mr Hunt to demonstrate that permitting inspection of proofs would be prejudicial to the conduct of the Claim; and
(f) that whilst it was clear that Mr Hunt was suspicious of the motives of Mr and Mrs Fielding he had not established grounds for rejecting Group's request to inspect.
- Having set out the material facts I turn to the issues.
- An application made in September 2016 for an order to permit inspection of proofs (or to overrule a liquidator's refusal to permit inspection) was governed by IR r. 4.79 , which provided:-
"The liquidator shall, so long as proofs lodged with him are in his hands, allow them to be inspected…by any of the following persons
(a) Any creditor who has submitted his proof of debt (unless his proof has been wholly rejected for purposes of dividend or otherwise);
(b) Any contributory of the company;
(c) Any person acting on behalf of either of the above."
The first issue for decision is whether for the purposes of this rule a fully paid up shareholder (such as Group) is a "contributory". This was the real point of the appeal.
- The Insolvency Act 1986 ("IA") introduced a new code for insolvency and related matters. So before embarking upon legal archaeology it is well to look within the Act and the Rules themselves to see what light other provisions might throw upon the meaning of the term "contributory" as used in IR r.4.79.
- IA s.79 deals with the meaning of "contributory" within the Act. It provides :-
"In this Act the expression "contributory" means every person liable to contribute to the assets of a company in the event of its being wound up, and for the purposes of all proceedings for determining, and all proceedings prior to the final determination of, the persons who are to be deemed contributories, includes any person alleged to be a contributory."
That might be taken on its face to suggest that a holder of fully paid up shares in a registered company would not be a "contributory" for the purposes of the Act, because such a person is not at first sight "liable to contribute to the assets" of the company.
- But the position is more complicated than that. When a company is wound up every present and past member is liable to contribute to the assets to any amount sufficient for the payment of its debts and liabilities, and the expenses of the winding up, and for the adjustment of the rights of contributories among themselves: see IA s. 74(1). IA s.74(2) then limits the liability of a present or past member to contribute, by providing:-
"(d) in the case of a company limited by shares, no contribution is required from any member exceeding the amount (if any) unpaid on the shares in respect of which he is liable as a present or past member."
(The reference to the adjustment of the rights of contributories among themselves is a reference to the processes described in IA s.149(3) and IA s.154, which will not necessarily entail the making of calls).
- Reading IA ss. 79 and 74 together it may be that a holder of fully-paid shares is a present member "liable to contribute" as such, but his liability is limited to nil (a broad meaning); or it may be that a holder of fully-paid shares is simply not liable to contribute (a narrow meaning); or it may be that the meaning of the expression "contributory" varies.
- To assist in the consideration of those questions one must look at other provisions of the Act and the Rules: and three in particular (though there are others).
- First, IA s.141 contains a mechanism for the constitution of a liquidation committee, and IR r. 4.152 states that the liquidation committee shall consist
"..in the case of a solvent winding up, where the contributories' meeting held under [IA s.141] so decides, of up to three contributories, elected by that meeting."
(In this rule the term "solvent" has a special meaning: but that special meaning does not affect the point to be made here). It would be surprising if only the holders of partly paid shares could attend a contributories' meeting; and odd that only the holders of partly paid shares (who, in a solvent liquidation may not be subject to calls for unpaid capital) can be on the committee in circumstances where holders of fully-paid shares are every bit as interested in the ascertainment of the surplus for distribution. The same could be said of the provisions of IR r.4.174A. They would support a broad meaning akin to "member".
- Second, IA s.148 provides for the Court to "settle a list of contributories with power to rectify the register of members in all cases where rectification is required". If it appears to the Court that it is not necessary to make calls on (or to adjust the rights of) contributories, then the Court may dispense with the settlement of a list contributories. The power of the Court has been delegated to the liquidator. The rules to be followed are set out in IR. r.4.195 following. IR r.4.197 (2) says:-
"in the case of each contributory there shall in the list be stated :-
(a) ……
(b) the number and class of shares …
(c) if the shares are not fully paid up, the amounts which have been called up and paid in respect of them…."
IR r. 4.198(2) requires the giving of notice to each contributory including notice of what amounts have been called up and paid in respect of his or her shares. It is therefore plain that the list of "contributories" (if prepared) is to include the holders of fully paid-up shares, and that the term "contributories" is being used in a sense wider than the apparently narrow definition in IA s. 79, more akin to "member". Indeed, in Re Pinecord Limited [1995] 2 BCLC 57 the Court entertained an application from a contributory specifically to show the shares held by the applicant on the list of contributories as fully paid: the application failed, but not on the ground that the list of contributories could not show the holders of fully paid shares.
- Third, IA s.124 provides that a winding up petition may be presented by "a contributory or contributories": it is not easy to discern why the holder of fully-paid shares should not be entitled to petition for a winding-up, for example on the just and equitable ground. This suggests that the expression "contributory" is being used in a broad sense. In CVC v Demarco [2002] UKPC 16 (which concerned Cayman law that is materially the same on this point) the holder of a fully paid up share sought to wind up a company on the just and equitable ground. The Privy Council held that he was entitled to do so, but expressed the view (at paragraph [13]) that he had no standing to do so "unless there is prima facie evidence that there would be a surplus on a winding-up". Thus it seems that the holder of a fully paid share is a "contributory" who may present a petition, but must show that there is some real point in the petition before he may avail himself of his right to relief.
- It is therefore not crystal clear, looking within the Act and the Rules themselves, whether in IR r.4.79 the expression "contributory" is used in a narrow or a broad sense. The key provisions incorporated into the Act and the Rules are of some antiquity, and one is therefore entitled to look at how they have been treated in the authorities (which the framers of the Act and the Rules may be taken to have had in mind).
- The origins of IA s.79 (the definition of "contributory") are to be found in s.74 of the Companies Act 1862. This provided (so far as material :-
"The term "contributory" shall mean every person liable to contribute to the assets of a company under this Act, in the event of the same being wound up".
- The origins of IA s.74 (liability to contribute to the assets) are found in s.38 of the 1862 Act. This provided (so far as material):-
"In the event of a company formed under this Act being wound up, every present and past member of such company shall be liable to contribute to the assets of the company to an amount sufficient for the payment of the debts and liabilities of the company, and the costs, charges, and expenses of the winding up, and for the payment of such sums as may be required for the adjustment of the rights of the contributories amongst themselves, with the qualifications following (that is to say)…..(4) In the case of a company limited by shares, no contribution shall be required from any member exceeding the amount, if any, unpaid on shares in respect of which he is liable as present or past member…."
- One can start with Re Anglesea Colliery Company decided in May 1866 and reported at (1866) LR 2 Eq. 379. Section 133 of the 1862 Act empowered the liquidator to call on any contributory to the extent of their liability to pay all sums which the liquidator considered necessary to satisfy debts, liabilities, costs, charges and expenses "and for the adjustment of rights of the contributories amongst themselves". Some of the shares in Anglesea Colliery were fully paid, and some were part paid. The liquidator made a call on the holders of part-paid shares purely for the purpose of adjusting the rights of the fully-paid and part-paid shareholders as between themselves prior to making a distribution of the surplus. The holders of the part-paid shares resisted the call, arguing that the holders of the fully-paid shares were not "contributories" (whose rights needed adjusting). Mr Rolt QC submitted:-
"A fully paid up shareholder is not liable to contribute to the assets of a limited company. Hence he is not a contributory, and a call to adjust his rights and those of other shareholders among themselves is not legal…"
- Page-Wood VC rejected this argument. After noting that the term "contributories" included past as well as present members (so that the use of the alternative term "members" would have been inapt), and after addressing the practicalities of distribution, he held (at pp.388-389):-
"The result would be that those who have paid in full would have no voice or controlling power in disposing of the assets; and these being distributed, the company is dissolved. They would therefore have no remedy whatever. I think that is not the scope of the Act. It appears to me that the sound construction of the Act requires that there should be given to that word "contributory" the effect of providing for the final adjustment of the rights of all persons, who, if their shares were not paid up, would be in the position of contributing members."
This led the writer of the headnote to the report to summarise the decision as
"The word "contributory" in s.133…includes fully paid shareholders".
- Before turning to the appeal from that decision (which was argued on 4th July 1866) one may note the decision of the Court of Appeal in Chancery on 2 August 1866 in Re National Savings Bank Association (1866) LR 1 Ch. App. 547. The question at issue was whether a holder of fully-paid shares could present a winding up petition as "a contributory". At first instance Lord Romilly MR had held that he could. On appeal the question was decided upon the wording of s.74 of the 1862 Act.
- Turner LJ thought it "rather a strong view of this Act of Parliament" to say that "contributories" did not include persons who had paid up their shares in full, and he held against that view. He said (at p.551):-
"The section does not say "contributory" shall mean every person liable to contribute to the assets, but every person liable to contribute to the assets under this Act, which may well mean every person liable under this Act to contribute. We must look, then, to the other provisions of the Act, to see who are the other persons liable under this Act to contribute, and on going back to the 38th section we find an exact definition [which is then quoted]….it seems to me that the persons who were indicated by this section as liable to contribute to the assets of the company were the members and past members of the company".
- He then noted that there were qualifications upon the liability to contribute (including the qualification in s.38(4) of the 1862 Act which is in the same terms as IA s.74(2)(d) quoted above). He held (at p.552) that the effect of such qualifications was not to destroy the effect of the enacting part of the section which had provided that the members and past members of the company were liable to contribute.
- Judgment on the Anglesea Colliery Company appeal (reported at (1866) LR 1 Ch. App. 555) was given on 4 August 1866 by Turner LJ in terms consistent with the views expressed by him in Re National Savings Bank Association (supra). Referring to s.74 of the 1862 Act he said (at p.558):-
" This section in no way defines the persons on whom the liability created by it is to attach; but it refers to a liability under the Act, and leaves it to be collected from other parts of the Act on whom the liability was intended to be fixed."
He then turned to s.38 of the 1862 Act, and said of it (at p.559) :-
"Reading this section apart from the qualifications, there can…be no doubt upon whom liability is fixed. It is clearly fixed upon the "present and past members" of the company and the present and past members of the company must, therefore, be contributories within the meaning of the 74th section…The question then must be, what is the effect of the qualification contained in art. 4 of this 38th section, and, in my opinion, it does not derogate from the previous description. On the contrary, the qualifying clauses assume the members to be liable, and merely provide in what cases, and to what extent, the liability is to be enforced against them. I think, therefore, that notwithstanding this qualification, all members must be considered to be contributories. Upon these sections alone, therefore, I can hardly doubt that all members of the company, and there can be no doubt that the holders of paid-up shares of are members, ought to be held to fall within the description of contributories; but when we look at the scope and purpose of the act any doubt which there might be upon the point seems to me to be removed."
- Turner LJ then went on to consider the scope and purpose of this part of the 1862 Act (which he concluded was to adjust the rights of all the members of companies which should be wound up under it) and held (at p. 560) that this purpose supported his textual analysis.
- Knight Bruce LJ delivered concurring judgments in both Re National Savings Bank and in Re Anglesea Colliery Co. It might therefore be thought that the matter had been settled at appellate level: as the writer of the headnote to the report of Re Anglesea Colliery Co. put it :-
"a holder of fully paid up shares in a limited liability company is a "contributory" within the meaning of the Companies Act 1862".
- But this approach was not always followed at first instance. In Re Marlborough Club Co (1868) Eq 365 an application to add by way of supplement to the list of contributories the names of the holders of fully paid-up shares (for the purpose of seeking "balance orders" against them in respect of unpaid debts) was refused. The ground of the decision was that there was no power in the Court to settle a supplemental list. But obiter Lord Romilly MR said (at p.367):-
"Unquestionably these gentlemen could not be settled on the list in the first instance and I cannot put them on solely to give the Court jurisdiction to enforce payment of the debts due from them." [Emphasis supplied].
The observation is curious, because it had been Lord Romilly himself in Re National Savings Bank Association who had decided that a holder of fully-paid shares was "a contributory" for the purposes of presenting a petition: and both that case and Re Anglesea Colliery Co were cited in the Marlborough case, but are not addressed in the judgment. I do not regard this case as undermining the construction of the expression "contributories" established in the Court of Appeal in Chancery.
- On the other hand in Re Osmondthorpe Hall Freehold Garden and Building Allotment Society [1913] WN 243 fully paid-up members of a solvent unregistered company were treated as being in the same position as the holders of fully-paid shares; and, as such, "contributories" (within the meaning of what was then s. 124 of the Companies (Consolidation) Act 1908) entitled to petition for the winding up of the association.
- In Re Aidall [1933] 1 Ch 323 the holder of a fully paid share (X) was placed on the list of contributories and received a distribution out of the surplus assets arising in the liquidation. The Revenue sought an order that X repay to the company a part of the distribution to satisfy a tax assessment raised on the company. The Companies (Consolidation) Act 1908 contained (in ss.164 and 165) a power for the Court to order "any contributory for the time being settled on the list of contributories" to pay to the liquidator any money to which the company was prima facie entitled and to pay any call. X resisted the making of any order on the ground that (within the meaning of those sections) he was not "a contributory" because, being the holder of fully paid shares, he was not liable to contribute to the assets of the company. Re Marlborough was cited: but it is not clear that either National Savings Bank Association or Re Anglesea Colliery Co was. Given that Counsel for the Attorney General advancing the argument in favour of the order sought in that case was J.H Stamp, Counsel for Mr Hunt in this case submits to me that it is likely that they were.
- Maugham J. began his judgment by suggesting (at pp. 328 and 329) that the expression "contributory" had a variable meaning within in the 1908 Act.
"It is unfortunate that in this Act, and in the Acts which it supersedes, the term "contributory" is used in a large number of places, not as limited to holders of partly paid shares, but as including holders of fully paid shares in the company. In the series of sections, sections 123 to 128, which are headed with the word "Contributories" I am of opinion that the word "contributories" is used in the narrow sense – namely, holders of partly paid shares; but when we pass from that series of sections to the later series, for instance, those headed "Winding up by the court", those headed "Liquidators", those headed "Committee of inspection", and, finally, those headed "Ordinary powers of the Court", in which sections 164 and 165 are found, it is clear that the word "contributories" is really used as synonymous with the word "members". [Emphasis added].
The suggestion that s.124 of the 1908 Act (which was, with minor and immaterial alterations, a re-enactment of section 74 of the 1862 Act) excluded the holders of fully-paid shares from the scope of the expression "contributories" was inconsistent with the decision of both Re National Savings Bank Association and Re Anglesea Colliery Co: and Maugham J does not explain why those decisions should be ignored.
- Having decided that the definitional meaning of the word "contributory" excluded the holder of a fully paid share, Maugham J went on to explain that the definitional meaning did not apply to sections 164 and 165 (with which he was concerned), and that in those sections "contributory" was really synonymous with the expression "members". He held (at p. 330) :-
"Turning now to sections 164 and 165, I have to observe that I am dealing with the jurisdiction which the Court may exercise as against persons described as contributories "for the time being settled on the list of contributories". In my opinion the proper course there is to hold that "contributory" is not limited to the narrower meaning of persons who owe money to the company in respect of their share, but that unless such a shareholder is for the time being settled on the list of contributories the court has no jurisdiction under these sections. It may also be correct to hold that the Court will refuse to exercise its jurisdiction by putting somebody who is not on the list of contributories upon the list merely for the purpose of obtaining jurisdiction under either of the two sections. It is evident that there is a considerable distinction between the case of members of a company who have fully paid-up shares and who have no prospect of obtaining anything in the division of the surplus assets of the company, and the case of holders of fully paid-up shares who are entitled to a return in the winding up after all the liabilities of the company have been discharged."
- Having reached that view (i.e. that a holder of fully-paid shares was a "contributory" for the purposes of s.164 and 165, so that the expression there had a broad meaning) he then observed that a number of cases had been cited to him for the purpose of showing that that was not the correct view, of which only Re Marlborough he thought to be relevant. He distinguished that case on the ground that the company with which it was concerned was insolvent (so that the holder of a full-paid share stood to receive nothing) whereas the company with which he was concerned was solvent (so that the holder of a fully-paid share would receive a distribution).
- The actual outcome of Re Aidall was entirely consistent with the application of the approach adopted in Re Anglesea Colliery Co: and if that case had been cited it would have provided a simple and direct route to the conclusion ultimately reached. I would further comment that Maugham J's distinguishing of Re Marlborough from the case before him by reference to solvency, and his identification of the "considerable distinction" between holders of fully paid shares who had no prospect of a return and those who did might be accommodated either by attributing a narrow meaning to the word "contributory" or by attributing a broad meaning to the word "contributory" but granting relief only in appropriate cases.
- On appeal ([1933] 1 Ch 334) the matter was dealt with briskly. The Master of the Rolls thought it "impossible to add usefully to what [had been] said by Maugham J". X had been returned on the list of contributories. In that capacity he had received distribution of surplus assets. The sum paid over had been too large because of a failure to provide for a debt to the Inland Revenue. It was sought to recover the overpayment. X had to repay that which he never ought to have been handed in the first place and which was needed for the purpose of paying the debts of the company. The matter was very plain. As to the legal framework the Master of the Rolls said (at pp.334-335)
"The sections which have to be dealt with are intricate, and I would not add anything to what Maugham J has said."
Lawrence and Romer LJJ agreed. There is no attempt to explain any apparent departure from the approach established in 1866 that the definition of "contributory" is to be read as including the holder of fully paid shares.
- The question arose again in Re Consolidated Goldfields of New Zealand Ltd [1953] 1 Ch 689. The precise context does not matter: the issue lay between a past member and creditor as to whether a past members' claim to uncollected dividends could rank alongside the claims of unsecured creditors in an insolvent liquidation.
- Counsel for the past member (Mr L Cohen) acknowledged that if Re Anglesea Colliery Co was applicable then the past member's claim could not be admitted to rank in competition with debts due to ordinary creditors. He continued (see the argument reported at p.692) :-
"In Re Aidall however Maugham J held that in sections 123 to 128 of the Companies Act 1908…. "contributories" meant only the holders of partly paid shares. That is diametrically opposed to the decision of the Court of Appeal in Re Anglesea Colliery which is not mentioned in the report of the case and so, apparently, was not cited to Maugham J or to the Court of Appeal which upheld him. As, however, the Court of Appeal did uphold him, this court is now asked to follow Re Aidall which is by far the more recent decision…"
- Counsel for the unsecured creditor (Mr Hesketh) asked the Court not so to hold. He submitted :-
"Re Aidall ought not to be followed in preference to Re Anglesea Colliery Co. Quite clearly the earlier case was not cited to Maugham J for, had it been, he must perforce have followed it. Accordingly this court should follow Re Anglesea Colliery Co."
- In an ex tempore judgment Roxburgh J declined to follow Re Aidall. Focussing upon the passage from Re Angelsea Colliery Co which I have cited at the end of paragraph [32] above, Roxburgh J held (at 696-697):-
"It appears to me, first, that this passage was part of the ratio decidendi of Re Anglesea Colliery Co. It is therefore binding on me, and it seems to show quite plainly that what used to be section 74… does not mean what, upon the face of it, it would appear to mean; but that, on the contrary, all past and present members of the company without limitation are contributories within the meaning of section 74 of the act of 1862… It is to be observed – and I think this is quite clear – that the Anglesea case was not cited in Re Aidall. If it had been cited, Maugham J would, I think, have been bound by it, unless he were able to distinguish it; but he certainly does not purport to distinguish it, and there is no reason to suppose that he was aware of it.… I think I am bound to conclude that he said that [sc. "contributories" meant the holders of partly-paid shares] per incuriam because, as far as I can see, it is quite irreconcilable with the decision of the Court of Appeal in Re Anglesea. I feel bound to say, with all respect and humility, that I think that, when the Court of Appeal approved of his reasoning, they were also not aware of Re Anglesea, which they did not seek to explain or to distinguish, and that they must also have approved Maugham J per incuriam."
- The same point arose four years later in Re Phoenix Oil and Transport Co Ltd [1958] 1 Ch 560 where the case was argued before Roxburgh J by Mr Bagnall (as he then was) and Mr Denys Buckley (as he then was) as amicus. The context was whether settlement of a list of contributories should be dispensed with in a solvent liquidation. The first question was whether the holder of a fully paid share in a company which produced a surplus in liquidation was a "contributory" (because if not, then no question arose in relation to dispensing with a list of contributories). The judge was again faced with the submission that Re Aidall was inconsistent with the decisions in Re National Savings Bank Association and Re Anglesea Colliery and was again urged not to follow it.
- In a reserved judgment Roxburgh J again declined to follow Re Aidall. Having referred to the definition of "contributory" (then found in section 213 of the Companies Act 1948) and having referred to the limitation on the contribution to be required from a holder of shares liable as a present or past member (then found in section 212 of the 1948 Act) he continued (at p.563):-
"Any reader guilty of assuming that these sections mean what they say would, I think, infer…….(2) that, as a holder of a fully paid share is not liable to contribute to the assets in the event of a winding up, he is not a "contributory" within the meaning of the Act. But such a conclusion would be wrong. Although Maugham J held in Re Aidall Ltd, confirmed by the Court of Appeal, that the holder of a fully paid share fell sometimes, but not always, within the definition of a contributory, the Court of Appeal in the earlier case Re Anglesea Colliery Co had held that he always did: and I followed the earlier decision in Re Consolidated Goldfields of New Zealand Limited. In further support of my decision, I now cite the Court of Appeal decision in Re National Savings Bank Association… It is clear then that a holder of fully paid shares is a "contributory"…."
- After referring to the reasoning of Turner LJ in Re National Savings Bank Association (which I have set out in paragraph [30] above) Roxburgh J continued (at p. 564):-
"By this line of reasoning the statutory definition is expanded to mean every person who would be liable to contribute in any possible event under the Act. The importance of this analysis for the present purpose is that holders of fully paid shares do not become contributories because they are entitled to participate in surplus assets, but for another reason."
- On this occasion again Counsel for Group urges me not to follow Re Aidall; whilst Counsel for Mr Hunt urges me to follow it, and to decline to follow Consolidated Goldfields of New Zealand Ltd or Re Phoenix Oil and Transport Co Ltd . His argument is
(a) that a decision is only to be treated as per incuriam if given in ignorance or forgetfulness of some authority binding on the Court concerned, so that some step in the reasoning on which the decision is based is demonstrably wrong (Morelle v Wakeling [1955] 2 QB 379 (CA) at p.406 per the judgment of all members of the Court);
(b) that given the calibre of Counsel involved in Re Aidall, given that they cited Re Marlborough ...in which case both of Turner LJ's decisions were cited in argument), and given his own standing, it cannot be assumed that Maugham J was ignorant or forgetful of Re National Savings Bank Association or Re Anglesea Colliery Co ;
(c) Turner LJ's decisions were in terms limited to the meaning of the expression "contributory" in the context of the specific statutory provisions under consideration;
(d) that Roxburgh J was wrong to treat Re Aidall as decided per incuriam (Counsel called it "an extraordinary conclusion" and said it was "unsustainable") and that he should have regarded himself as bound by that case as the most recent decision of the Court of Appeal;
(e) that this would lead to the conclusion that the term "contributory" had a variable meaning in the various Companies Acts and has a variable meaning in the Insolvency Act 1986;
(f) that "contributory" in IR 4.79 cannot include the holder of fully-paid up shares in an insolvent company because such a person has no liability to contribute to and no interest in the proceeds of the winding-up (and so no justification for requesting to see the proofs of debt).
- I do not accept these submissions for the following reasons:-
(a) The decisions of Roxburgh J in Consolidated Goldfields and in Phoenix Oil were themselves decisions on the exact point in issue (which of two inconsistent appeal court decisions should be followed?) delivered after hearing argument from specialist Counsel prominent in the field, and I should follow them unless convinced that they are wrong;
(b) Far from being convinced that they are wrong I see great merit in giving the term "contributory" a broad meaning, but using other techniques to control the misuse of any rights thereby conferred and to reflect the "considerable distinction" between the expectations of the holders of fully paid shares in solvent and in insolvent liquidations;
(c) Since the actual decision in Re Aidall was that for the purposes of the relevant section a fully paid shareholder was a contributory, the fact that Maugham J considered that for the purposes of other sections he would not be was not essential to his decision;
(d) Perhaps for that reason textbook writers (and no doubt the legal, accounting and insolvency professions informed by them) have taken Re Anglesea Colliery as expressing the mainstream view: current examples (reflecting earlier editions) include (i) Gore-Brown on Companies paragraph 55[19]; (ii) Palmers Company Law paragraph 15.659; (iii) MacPherson's Law of Liquidation (3rd ed) para 10-002; and (iv) Loose and Griffiths on Liquidators (8th ed) paragraph 4.21. I see no reason to disturb that settled practice;
(e) I do not consider that it is sensible to define the term "contributory" by reference to whether the liquidation is solvent or insolvent, because (i) that is an outcome that is known only at the conclusion of the process (and the expectation may vary during the process) whereas the term has to be applied during the currency of the process and (ii) if the expression is given a broad meaning inappropriate use of broadly construed powers can be controlled by other means.
- I therefore hold that Group is a "contributory" for the purposes of making an application under IR r. 4.79 because for the purposes of the Act and the Rules holders of fully paid shares are generally to be taken as "contributories".
- I would observe that as regards the Rules this conclusion is of historic interest only. The Insolvency Rules 2016 provide (in rule 14.6) that an office holder must allow inspection of proofs by "a member or contributory of the company". This eliminates doubt for the future (but should not be taken as retrospectively affirming any particular meaning of the expression "contributory").
- The second issue is whether the District Judge erred in law in ordering disclosure of the proofs. In my judgment he did so: but it is to be noted that before me the case was argued differently.
- Before the District Judge the nub of the argument was (i) that on the wording of IR 4.79 ("the liquidator shall…allow [proofs] to be inspected...") Mr Hunt was bound to permit inspection of the proofs unless he could show that they were confidential or that their disclosure would be prejudicial to the conduct of the proceedings (under IR r.12A.51(1)); (ii) that proofs of debt are plainly not confidential; (iii) that no evidence of prejudice was led (beyond the fact of suspicion); and (iv) that Mr Hunt's decision not to permit inspection could be overturned without demonstrating that it was perverse (because IR r.12A51(3) simply says that on an application to overturn the liquidator's decision the Court "may either overrule it altogether or sustain it subject to such conditions (if any) as it thinks just").
- Before me the nub of the argument was that if IR r.4.79 gave standing to Group to apply for inspection of the proofs of debt (which I have held it did), then, before the Court could be asked to overturn a refusal to permit inspection, it was (as a matter of general principle) for Group to show that it had a real interest in the relief being sought.
- Reliance was placed on Deloitte & Touche AG v Johnson [1999] 1 WLR 1605 (another Cayman case). A potential defendant to a claim by liquidators applied to have the liquidators removed. S.106 of the Cayman Companies Act did not impose any limitation on who might make such an application. Lord Millett (giving the opinion of the Board) said (at p.1611A) :-
"In their Lordships' opinion two different kinds of case must be distinguished when considering the question of a party's standing to make an application to the court. The first occurs when the court is asked to exercise a power conferred on it by statute. In such a case the court must examine the statute to see whether it identifies the category of person who may make the application. This goes to the jurisdiction of the court, for the court has no jurisdiction to exercise a statutory power except on the application of a person qualified by statute to make it. The second is more general. Where the court is asked to exercise a statutory power… it will act only on the application of a party with a sufficient interest to make it. This is not a matter of jurisdiction. It is a matter of judicial restraint…. It is incumbent on the court to consider not only whether it has jurisdiction to make the order but whether the applicant is a proper person to invoke the jurisdiction. Where the court is asked to exercise a statutory power, therefore, the applicant must show that he is a person qualified to make the application. But this does not conclude the question. He must also show that he is a proper person to make the application.… [This] means that he has a legitimate interest in the relief sought." [Emphasis in original].
- It is this principle which underpins the observation in CVC (to which I have already referred). It also underlies the decision in Re Embassy Art Products Ltd (1987) BCC 292. This was an application by contributories for relief under section 561 of the Companies Act 1985 (the production of documents by a bank). Hoffmann J observed (at p297 left hand column) that a contributory must demonstrate that examination of the documents would probably result in some benefit accruing to him as such, and that unless there was a likelihood of such benefit the contributory had no more interest in the outcome of the winding up than anybody else. It is to be noted that the contributory bore the burden of establishing the probability of advantage.
- The purpose of the restoration by Mr and Mrs Fielding of Group to the register was to enable it to benefit from any realisations that might be made from the Claim. At the time of the application it was said to be a precautionary measure to cover an unlikely event. But now it is said to be an event with a sufficient likelihood of occurrence to justify the provision of information to facilitate the ascertainment of the possible surplus.
- It is no secret that the proofs submitted in the liquidation total £9.5 million (subject to adjudication). Mr and Mrs Fielding (and so Group) will know to what liabilities the majority of those proofs relate, because when the Company entered administration in 2008 they listed the liabilities which caused its deficiency. Whether there will now be a surplus available for distribution in the liquidation depends on the adjudication of those proofs, on the expenses of the liquidation and on the assets in the liquidation.
- It is no secret that the only significant asset in the liquidation is the Claim (for about £21 million). It is and was Mr Fielding's stated position on behalf of Group (a) that it was "unlikely" that the Claim would be successful because the proceedings were "without merit"; and (b) that it was "unlikely" that surplus realisations would be made in the winding up of the Company. Although effectively invited by Mr Hunt in his evidence to disclose their case as to whether they would be good for any judgment on the Claim (should it succeed) Mr and Mrs Fielding did not take the opportunity to do so. This material does not establish the probability of a surplus.
- Instead Group simply says that because Mr Hunt has brought the Claim he presumably thinks he will succeed and the "possibility" (no-one puts it higher) of that outcome itself gives Group a "legitimate interest" in the "possible" surplus. But all that the Claim shows is that Mr Hunt thinks a claim for £21 million cannot be dismissed as fanciful. He may think (a) that it is most likely that he will be awarded (say) £12 million; (b) that Mr and Mrs Fielding still have available assets to enable a recovery of (say) 50% of that sum; and (c) that (for example) such recovery would enable a distribution of 50p in the £1 to be made to creditors. That would still make prosecution of the Claim beneficial to the creditors but it would not yield a return in which a contributory had at any time a real interest; and Group has no legitimate interest in relief that would simply enable it to identify the shortfall. In my judgment Group cannot get from the existence of the Claim to the existence of a legitimate interest in the relief sought without something more.
- In these circumstances I hold that Mr and Mrs Fielding have not demonstrated any legitimate interest on the part of Group in the relief sought or adduced prima facie evidence of a surplus on a winding up. If Group had led evidence from Mr and Mrs Fielding about their available assets (in what they regarded as the unlikely event of the Claim succeeding) it might have been possible to assess the prospects of a distributable surplus. Group might be shown to have a real interest (rather than an entirely speculative one). It might then have been possible to permit inspection by Group, probably subject to the condition that neither Group nor Mr and Mrs Fielding (who are the individuals with the practical interest in this information and who have undertaken its pursuit) should directly or indirectly contact any creditor who had submitted a proof (or their agent). But the occasion for that has not arisen.
- I therefore allow the appeal. It follows that I would set aside the personal costs order made against Mr Hunt. But what costs order should be made on the application before DJ Benson and what order should be made on the appeal must be the subject of written submissions. After informal discussion between Counsel to establish any common ground, these should be exchanged and filed with the Court (at Liverpool) by 4.00pm 28 March 2018. I will then consider whether the matter can be disposed of without a hearing or whether a telephone hearing should be directed.
- I express my thanks for the thorough written and oral submissions.
