Where we’re going, we don’t need any (winding up) petitions – Lancefield v Lancefield – an insight.
Lancefield v Lancefield [2002] is a distinct case that demonstrates the court’s jurisdiction to order a winding up of a company under its own volition, even where no petition has been presented. This provides an interesting wrinkle in insolvency law.
The parties in Lancefield v Lancefield were husband and wife who had fallen out. Consequently, they agreed to disband their partnership (in the business sense), a residential letting agency. Customers, concerned about their deposits, brought about the appointment by the court of a receiver. It was clear the business was solvent but that it could not be sold. The partnership accordingly needed to be wound up.
In determining the court’s ability to make a winding up order of its own initiative, Neuberger J made it clear that the power must only be exercised where “the circumstances are so plain, and the inevitability, appropriateness and urgency of winding-up are so clear, that it would be a denial of justice, and a waste of time and money, for the court to refuse to make an order there and then.”
He considered three factors in making his decision:
- The sooner the winding up order was made the better;
- There was a necessary level of debt to obtain a winding up order, so there was little point incurring further costs and delay if an order could be made there and then; and,
- It was unlikely that anyone would have grounds to oppose the winding up order, or succeed in doing so even if grounds could be shown.
Neuberger J did not feel a court should be powerless in making a winding up order simply because a petition had not been presented when the court was satisfied that one or more of the circumstances in s.122(1) of the Insolvency Act 1986 (the “Act”) applied.
Nonetheless, the Judge made clear that it would need to be a thoroughly exceptional case for the court to take such action as, “it would be plainly undesirable if parties to litigation thought that there was, in normal circumstances, even a real possibility of the court, of its motion, at the risk of prejudicing people who were not before the court, making an order winding up a company. In virtually any case where the possibility of a winding-up order is to be considered…”
Lancefield v Lancefield in action
The decision was followed in Re BTR (UK) Ltd and later cited in Marches Credit Union Ltd [2013]. The court held that it had the jurisdiction to proceed to make a winding up order even if the petition’s validity was in question, due to the absence of consent from all the directors. Similarly, in re BTR (UK) Ltd, an immediate winding up order was made without the presentation of a petition, in circumstances where the creditors had approved of the compulsory winding up, but the administrator did not have the funds to make the application.
This position was reaffirmed in Re Gracio Property Company Limited [2017]. The company was before the court in connection with the discharge of its administrators and the ending of the administration under para.79 of Schedule B1 to the Act. The court deemed it was not appropriate to return the company to the directors given the company was hopelessly insolvent. In a similar fashion to Re BTR (UK) Ltd, the administrator could have issued the petition, but the expense of the process would have come from the secured creditor who was already substantially out of pocket and without there being any prospect of a return of the additional costs.
Our perspective
A common thread when the court has been prepared to wind up a company without petition is that a pragmatic and functional approach ought to always be taken.
If you are in any doubt as to the winding up of a company, or any other related insolvency concerns, please feel free to contact Raphael Steele at [email protected] to assist you.