[2009]JRC042
royal court
(Samedi Division)
6th March 2009
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Before :
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M. C. St. J. Birt, Esq., Deputy Bailiff, and
Jurats Le Brocq and Newcombe.
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Poundworld (Jersey)
Limited
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IN THE MATTER OF REPRESENTATION OF THE
DIRECTORS SEEKING A JUST AND EQUITABLE WINDING UP
Advocate M. L. A. Pallot for the Representors
judgment
the deputy bailiff:
1.
On 5th
February, the Court ordered that Poundworld (Jersey)
Limited ("Poundworld" or "the Company") be wound up
pursuant to Article 155 of the Companies (Jersey)
Law 1991 ("the Law") on the ground that it was just and equitable
to do so. The Court now gives its
reasons for that decision.
Background
2.
Poundworld
is a Jersey company which was incorporated in
1982. It is in the retail business
and trades from four outlets in Jersey where
it sells all items for one pound.
Unfortunately, it has run into financial difficulties. The Court has received affidavits from
Mr Martin Cottier, a director and shareholder of the Company, and from Mr
Adrian Rabet of Begbies Traynor, who is a chartered accountant specialising in
insolvency matters. They also both
gave oral evidence as the Court wished to explore in more detail certain
matters referred to in the affidavits.
The Court is satisfied from their evidence that Poundworld is insolvent
in that it cannot pay its debts as they fall due. The Court is also satisfied that there
is no prospect of the Company trading its way out of its difficulties.
3.
In view of
the insolvency of the Company, the directors sought advice from Begbies
Traynor. It was concluded that, in
view of the Company's insolvency, a winding up was inevitable and that the
appropriate course would be a creditors' winding up under Chapter 4 of the Law. To this end, in accordance with the
requirements of Article 160 of the Law, notice was given of the necessary
meetings of shareholders and creditors, which were to be held on 16th
February. However, in the light of
further developments, the directors changed their mind and decided that it
would be more beneficial for the Company's creditors if a just and equitable
winding up were ordered rather than a creditors' winding up. Accordingly, it was that application
which came before us on 5th February.
The Law
4.
Article
155(1) of the Law is in the following terms:-
"(1) A company, not being a
company in respect of which a declaration has been made (and not recalled)
under the Désastre Law, may be wound up by the court if the court is of
the opinion that – (a) it is just and equitable to do so; or (b)
……"
5.
The Court
has had to consider the provisions of Article 155 on a number of
occasions. In Re Leveraged
Income Fund Limited 2002/209 31st October, 2002, the Court said this at
paragraph 10 of its judgment:-
"Article 155 is based upon a
similar provision of the Companies Act of the United Kingdom. English authorities are therefore of
assistance. Although the English
courts have developed certain categories of cases where the court will exercise
its power under the just and equitable jurisdiction the court is not confined
to such categories. The words 'just
and equitable' are general words.
As Palmer Company Law Vol 3 para 15.219 puts it:-
"It has sometimes been
suggested that there is an exhaustive list of situations that may fall within
the scope of the 'just and equitable' clause, but it now seems that although
such classification may be convenient for purposes of presentation, the words
'just and equitable' require a more flexible interpretation. In the words of Lord Wilberforce:
'Illustrations may be used, but general words should remain general and not be
reduced to the sum of particular instances'"."
6.
The width
of the jurisdiction was emphasised by Bailhache, Bailiff in the case of Jean
v Murfitt (Jersey Unreported 11th December 1996) at page 8 of
the judgment where he said this:-
"We conclude by observing that
the words 'just and equitable' in Article 155 of the 1991 Law should be given a
flexible interpretation. Justice
and equity cannot be confined within the four corners of specific
instances."
The application
7.
Mr Pallot
argued that there were special circumstances in this case which made it
appropriate for the Court to order a winding up under Article 155 rather than
leave it to the shareholders and creditors to proceed by way of a creditors'
winding up. This was because time
was critical and any delay in the liquidators being able to act until after the
meetings on 16th February, would be very damaging to the interests
of the creditors. He referred
to the existence of two particular matters.
8.
The first
related to stock held by the shipper.
Under the arrangements which Poundworld has with its shipper, much of
its stock is stored free of charge in the shipper's warehouse. At present there is approximately
£100,000 worth of stock (at cost price) in the warehouse. Poundworld owes the shipper
£28,000 in respect of shipping charges and the shipper is threatening to
exercise a lien over the stock and sell it in order to recover the outstanding
shipping charges. Poundworld does
not accept that the shipper has a valid lien but, short of legal action, it has
no way of gaining access to the stock without paying the outstanding shipping
costs, which it is unable to do.
9.
The
evidence from both Mr Rabet and Mr Cottier is that, if the stock were to be
sold by the shipper on the wholesale market, it would probably not even realise
enough to clear the shipping charges and would be highly unlikely to provide
any surplus for other creditors.
Conversely, if the stock could be released and sold at retail value from
Poundworld's shops, the proceeds could amount at best to £200,000 and on
a conservative estimate to £150,000.
10. Given the Company's track record, it is thought
unlikely that the shipper would be willing to come to any arrangement for the
release of the stock with the directors, whereas it probably would be willing
to come to an appropriate agreement with the liquidators who would be seen as
independent and subject to the control of the Court.
11. The second aspect relates to the
Company’s remaining stock which is situated in its four retail
outlets. These are all rented
properties and the rental in respect of three of them is overdue. One landlord is threatening to exercise
his 'droit de gage' over the stock and the others are likely to do the
same. Again, if a landlord were to
exercise such a right, the stock would probably be sold on the wholesale market
and it would probably only realise something in the region of 10% of the cost
price. Conversely, if it
could be sold at the retail price from the outlets over a reasonable period,
the uplift would probably be between 50% and 100% of the cost price. The total value of stock held in the
four locations is in the region of £80,000 (at cost price). Again, it is believed that the landlords
would not be willing to come to any arrangement with the directors but that
they would probably be willing to do so with the liquidators.
12. The firm view of Mr Rabet (shared by Mr Cottier)
was that the best interests of the creditors would be served by the current
stock held in the shipper's warehouse and on the four retail premises to be
sold at retail prices from the Company's outlets over a six-week period. The stock is the Company's only material
asset. If sold at retail value,
there is a reasonable prospect of the preferred creditors being paid in full
and the ordinary creditors receiving a modest dividend. If the stock were sold in bulk at
wholesale prices, there would be minimal recovery by anyone other than the
landlords and, perhaps, the shipper.
13. The evidence of Mr Rabet and Mr Cottier
satisfies us that, if matters are delayed until the creditors' meeting, there
is a substantial risk that the interests of the creditors will be seriously
adversely affected. The directors
would not feel able to continue to trade because of the insolvency of the
Company and there is high probability of the shipper and/or the landlords
exercising their respective rights to the prejudice of the remaining
creditors. Even if the shipper's
lien could be challenged, delay and costs would be incurred in doing so and the
opportunity to sell the stock at retail value would be lost. What is required, said Mr Rabet, was for
the liquidators to be able to enter immediate negotiations with the shipper and
the landlords with a view to securing the release of the remaining stock for
sale at retail values over the next four to six weeks. This would ensure the maximum return for
creditors, although there was no possibility of a full return because the debts
owed by the Company greatly exceeded any possible recovery from the stock even
on the most optimistic basis.
Decision
14. The Court put it to Mr Pallot during the
hearing that he was asking for an unusual order. The Law provides a specific procedure
for the winding up of an insolvent company and this is by way of a creditors'
winding up. This gives the
creditors a voice in choosing the liquidator and in supervising the conduct of
the liquidation through a liquidation committee appointed under Article
162. This is clearly appropriate
because, in the case of an insolvent company, the creditors are the persons
with the financial interest in the liquidation; in most cases the shareholders
will not recover anything in such a case.
Is it right therefore for the Court to order a winding up on just and
equitable grounds when the Law provides a procedure for insolvent companies?
15. We are of the view that the Court should be
cautious before ordering a winding up under Article 155 in the ordinary case of
an insolvent company. The Law
provides for the appropriate procedure and this is the one which should
normally be followed. However, as referred
to earlier, the Court's jurisdiction to order a winding up under Article 155 is
a wide one and we are persuaded that, in the particular circumstances of this
case, it would be right to exercise that jurisdiction.
16. We are satisfied that the best interests of the
creditors would undoubtedly be served by Poundworld being able to sell its
remaining stock at retail value from its outlets by means of the Company
continuing to trade for the limited period necessary to achieve this. Conversely, if the stock were to be sold
at wholesale values, the recovery for creditors, other than the landlords and
the shipper, would be minimal. We
are also satisfied that if the Court does not order an immediate winding up,
there is a substantial risk that the shipper and/or the landlords will exercise
their rights prior to the shareholders' and creditors' meetings required for a
creditors' winding up and this would be to the prejudice of the creditors as a
body. Delay in the
commencement of a liquidation until 16th February, would therefore
be damaging to the creditors.
17. It was for these reasons that the Court
concluded that it was clearly in the best interests of the creditors as a whole
for a just and equitable winding up to be ordered and for the liquidators to be
authorised to seek to secure the stock and to continue to trade as necessary to
dispose of the stock on a retail basis.
We were conscious however that we were making this order in the absence
of any of the creditors.
Accordingly we directed that notice of the order be given forthwith to
all the creditors and that any creditor should have liberty to apply to the
Court with a view to seeking to set aside the Court's order, so that the
process would revert to that necessary for a creditors' winding up.
18. As a final point we should record that the
Viscount was given notice of the application and the Principal Administrator of
the Désastre Section was present at the hearing. The Viscount was concerned to ensure
that the arguments concerning whether it was appropriate to order a just and
equitable winding up rather than allowing a creditors' winding up to proceed
were put fully before the Court; and that has occurred. The Viscount did not seek to argue that
a désastre was the appropriate route to follow.
Authorities
Companies (Jersey)
Law 1991.
Re
Leveraged Income Fund Limited 2002/209.
Jean v Murfitt (Jersey Unreported
11th December 1996).