Sept 3
The company was an umbrella fund comprising multiple dedicated funds. A separate pool of assets was maintained for each fund and was invested in accordance with the fund’s investment objectives. When a person invested in a dedicated fund, shares in the company representing the value of their investment were allotted to them. The petitioner invested a sum in a dedicated fund that went on to perform badly. It sought the compulsory winding up of the fund pursuant to the power in section 221(1) of the Insolvency Act 1986 to wind up “any unregistered company”, defined in section 220 as including any association and company, with the exception of a company registered under the Companies Act 2006. The judge refused the petition, holding that (1) the definition of “unregistered company” in section 220(1) was an exhaustive definition which did not permit the inclusion of bodies or entities other than those expressly referred to, (2) it was accepted by the petitioner that the dedicated fund was neither a company nor an association, and (3) even if section 220(1) was a non-exhaustive provision, since the dedicated fund had no contributories, lacked capacity to enter into legal obligations, did not own any assets and was not liable for any debts or other liabilities, it was not an entity which Parliament could reasonably have intended to be the subject of the winding up process. The High Court judge dismissed the petitioner’s appeal, holding that (i) the term “unregistered company” in section 220 was expressed to be inclusive of certain entities not otherwise falling within its natural meaning, but that Parliament had not intended for the definition to extend to entities that were neither a company nor an association, and (ii) on analysis, the dedicated fund was not an association or unincorporated company even on the broad view of the express terms of section, with the consequence that it was not an entity that Parliament intended to be subject to the winding up process as an unregistered company under section 221. The petitioner further appealed, contending, inter alia, that the judge erred in holding that the fund was not a company or association within the meaning of section 220.
On the appeal—
Held, appeal dismissed. When considering a winding up petition, the court had to focus on both the nature and constitution of the body in question and the nature of the winding up process by the court under the Insolvency Act 1986. As regards the nature and constitution of the body, since the winding up process under the 1986 Act was to be conducted by reference to legal rights and obligations, it was clear that to fall within section 220(1), an association had to be comprised of persons with some substantive legal relationship with each other, rather than persons who were connected for purely social or personal reasons or who merely shared a common interest. Compulsory winding up by the court under the Act was a process of collective enforcement of debts against the property of a debtor. The process was controlled by the liquidator appointed by the court and conducted for the benefit of creditors whose rights were admitted or established in the process. Since the essential nature of the winding up process was a means of collective enforcement of debts, it was also axiomatic that in the case of an association the property that was subject to the process had to be property which belonged to the association or to which the association was entitled; the creditors to whom the proceeds of realisation were to be distributed had to be creditors of the association; and that any persons to whom a surplus might be distributed had to have such entitlement as against the association. Applying those principles to the present case, the dedicated fund was not an association which Parliament could have intended should be wound up by the court under the 1986 Act regardless of whether section 220(1) was limited to bodies which were either companies or associations. The fund was in no sense a body whose existence was founded on some contractual obligations undertaken by any members between themselves but was simply a collection of assets owned by the umbrella company which was managed and dealt with by that company separately from its other dedicated funds. It was not an association between legal persons at all. Furthermore, the fund was not a separate legal entity capable of entering legal relations or obligations or owning its own property, it could not incur any liabilities of its own, and had no powers of management of its own affairs. Rather, the company allocated investors’ moneys in it to the dedicated fund and those investors did not obtain any direct property rights in or over the fund’s assets. It was also readily apparent that the court’s winding up process could not be applied to the dedicated fund. Accordingly, the dedicated fund could not be subject to the winding up petition (paras 4, 57, 58, 61, 63, 66–68, 70–74, 77, 81, 82, 83).
Daniel Lewis (instructed by Spector Constant & Williams) for the petitioner.
Daniel Lightman KC and Oliver Caplan (instructed by Reynolds Porter Chamberlain LLP) for the fund.