Case No: 2585 of 2007

NEUTRAL CITATION NUMBER: [2007] EWHC 1933 (Ch)

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
MANCHESTER  DISTRICT REGISTRY

Courts of Justice
Crown Square
Manchester

Date: 10th August 2007

B e f o r e :

HIS HONOUR JUDGE PELLING QC

(sitting as a Judge of the High Court)
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	The Secretary of State for Trade and Industry		Claimant	
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	(1)	Jason Arnold
(2)	Keith James Hopley	
Defendants	
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Ms Lucy Wilson-Barnes (instructed by Dickinson Dees LLP, Solicitors) for the Claimant
The 1st and 2nd Defendant did not appear and was not represented
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Judgment

His Honour Judge Pelling QC:
Introduction
1.	On the 13th February 2007,  the Secretary of State for Trade and Industry (SSTI) commenced proceedings (the disqualification proceedings) in the Crewe County Court under Section 6 of the Company Directors Disqualification Act 1986 (CDDA) against the Defendants arising out of their management of J & N International Limited (the company). The company had been placed in administration on 15th February 2005 and on 24th April 2006 it had been dissolved by operation of Paragraph 84(6) of Schedule B1 of the Insolvency Act 1986 (IA86), although this last mentioned fact did not become known to the SSTI until after the disqualification proceedings had been commenced. 
2.	The issue that arises on this application (which was transferred into the High Court by Order of the District Judge at Crewe County Court) is whether in the events that have happened either Crewe County Court or the High Court has jurisdiction to entertain the disqualification proceedings or whether an application has to be made by the SSTI for an Order under Section 651 of the Companies Act 1985 (CA) declaring the dissolution to be void. In the event that it is necessary to apply under CA Section 651 the further question I am asked to decide is whether the disqualification proceedings are a nullity because they were commenced prior to the making of an of an Order under CA Section 651. If they are then I am asked to give permission for the commencement of fresh disqualification proceedings pursuant to CDDA Section 7(2).
The Statutory framework
3.	Administration was first introduced into English law by IA86, Part II. Amongst the exits from administration under that regime were winding up by the court or voluntary liquidation. Extensive reform of the administration regime was brought into law with effect from 15th September 2003 by Section 248 of the Enterprise Act 2002 (EA) which inserted Schedule B1 into the IA86. IA86 Schedule B1, Paragraph 84 introduced a new deemed dissolution procedure which had no counterpart under the old regime. In so far as it is material, IA86 Schedule B1, Paragraph 84 provides:
(1)	 If the administrator of a company thinks that the company has no property which might permit a distribution to its creditors, he shall send a notice to that effect to the registrar of companies.
…
(4)	On the registration of a notice in respect of a company under sub-paragraph 1 the appointment of the administrator of the company shall cease to have effect.
…
(6)	At the end of three months beginning with the date of registration of a notice in respect of a company under sub-paragraph (1) the company is deemed to be dissolved.
(7)	On an application in respect of a company by the administrator or other interested person the court may:
(a)	Extend the period specified in sub-paragraph (6),
(b)	Suspend that period, or
(c)	Disapply sub-paragraph (6).
It was under IA86 Schedule B1, Paragraph 84(6) that the company in this case was deemed dissolved prior to the issue of the disqualification proceedings. 
4.	The jurisdiction of a court to determine an application under CDDA Section 6 is governed by CDDA Section 6(3) which provides as follows:
“In this section and section 7(2), “the court” means:
(a)	Where the company in question is being or has been wound up by the court, that court,
(b)	Where the company in question is being or has been wound up voluntarily, any court which has or (as the case may be) had jurisdiction to wind it up,
(c) 	Where neither paragraph (a) nor (b) applies but an administrator or administrative receiver has at any time been appointed in respect of the company in question, any court which has jurisdiction to wind it up”
The Issue
5.	The perceived difficulty is that neither paragraph (a) nor (b) of CDDA Section 6(3) applies and thus the only provision by reference to which jurisdiction in relation to the disqualification proceedings can be established is CDDA Section 6(3)(c). However that provision gives jurisdiction only to a court that “has” jurisdiction to wind up the company. This, it is said, implies that for the court to have jurisdiction, the court to which an application under CDDA Section 6(3) is made must have jurisdiction to wind up the company concerned  and, following Re The Working Project Limited [1995] BCLC 226 at 230, must have that jurisdiction on the date when the application is issued. If that is so then no court can have jurisdiction under CDDA Section 6 where the relevant company is deemed to have been dissolved under IA, Schedule B1, Paragraph 84(6) unless and until the company’s dissolution has been declared void because if a company has been dissolved there is by definition no court with jurisdiction to wind it up. 
6.	The jurisdiction of a court to wind up a company is established by IA Section 117. The jurisdiction of the High Court to wind up a company is a jurisdiction to wind up any company “… registered in England and Wales” – see IA Section 117(1) and the County Court’s jurisdiction is defined as being similar to the jurisdiction conferred on the High Court but with additional geographical and capital limitations. It was accepted by Ms Wilson-Barnes in the course of her submissions on behalf of the SSTI that a company that has been dissolved is not a company registered in England and Wales, other perhaps than where there is a fortuitous administrative gap between dissolution and striking off, and that in this case the company is no longer registered. I proceed on that basis. If that was not the position then, of course, no problem would arise.  
7.	If the perceived difficulty reflects reality then some very odd and undesirable consequences will result. If the SSTI is minded to bring disqualification proceedings and discovers that a notice under IA86 Schedule B1, Paragraph 84(1) has been sent to the Registrar, the SSTI has only three choices – start the disqualification proceedings when those proceedings might not be ready or investigations not complete or apply to the Court for an Order under IA86 Schedule B1, Paragraph 84(7) or let matters take their course and then apply under CA Section 651. If the court is persuaded to make an order under IA86 Schedule B1, Paragraph 84(7), this will not prevent the appointment of the administrator ceasing to have effect under IA86 Schedule B1, Paragraph 84(4). Thus, the consequence of such an application being successful is that the company will by default be left in the control of the very people the SSTI is seeking to have disqualified from acting as directors because their conduct as directors of that company makes them unfit to be concerned in the management of any company. In some cases this might be more serious than others but in principle it is an undesirable consequence. The only other possible course would be for the SSTI to request the administrator to desist from filing a notice under IA86 Schedule B1, Paragraph 84(1). However, the obligation to file is mandatory if the pre-conditions are satisfied. If a CA Section 651 declaration is made then, as with an Order under IA86 Schedule B1, Paragraph 84(7), unless management is to be left in the hands of the very directors against whom disqualification orders are sought, a winding up petition will have to be presented, a winding up order sought and, presumably, the Official Receiver appointed as liquidator. 
8.	I accept, following the reasoning of Carnwath J in Re the Working Project Limited [1995] BCLC 226 at 230, that the court is concerned solely with the position as at the date when the disqualification proceedings are commenced. It follows that once disqualification proceedings have been commenced it ceases to matter whether the company is deemed to be dissolved or not. However that does not lessen the impact of the points I have so far considered. It means merely that it will be necessary to wind up the company to the point of dissolution again within a relatively short time. 
Analysis
9.	The current form of CDDA Section 6 is itself the result of amendments made in order to meet jurisdictional difficulties caused by its previous wording. The amendment was brought into law by the Insolvency Act 2000 with effect from 2nd April 2001.Since EA came into force over 2 years later on 15th September 2003, it is unlikely that IA86 Schedule B1, Paragraph 84 was in the contemplation of the legislature at the time when the amendments to CDDA Section 6 were enacted. 
10.	The revision to CDDA Section 6 corrected the jurisdictional problems to which it was directed and worked perfectly well with the administration regime that applied in April 2001. If disqualification proceedings were commenced during or after administration, the court having jurisdiction to wind up the company would have jurisdiction because either the company would still be in administration or have resumed operations free of the administration (in which case CDDA Section 6(3)(c) would apply) or the company would have been placed in voluntary liquidation or wound up pursuant to an Order of the court in which case jurisdiction would be established by CDDA Section 6(3)(a) or (b). 
11.	When consideration was being given to reforming the law applicable to administration by introducing Schedule B1 into the IA86, consideration was also given to amending CDDA Section 6(3). EA Section 248(3) and Schedule 17 changed the reference to “administration order” in CDDA Section 6(3) to “administrator”. This was necessary to take account of the fact that it became possible under the IA86 Schedule B1 regime to appoint administrators otherwise than by an Order of the Court in certain circumstances. Since the need to amend CDDA Section 6(3) was obviously considered by the legislature, the failure to amend CDDA Section 6(3)(c) so as to address the consequences of deemed dissolution could only have occurred because (a) there was some policy reason for distinguishing between the consequences of automatic dissolution and those resulting from winding up or voluntary liquidation or (b) the need to amend to address the effects of automatic dissolution was overlooked or (c) it was considered that it was not necessary to amend the provision since on proper construction it conferred jurisdiction even where automatic dissolution had occurred. The fourth possibility – that it was thought that applications under CA Section 651 or IA86 Schedule B1, Paragraph 84(7) could be made where automatic dissolution had occurred - can safely be ignored as inherently unlikely given the undesirable consequences of such a course that I have referred to already as well as the resultant unnecessary and wholly unproductive expense to the public. Likewise, possibility (a) can also safely be ignored because there is no discernable policy reason for distinguishing between the position of directors of companies wound up following an administration (whether by the court or voluntarily) and the directors of a company that has been dissolved by operation of IA86, Schedule B1,Paragraph 84(6). Thus either there was a need to amend CDDA Section 6(3)(c) which was overlooked (in which case the remedy lies with parliament not the courts) or it was not necessary to amend at all.  
12.	In my judgment, amendment to CDDA Section 6(3)(c) to take account of automatic dissolution under IA86, Schedule B1, Paragraph 84(6) was not necessary. I say this for the following reasons. First, it seems to me that the word “has” in the phrase “… which has jurisdiction …” relates back to the phrase “… has at any time been appointed …” with the result that the question that has to be asked when considering jurisdiction is whether there was a court with jurisdiction to wind up the company concerned at the date when the administrator or administrative receiver was appointed. Secondly, this approach is entirely consistent with the methodology of CDDA Section 6(3)(b) where the phrase “ … has or (as the case may be) had …” clearly relates back to the phrase “… is being or has been wound up voluntarily …” so that it is to be construed as meaning the court with jurisdiction is the court with jurisdiction to wind up while the company is being wound up voluntarily or had jurisdiction while it was being wound up voluntarily. Similar considerations apply to CDDA Section 6(3)(a) where the scheme of the sub-section is to accord jurisdiction to the court that had jurisdiction to wind up the company at the time when it was being wound up. Thirdly, if I am right in what I say about the true construction of CDDA Section 6(3)(c), each of the sub-sections work entirely consistently – for each gives jurisdiction to the court which had jurisdiction to wind up the company at the date when the identified insolvency event occurred whether that event was winding up by the court, voluntary liquidation or the appointment of an administrator or administrative receiver. I am conscious that this reasoning is different to that adopted by Neuberger J as he then was in Re Lichfield Freight Terminal Limited [1997] 2 BCLC 109, but the wording under consideration in that case was different to that I am considering in this case and the difficulty that arises in this case could not have arisen under the old wording being considered by Neuberger J. 
13.	I am glad to have been able to reach this conclusion since it avoids what would otherwise be absurdity and enables the disqualification proceedings to be resolved on their merits quickly and at minimum expense by avoiding what would otherwise be the necessity for making satellite applications under either CA Section 651 or IA86 Schedule B1, Paragraph 84(7) and also avoids the prospect of companies being resurrected and left to be managed by the very people against whom allegations of mismanagement are being made or of winding up proceedings necessary only in order to avoid this consequence. Such a process, if it had been necessary, would have added significantly to the cost of disqualification proceedings, would have further delayed their resolution and might have had the effect of exposing the public to unnecessary risk while disqualification proceedings - which are brought for their protection – were being resolved. 
14.	In light of the conclusions that I have reached on the main issue it is not necessary that I comment at any length on the alternative points that were made on behalf of SSTI. However, in summary, had I come to the view that the company had to be extant before CDDA Section 6(3)(c) could be relied on, then I would have concluded, consistently with the reasoning of Carnwath J as he then was in Re The Working Project Limited (ante), that jurisdiction was to be tested by reference to the date when the disqualification proceedings were commenced not the date when the court was asked to make a disqualification Order. That being so, I would have concluded that the current proceedings had been commenced without jurisdiction and I would have concluded that an application under Section 651 would have to be made. I would have rejected the suggestion that the effect of such an Order would have been to validate the current proceedings as being contrary to Section 651(2). In consequence, I would have concluded that the current proceedings were a nullity and would have held that new proceedings would have to be commenced. 
15.	Finally, had it been necessary to do so, I would have granted permission to start new proceedings out of time under CDDA, Section 7(2). In relation to this last point, the factors to be taken into account are well known – they include the length of the period of delay (including delay within the 2 year period permitted for the brining of an application without permission), the reasons for the delay, the strength and gravity of the case advanced against the directors concerned and finally the degree of prejudice caused by the delay. In relation to delay, whilst it is true to say that the application was brought a day before the 2 year time limit expired, the Section 16 notices informing the Defendants of the allegations made were served on 16th November 2006. Thus the Defendants have been on notice since then as to the nature of the allegations that were being made against them. No suggestion has been made by either Defendant that either has suffered prejudice as a result of the delay that has occurred so far. Indeed neither Defendant has played any significant part in these proceedings at all to date. 
16.	So far as reasons for delay are concerned, there is no real explanation for the delay that occurred prior to November. It would appear that without prejudice discussions took place between the parties between then and the commencement of the issue of the disqualification application. The first hearing of the application took place at Crewe County Court on 18th April 2007. By operation of the rules applicable to applications of this sort, the first hearing cannot take place until 8 weeks after the issue of the Claim Form. At the first hearing, the order transferring the case to the High Court and to Manchester District Registry was made. The delay thereafter was caused by a wait for a hearing date. The allegations made against the directors are serious and which, if proved, would probably merit a substantial period of disqualification. This last conclusion is entirely provisional because of necessity it takes no account of any mitigatory points relied on by the Defendants and is ultimately an issue for another court on another day. Subject to that qualification but otherwise for all those reasons, I am satisfied that this is a case where permission to commence proceedings out of time ought to be given had it been necessary.    
Disposal
17.	I will grant a Declaration broadly in the terms set out in Paragraph 1 of the SSTI’s application notice dated 5th April 2007. However, it may be that SSTI intends that the disqualification proceedings continue in the Chancery Division of the High Court in Manchester. If that is so, some re-drafting may be necessary. I will hear counsel further on that point and also as to any directions that are necessary in the substantive proceedings.
ooOoo