NO: A2/2002/0965
Neutral Citation Number: [2002] EWCA Civ 1354
IN THE SUPREME COURT OF JUDICATURE                
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CHANCERY DIVISION
(Mr John Jarvis QC)
Royal Courts of Justice
Strand
London WC2

23rd August 2002
 
B e f o r e :

LORD JUSTICE ROBERT WALKER

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IN THE MATTER OF ALPHACLUB (UK) LIMITED

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Computer Aided Transcript of the Stenograph Notes of
Smith Bernal Reporting Limited
190 Fleet Street, London EC4A 2AG
Telephone No: 020-7421 4040 Fax No: 020-7831 8838
(Official Shorthand Writers to the Court)
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MISS CLAIRE HOFFMANN (instructed by Rochman Landau, London W1W 8HJ) appeared on behalf of the Respondent

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J U D G M E N T
23rd August 2002
1.	LORD JUSTICE ROBERT WALKER: This is a renewed application for permission to appeal from an order for the compulsory winding up of a company called Alphaclub (UK) Limited (“the company”). The winding up order was made by Mr John Jarvis QC, sitting as a deputy judge of the Chancery Division of the High Court, on 23rd April 2002. The order was made on the petition of the Secretary of State for Trade and Industry presented under section 124A of the Insolvency Act 1986. That section, so far as now material, provides as follows:
“(1) Where it appears to the Secretary of State from --
(a) any report made or information obtained under Part XVI of the Companies Act 1985 (company investigations et cetera),
...
that it is expedient in the public interest that a company should be wound up, he may present a petition for it to be wound up if the court thinks it just and equitable for it to be so.
(2) This section does not apply if the company is already being wound up by the court.”
2.	The company was incorporated on 30th December 1998 under the Companies Act 1985. It has an issued and paid up share capital of £20,000. The Secretary of State exercised her powers under section 447 of the Companies Act 1985 on 16th January 2001, authorising Mr John Coker, an investigator in the Company Law and Investigations Directorate of the Department of Trade and Industry, to require the company to produce documents to him. Mr Coker has made a long affidavit, sworn on 19th July 2001, setting out the results of his investigations into the company and into two other companies which had some involvement in the company's activities, namely Marketing Services Worldwide (UK) Limited (“MSW”) and Shears Travel Bureau Limited. In view of the way in which this matter has developed and the rather limited issues to be raised in the proposed appeal, I need not go far into the detail of Mr Coker's affidavit.
3.	The starting point of his investigation, at first informal and later under statutory powers, appears from paragraph 14 of his affidavit:
“On 23rd August 2000 the Department of Trade and Industry received a letter from a Mr Andrew Dyson, Chief Operating Officer of an organisation called 'thealphaclub.com', following the publication in the Sunday Express on 20th August 2000 of an article entitled 'Conmen target soccer.' The article alleged that thealphaclub.com was a pyramid selling scam and alleged, further, that the organisation made its money by enticing large sums of money from customers for discount travel and deals the customers could in fact have got for free. The letter, purportedly written on behalf of thealphaclub.com, stated its purpose to be two-fold, namely, to comment on the extremely misleading, blatantly untrue, defamatory and damaging report which had appeared in the newspaper and to provide details as to the nature of the business operated by thealphaclub.com in the United Kingdom.”
4.	It seems to be common ground that the company was involved in promoting and running two consecutive versions of a scheme, the first from the beginning of 1999 to about the middle of 2000. Under this scheme ten year membership of the Alphaclub was sold for a down payment of £2,650 with pyramid type arrangements for commission to be paid to individuals involved in recruiting members. The second version ran from late August 2000 until it was suspended with the inception of the official investigation in November 2000. There was a contentious issue as to how far the second version of the scheme by the ostensible participation of MSW, a company whose only director was an Anguillan company, avoided some of the more objectionable features of the first scheme.
5.	Mr Coker's investigations continued and were given formal statutory authority in January 2001. In May 2001 there was a discussion between Mr Botros, a legal representative of the company, and Mr Coker about the progress of the investigations. Mr Botros indicated that the company was minded to resume its trading activities. That led to prompt, indeed, it may be, precipitate action by the Secretary of State. A petition under section 124A was presented on 20th July 2001 alleging that the company's activities infringed both Part XI of the Fair Trading Act 1973 and section 1 of the Lotteries and Amusements Act 1976 and that they lacked commercial probity and were contrary to the public interest. I would add that the best recent surveys of the law on pyramid selling and illegal lotteries are in the judgments of Saville and Millett LJJs in the Titan case, Re Senator Hanseatische [1997] 1 WLR 515.
6.	Immediately after presenting the petition the Secretary of State applied, on 23rd July 2001, not on notice, for the appointment of a provisional liquidator. The Secretary of State had also presented a petition and applied for the appointment of a provisional liquidator in respect of MSW, but I need not for present purposes make any further reference to MSW. Neuberger J appointed a provisional liquidator for the company on 23rd July 2001, but the company applied to discharge the appointment on the ground of material non-disclosure. I understand that a good deal of further affidavit evidence was put in in connection with that application but for good reasons it is not included in the appeal bundle. 
7.	The application to discharge the provisional liquidator was successful and the provisional liquidator was discharged by an order of Blackburne J on 23rd August 2001. The petition then went forward towards a full hearing. On 27th September 2001 the company put in an answer, verified by a statement of truth signed by Mr Dario Bellandini, the company's sole director, comprehensively denying all the serious allegations made against the company and its activities. At that stage the Secretary of State's case had already been fully deployed in Mr Coker's affidavit made on 19th July 2001.
8.	The petition was to be heard in the last week of April 2002. On 4th April the company's solicitors, Gosschalks of Hull, wrote to the Treasury Solicitor saying that the Secretary of State's allegations were not accepted, but that the company no longer wished to trade and was no longer able to trade and that it was to be put into creditors' voluntary liquidation. Gosschalks asked the Treasury Solicitor to agree that the petition should be dismissed with the Secretary of State paying the costs of the provisional liquidator episode but the company paying the rest of the costs.
9.	The Treasury Solicitor replied on 8th April indicating that the petition would proceed. On 12th April the company was put into creditors' voluntary liquidation with Mr Tim Brown of Silver Altman as liquidator. On 23rd April the deputy judge made the winding up order against which persons interested in the company now wish to appeal.
10.	Miss Claire Hoffmann appeared for the company on the discharge of the provisional liquidator. She also appeared, although not for the company, on the hearing of the petition as she has appeared for the applicants today. Her submissions on the hearing of the petition and today have been realistically and economically limited to the implications of a single point, that is that the company is no longer trading and is already in voluntary liquidation. Therefore, Miss Hoffmann says, there is no longer any public interest in the making of a compulsory order on the petition under section 124A.
11.	The deputy judge addressed, as he had to, the substance of the grounds on which the petition was based. He found that the company's activities did infringe the Fair Trading Act 1973 and the Lotteries and Amusements Act 1976 and that they were pernicious and inherently objectionable. There is no attempt to appeal from those conclusions, although Miss Hoffmann has pointed out that they were reached without any substantial defence at the hearing.
12.	The proposed appeal is from the deputy judge's treatment of Miss Hoffmann's submission that:
“It is no function of the Companies Court to make winding up orders as a mark of disapproval”.
	and that there was no further need for official investigation because the Secretary of State had already carried out a full investigation and had done so, Miss Hoffmann submitted, with the co-operation of those running the company.
13.	The deputy judge accepted that it was no part of the function of the Companies Court to make winding up orders as a mark of disapproval. He also accepted that extensive investigations had been carried out and that there had been no precise identification of what further investigations were necessary. He referred to a sum of about £2,490 in a bank account which had been inadvertently omitted by the liquidator from the summary of assets and liabilities (which were shown as nil and over £733,000 respectively). I am inclined to think that that omission is a matter of no real importance or relevance to the exercise of the deputy judge's discretion. Nevertheless, the deputy judge thought it right to make a compulsory order, primarily, as I understand his judgment, because of the submission that criminal offences might have been committed and ought to be investigated. He said near the end of his judgment:
“It seems to me that, where this kind of selling has taken place, and this activity has been carried out, it is extremely important that it is properly investigated and a report is sent to the Secretary of State, so that he can then consider whether criminal prosecutions should take place or not. That is something, in my view, that is fundamentally in the public interest. It is linked to the need to stop these schemes. If criminal offences have been committed, then it is right that they are the subject of the report and investigation.
It seems to me, therefore, that despite Miss Hoffmann's telling submissions, it is vital to achieve results consequential on a liquidation. I find that there will be results as a result of a compulsory liquidation compared with a creditor's voluntary winding up. I do not believe the fact that the company is no longer trading is in itself a sufficient reason for refusing to make the order.”
14.	In this court Miss Hoffmann has accepted that the deputy judge had a discretion to be exercised as part of a balancing process: see the judgment of Nicholls LJ (with whom Fox and Ralph Gibson LJJs agreed) in Re Walter L Jacob [1989] BCLC 345, especially at pages 351 to 354. But she has criticised the deputy judge for ignoring the sole basis on which the petition was presented, namely, that it was in the public interest that the company should cease trading. Conversely she has criticised the judge for taking into account two matters which he should not have taken into account: that is, first, a perceived public interest in the Companies Court sending out a message of disapproval and, secondly, a perceived need for further investigation.
15.	Miss Hoffmann said that an investigation by the Official Receiver was most unlikely to produce any more information of use to the prosecuting authorities and that the Secretary of State's counsel had not argued otherwise on the hearing of the petition. She also referred to section 218 of the Insolvency Act 1986, referring to the investigation and prosecution of offences, and pointed out that under subsection (4) a liquidator under a voluntary winding up has in fact a duty to make a more direct approach to the prosecuting authorities than if the company is being wound up by the court.
16.	In paragraph 36 of his judgment the deputy judge readily accepted Miss Hoffmann's submission that:
“It is no part of the function of the Companies Court to make winding up orders as a mark of disapproval.”
17.	However, he then went on to say that if the Companies Court made a compulsory order
“the public can then feel that the matter is properly investigated, and, at the same time, it does send out the message that this kind of business cannot be carried out by limited companies. The more that message is sent out the less the public will be at risk in the future. It seems to me to be a message that needs to be sent out again and again because these schemes appear with increasing repetition.”
18.	I find it a little difficult to follow the deputy judge's reasoning there. He must, I think, have been drawing a distinction between expressing moral disapproval as an end in itself, which is not the court's function, and the public and open vindication of the public interest by making an appropriate winding up order which is a proper function of the Companies Court. On this point and in his treatment of the need for investigation, on which Miss Hoffmann made cogent submissions, the deputy judge's exercise of his discretion might, I put it no higher than that, be regarded by the full Court of Appeal as defective. But in that event the Court of Appeal would have to consider the matter afresh and exercise its own discretion. I am of the clear view that in that event the Court of Appeal would be bound to conclude that it was right to make a compulsory order.
19.	Miss Hoffmann's forensic skill may have led the deputy judge to attach insufficient weight to the history of the petition, which I have summarised briefly but which does not appear in the deputy judge's judgment. The petition had been presented in July 1991. The company put in a thoroughly combative answer, challenging the Secretary of State's case on almost every point. By the beginning of April the company was not proposing to put up any substantial defence to the case. It was still not prepared to admit the charges against it. The creditors' voluntary liquidation came less than a fortnight before the hearing. There must be a very strong inference, not rebutted by any convincing evidence from the company, that this was a last minute attempt to avoid the inevitable. Indeed, Miss Hoffmann agreed with my suggestion that there was a last minute capitulation. To my mind it would be extraordinary if the Companies Court were to be diverted by a ploy of that sort from vindicating the public interest.
20.	That view seems to me, to some extent at least, to be confirmed by what Nicholls LJ said in Re Walter L Jacob at 360F to H of the report in Butterworths Company Law Cases. Nicholls LJ said:
“Having regard to all these matters, I would have had no doubt, if the company had still been dealing in securities, that it was just and equitable that it should be wound up. Does the fact that the company ceased to carry on that business immediately before the petition was presented make a crucial difference? In my view it does not. It is, of course, an important factor to be taken into account. The investing public is no longer at risk from any future activities of the company. The company is no longer a member of FIMBRA. But it would offend ordinary notions of what is just and equitable that, by ceasing to trade on becoming aware that the net is closing around it, a company which has misconducted itself on the securities market can thereby enable itself to remain in being despite its previous history. The wishes of those who control such a company, that it should remain extant for other purposes, will, normally, carry little weight in the balancing exercise. On the other hand, by winding up such a company, the court will be expressing, in a meaningful way, its disapproval of such conduct. Moreover, in addition to being a fitting outcome for the company itself, such a course has the further benefit of spelling out to others that the court will not hesitate to wind up companies whose standards of dealing with the investing public are unacceptable.”
21.	The facts of that case were different in that the company had not gone into any sort of liquidation. It had merely ceased to be a member of FIMBRA and had ceased to trade. However, in another respect this case is, to my mind, very much stronger, since the winding up resolution came nearly nine months after the section 124A petition had been presented and less than a fortnight before the final hearing. There was no need to amend the petition simply because of this last minute ploy. As Arden LJ noted when she refused permission on paper, the petition made the general assertion that it was just and equitable to wind up the company.
22.	Miss Hoffmann pointed out in relation to the last quotation from the judgment of Nicholls LJ, that he had referred to the court “sending out a message in a meaningful way” and suggested that the message in this case would not be so meaningful. I cannot accept that. 
23.	Miss Hoffmann has said clearly and economically all that can possibly be said in support of this application, but, in my view, an appeal would be hopeless. I dismiss the application.
Order: Application dismissed. No order as to costs.