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Jersey Unreported Judgments |
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You are here: BAILII >> Databases >> Jersey Unreported Judgments >> Rep of Pringle Fleming and Burnett [2017] JRC 178 (25 October 2017) URL: http://www.bailii.org/je/cases/UR/2017/2017_178.html Cite as: [2017] JRC 178 |
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Companies - reasons for ordering the just and equitable winding-up of RPSA Limited.
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Before : |
J. A. Clyde-Smith, Esq,, Commissioner, and Jurats Blampied and Thomas. |
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Between |
Daniel Pringle |
First Representor |
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And |
Mark Fleming |
Second Representor |
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And |
Wendy Burnett |
Third Representor |
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And |
Roughton Group Limited |
Respondent |
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IN THE MATTER OF THE REPRESENTATION OF DANIEL PRINGLE, MARK FLEMING AND WENDY BURNETT AND IN THE MATTER OF RPSA LIMITED
AND IN THE MATTER OF ARTICLE 155 OF THE COMPANIES (JERSEY) LAW 1991
Advocate J. D. Garrood for the Representors.
Advocate R. O. B. Gardner for the Respondent.
judgment
the commissioner:
1. On 26th September, 2017, the Court ordered the just and equitable winding up of RPSA Limited, a Jersey incorporated company ("RPSA"), under Article 155 of the Companies (Jersey) Law 1991 ("the Companies Law") and we now set out our reasons.
2. The application was made by the directors of RPSA, all of whom are employees of Sanne Fiduciary Services Limited, which conducts a trust and company business from Jersey, and which administers RPSA. The application was supported by an affidavit from one of the directors, Daniel Robert Pringle, dated 25th September, 2017.
3. From its date of incorporation on 26th January, 2010, the shareholder of record of RPSA has been Roughton Group Limited, a company incorporated in England on 3rd February, 1995. We will refer to this as "Roughton 1".
4. Roughton 1 was an engineering consulting company, which provided services in relation to large scale engineering and infrastructure projects internationally. It entered into an agreement with RPSA on 30th March, 2010, whereby RPSA would employ personnel and second them to Roughton 1 to work on various projects around the world in which Roughton 1 was involved. The agreement, in which RPSA is referred to as "the Employing Company" and Roughton 1 as "the Secondee Company", provided as follows: -
"6.1 The Secondee Company will pay to the Employing Company a fee in respect of the provision of the Employees which will be paid in monthly instalments at least three business days in advance of the normal monthly payroll dates of the Employing Company, which for the avoidance of doubt is the first business day of the month with salaries being paid in arrears for the Services performed by the Employees during the previous calendar month.
6.2 The fee payable by the Secondee Company to the Employing Company for Services performed by the Employees shall be such sum as from time to time represents the full costs incurred by the Employing Company, plus a profit element to be agreed between the parties to this Agreement from time to time (i.e. payments for Services shall be calculated on a cost plus basis). The full costs shall include, but shall not be limited to, all salary, remuneration and other benefits paid or provided to the Employees by the Employing Company, the costs of all and any entry visas, residence or work permits required for the Employees together with all taxes and social security contributions payable in respect of any Employee to the extent that such amounts remain unpaid by the Employee and the Employing Company has an obligation to pay such amounts to the relevant authorities."
5. The agreement is governed by and construed in accordance with the law of Jersey, and the parties submitted to the non-exclusive jurisdiction of the courts of Jersey.
6. A pattern of dealing developed, whereby a schedule would be delivered by Roughton 1 to RPSA monthly, with funds and directions for payment to the various seconded employees. Any issues raised by the seconded employees, usually about payment on termination, were referred to Roughton 1 and appeared to be settled relatively quickly, or at least dialogue with RPSA ceased.
7. On 7th September, 2017, the company received a letter from a seconded employee about the non-payment of his salary, and on enquiry being made of what was thought to be Roughton 1, learnt that it was suffering severe cash flow issues. A schedule of outstanding amounts due to the seconded employees was produced, which showed a total of £813,384 being due, some of the arrears going back to March 2015. At the time of the application, there were some 47 seconded employees involved.
8. Further inquiry showed that Roughton 1 had been dissolved. The sequence of events is as follows:-
(i) On 17th June, 2013, a new company (the respondent) with the same registered office as Roughton 1 was incorporated under the name of Roughton (Holdings) Limited. We will refer to this as "Roughton 2".
(ii) On 28th August, 2013, Roughton 2 changed its name from Roughton (Holdings) Limited to Roughton Group Limited.
(iii) Also on 28th August, 2013, Roughton 1 changed its name from Roughton Group Limited to Roughton (Holdings) Limited.
(iv) On 4th August, 2015, Roughton 1 was dissolved.
9. RPSA was not informed of any change in the identity of its shareholder, and the share register has not been updated. It follows that as from 4th August, 2015, RPSA has had no shareholder, who might direct the company or its directors, and who might benefit from the carrying on of any economic activity.
10. Advocate Garrood, for the representors, submitted that the shares in RPSA, being Jersey situs assets, will have passed to the Receiver General of Jersey. However, by Article 8.3 of RPSA's articles of association, where a share passes by operation of law, that share shall not be possessed of any voting rights until such time as the register of shareholders has been amended. In particular, there are no shareholders of RPSA who can pass the special resolution required to commence a creditors' winding up under Chapter 4 of the Companies Law.
11. On 20th September, 2017, Advocate Garrood wrote to the directors of Roughton 2, saying this inter alia:-
"It is a matter of concern that Roughton appears to be continuing to engage employees and to allow these employees to incur expenses and take up positions when there is a real doubt that they will be paid.
Having regard to the foregoing and in all the circumstances, the directors require that by no later than 1 p.m. on Friday 22nd September 2017 Roughton provides:
(i) details of all and any salary deferment agreements that may have been agreed between Roughton and any of the Company's employees identifying when any payment is due to each relevant employee; and
(ii) payment of the outstanding fees due to the Company in cleared funds, in an amount which is sufficient to discharge all those sums presently due and outstanding to the Company's employees, taking account of any agreed payment deferments.
Further, the Directors must insist that no later than 4pm on 22 September 2017 you provide the following:
(iii) an explanation as to the ownership of the shares in the Company;
(iv) if necessary an undertaking to apply forthwith to the High Court to have the dissolution of Roughton Group Limited (Company No. 02985638) declared void; and/or
(v) confirmation that Roughton accepts that it is and remains liable under all the terms of the Agreement and it has acted pursuant to the Agreement since 2015.
And further, the Directors require that no later than 4pm on 25 September 2017 you provide:
(vi) details of Roughton's assets by way of a draft balance sheet, including confirmations as to the liquidity of those assets;
(vii) confirmation of any existing credit facilities; and
(viii) a cash flow forecast for the next 12 months.
If you are unable to provide any of the above, the Directors will consider any alternative accommodations and/or information that you are able to provide to address the Company's lack of liquidity, and/or evidencing that Roughton is able to discharge its existing and future liabilities to the Company under the Agreement.
The Directors are anxious that Roughton engages with them immediately in order that this situation may be resolved without delay.
We look forward to receipt of the funds and information requested as a matter of urgency, and in any event, before the deadlines set out above. In the event that no satisfactory response is received the Directors will take such steps as they consider necessary, including but not limited to effecting the orderly winding up of the Company."
12. Advocate Garrood wrote again on 21st September, 2017, expressing particular concern that there may be employees who were due to commence assignments imminently, whose interests as employees and potential creditors must be protected. He asked for notification by 22nd September, 2017, of all those employees who were due to start fresh assignments within the next seven days in order that RPSA could consider its obligations to them.
13. Advocate Garrood then proposed a conference call for Friday 22nd September, 2017. One director attended that call, but declined to take part and no other directors of Roughton 2 attended. The acting chief executive e-mailed Advocate Garrood later that day, saying that two of the directors lived in Sri Lanka, one spent 50% of his time in Nigeria and the remainder in New York, one was in Bangladesh and he was in Florida. He said it was impossible to accede to such a request in so short a timescale. He asked for more time to discuss the matter.
14. Notice was given by Advocate Garrood of the application to the Court to be made on 26th September, 2017, and he invited the directors or their legal advisers to engage with him as a matter of urgency.
15. We understood from Advocate Garrood that the ultimate beneficial owners of Roughton 2 were two of its directors Ranjith Gunaratne and Jayasundara Mudiyanselage Prabmath Jeewanda of Sri Lanka, through their Sri Lankan company, MG Consultants. We had a copy of the accounts of Roughton 2 for the period ending 30th December, 2015. The auditors' report questioned the ability of the company to continue as a going concern, but a post balance sheet document dated 15th March, 2017, stated that on 26th January, 2017, the company successfully concluded negotiations with MG Consultants for a substantial investment in the company.
16. Advocate Gardner was instructed by Roughton 2 to appear at the application on the 26th September, 2017. He said that the shares held by Roughton 1 should have been transferred to Roughton 2. He acknowledged that the directors of Roughton 2 had not properly engaged in the matter, but they wished to do so. The issue was whether the ultimate beneficial owners were prepared to provide funds for Roughton 2 and in turn, RPSA, and he asked for a four week adjournment. He informed the Court that no new contracts of employment were being entered into.
17. The Court was troubled by the extent of arrears due to employees of RPSA, going back to 2015, and by some of the correspondence from employees exhibited to Daniel Pringle's affidavit. Salary payments were accruing at the rate of approximately £100,000 per month. No payments had been made by Roughton 2 to RPSA in September 2017 for the 47 employees currently employed and seconded to Roughton 2, and no proposals had been put forward for the payment of salaries in October 2017.
18. The welfare of these employees should have been given the highest priority by the directors of Roughton 2, but they had not engaged until the application. It was quite unacceptable to the Court that the matter should now drift at their request for another month during which these employees would continue to work in all likelihood unremunerated. They all, no doubt, had financial commitments of their own, such as rent to pay and families to support.
19. The Court has a wide discretion under an application for the equitable winding up of a company. In the case of Jean v Murfitt 1996/237 it was held that the words "just and equitable" should be given a flexible interpretation (paragraph 45 of the judgment). In the matter of Leveraged Income Fund Limited 2002/209 the Court adopted the proposition that the words "just and equitable" are general words and that there is no exhaustive list of situations that may fall within the scope of the words (Paragraph 10 of the judgment). In Representation of Poundworld [2009] JRC 042, the Court held that "the jurisdiction to order a winding-up under Article 155 is a wide one" (paragraph 15 of the judgment).
20. The Court has ordered the just and equitable winding-up of companies for a variety of reasons, including the loss of the substratum of the company (Leveraged Income Fund), a deadlock in the management of the company (Bisson v Bish [2008] JRC 193), or the need to keep an otherwise insolvent company trading for the benefit of the company's clients and creditors (Poundworld). A further reason for the use of this jurisdiction is the need for investigation into the company's affairs (In the matter of Belgravia Financial Services Group Limited [2008] JRC 161).
21. In the case of Horizon Investments Limited [2012] JRC 039, Horizon had ceased business save to the extent necessary to transfer its client assets to a third party purchaser. In exercising its jurisdiction under Article 155 the Court took into account, amongst others, the following factors:-
(i) There was a clear public interest in completing the transfer of clients to the third party in an orderly fashion without adverse publicity for the Island's financial services industry;
(ii) It would be in the best interest in all the stakeholders for the process to be overseen by a liquidator who was directly accountable to the Court.
(iii) An Article 155 appointment is preferable to a creditor's winding up given the greater flexibility allowed for and the overriding duty to the Court, especially given the potential for conflicts to arise between the shareholders and creditors.
22. RPSA was insolvent on a cash flow basis because it was unable to pay the salaries due to its seconded employees as they fell due, and in Poundworld, Sir Michael Birt, then Deputy Bailiff, said this in relation to an insolvent company: -
23. We note that more recently, the Court in the case of In re Anthony Investments (Esplanade) Limited [2013] JRC 217A ordered the winding up of three connected companies, all of which were insolvent.
24. In the case before us, the appropriate procedure under the Companies Law would be a creditors' winding up, but that required the passing of a special resolution of the shareholders. Having no shareholders, that procedure was not available. There was no other procedure under the Companies Law, other than an application for the company to be wound up on just and equitable grounds. There were two other factors which the Court took into account:-
(i) There may be a need to investigate the circumstances in which RPSA found itself without a shareholder.
(ii) The provision of employees was a service provided by RPSA from Jersey, and there was a public interest in protecting the reputation and integrity of Jersey in commercial and financial matters.
25. It would have been open to the directors to procure that RPSA apply to declare itself "en désastre", but the Viscount would have been in no better position to deal with the winding up than professional liquidators appointed by the Court.
26. In conclusion and for the reasons set out above, the Court ordered the just and equitable winding up of RPSA and the appointment of Stuart Gardner and Joe O'Connor of Ernst & Young, Jersey, as joint liquidators, with orders consequential thereto.
