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The court has held that the following basic principles apply to petitions by the secretary of state to wind up a company on public interest grounds: 1. The burden of proof is on the secretary of state, whose submissions will not be given undue weight but will be considered and tested in the same way as any other submissions. 2. In coming to its decision, the court must conduct a balancing exercise taking into the account the reasons for and against the winding up. The court must be satisfied that a winding up order is in the public interest and must identify why that is the case. 3. The fact that the company may have ceased its offending activities prior to the presentation of the petition is an important factor, but it is not crucial or determinative. The winding up of such a company serves as an expression of the court's disapproval and as a deterrent to others. 4 It is not necessary for the company to be insolvent. Conversely, insolvency is not sufficient in itself to justify winding up on public interest grounds. 5. A winding up order may be made even if the company is in voluntary liquidation. 6. The court should be slow to accept undertakings rather than make a winding-up order if the secretary of state was not content to accept the undertakings. The acceptance of undertakings is an abdication, not an exercise, of the court's jurisdiction. 7. The company need not have been acting unlawfully or have been engaged in illegal activity. 8. If the public has been misled, the court must assess the significance of the misstatement. If the deception was inadvertent, the court would require a very clear case before making the winding-up order. 9. The public interest requires that individuals and companies dealing in securities with the public should maintain at least the generally accepted minimum standards of commercial behaviour. The more unusual and speculative the investment, the heavier the burden on the seller of shares to ensure that the contents and get-up of his sales literature are not misleading. In this case, the secretary of state's petition was granted. The company had been set up to develop and sell a new invention called the Oiko-f Eco filter, although it did not manage to sell even one unit. Instead, it had mainly been concerned with raising funds from external investors through its “Investor Relations Team” who were paid a commission of between 30% and 35% of all monies raised. The company raised £5 million by issuing its shares to the public without FSA authorisation and without complying with the applicable prospectus regulations. Further, it had acted with a total lack of commercial probity when dealing with the FSA and existing and potential shareholders. All of the money had been lost and the company was insolvent at the time of the petition. The secretary of state has the power to petition the court to wind up a company on public interest grounds (s 124A IA 1986) based on information gained by an FSA investigation (¶7626+). A company wishing to offer its shares to the public must comply with strict regulations governing the making of financial promotions (s 21 FSMA 2000) and the documentation accompanying the offer, known as a “prospectus”. Prospectuses are now governed by the Prospectus Regulations 2005 (SI 2005/1433) which replaced the Public Offers of Securities Regulations 1995 (SI 1995/1537) with effect from 1 July 2005 (¶4800+) . |
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Winding up in the public interest See CLM: ¶984, ¶4800, ¶7626 |
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Re UK-Euro Group plc [2006] EWHC 2102 (Ch) |
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TUPE and share sales See CLM: ¶5392, ¶5686, ¶5771 |
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The Print Factory (London) 1991 Ltd v Millam, EAT 1 August 2006, unreported |
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The EAT has confirmed that TUPE does not apply to share sales, even where a corporate buyer exercises management control over the target company following a sale. To apply TUPE in such circumstances would have the effect of piercing the corporate veil. It is not legitimate to pierce the corporate veil in employment cases merely because a group of companies is operated as a single economic entity. The only circumstance in which it would be permitted is if the subsidiary company were a sham or façade. The EAT accepted that TUPE could apply if, after the share sale, there were a transfer of business from the target up to its new holding company. This would require evidence of assets or employees being transferred; the mere transfer of management control (however detailed that control) would not be sufficient. The Transfer of Undertakings (Protection of Employment) Regulations 2006 (SI 2006/246), commonly known as “TUPE”, gives important rights to employees of a transferring business (¶5771+). TUPE only applies to business and asset sales; it does not apply to share sales. |
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