As part of the corporate governance legislation and duties, directors are at risk of public interest proceedings being brought against them personally, or against the company itself, if they are found to be acting contrary to public interest.
What are public interest proceedings?
Public interest proceedings can take a variety of different forms.
- a director may be penalised under director disqualification legislation on public interest grounds, or a company may be wound up under a public interest petition brought against the company by the Secretary of State for Business Energy and Industrial Strategy when it is believed that the company’s activities are against the public interest;
- director disqualification will inevitably follow for directors of a company wound up in the public interest;
- unlike standard winding up proceedings, it is not necessary for the company to be insolvent. It is just necessary that it is in the public interest for the company to cease trading to protect the public.
Public interest winding up proceedings will be taken if it is believed that the public should be protected from a company and/or directors. The business of the company doesn’t necessarily have to be illegal or involve breaches of regulatory requirements. It may still be wound up if it is ‘inherently objectionable’ and its activities are against obvious public interest. This may involve a company preying on the public, but it can also involve prejudice to the public generally, for example, by way of prejudice to the general body of taxpayers.
Examples are where a company has engaged in misleading sales practices, dubious financial schemes, selling worthless insurance or other services.
Who brings these proceedings, and how?
It is the Secretary of State for Business Energy and Industrial Strategy, via their Company’s Investigations Branch of the Insolvency Service that will bring a claim to wind up a company in the public interest. The Insolvency Service also bring disqualification proceedings against directors of a company in liquidation in the public interest, whether this occurs following public interest winding up, or standard insolvent winding up.
If a company is wound up following a compulsory or creditors voluntary liquidation, public interest reasons may be invoked to disqualify directors. For example, if they allow a company a policy of avoiding tax payments.
- public interest winding up proceedings are not brought lightly because of the severe nature of the consequences for the company.
- the Insolvency Service will have carried out a detailed investigation into that company before making a decision to bring proceedings against a company or a person.
The investigators have wide powers under company legislation to request that the company or any person should provide documents or any information as they need that will help with their investigation. If the company or an individual refuses, then they may be held in contempt of court, which could lead to a fine or imprisonment or both.
Because public interest investigations inevitably take several months, it is likely that the directors of the company will be forewarned of the investigation. Often this will be because the Insolvency Service have asked to interview them or for information to be provided as part of their investigation.
Before making the order, a court must be satisfied that it is just and equitable to wind up the company in the public interest, balancing all of the evidence before it.
Once a winding up petition is granted, then the Official Receiver is appointed over the company. The Insolvency Service will investigate the specific conduct of the directors of the company, and decide on their culpability for the affairs of the company and consider directors disqualification proceedings.
Defending a public interest winding up petition
If you believe that you can successfully defend a winding up order on public interest grounds, then you should be very clear of your grounds. Any company intending to defend proceedings should gather as much evidence as possible to counter the allegations against it. While it is up to the Secretary of State to prove their case, they do not take proceedings in the public interest that are not extremely serious and very likely to succeed.
If you are an owner or director of a company that receives a public interest winding up petition you should take legal advice as a matter of urgency. At Francis Wilks & Jones our team has many years’ experience of defending public interest winding up petitions and director disqualification claims, and are very familiar with the process. If you receive a petition, contact us without delay to discuss your options.
Personal liability for directors
A director of a company that is wound up in the public interest will almost certainly be accused of misconduct by the Secretary of State for Business Energy and Industrial Strategy in director disqualification proceedings, on the basis that they were either instrumental in the misconduct, or if not, then they knew or ought to have known about it as a director. A failure to cooperate with the investigation as a director will also be taken into account when considering disqualification following a public interest winding up order.
- a director could be disqualified as a company director for between 2 and 15 years following a public interest winding up.
- they may also be subject to a compensation order where they may be asked to personally repay monies to the company if responsible for financial loss.
If as a director you try to defend the winding up petition on spurious grounds, or attempt to defend a scheme that is clearly against public interest, the court may penalise this type of defensive strategy by ordering that a director personally bear the cost of the Secretary of State’s application. Given that the Secretary of State will inevitably have carried out a detailed and lengthy investigation and that the case will have gone to trial, the expense of these proceedings should not be underestimated.
If you have been served with a winding up petition or indeed if you think that a company should have a winding up petition on public interest grounds served on it, then contact us as soon as possible. The team at Francis Wilks & Jones are experts in this area and can advise on your options. Don’t delay.