IP Briefing: Judgment of Sheriff Holligan in the petition of A Ltd

The Background

This case concerns the presentation of a winding up petition in respect of a company limited by guarantee, known as ‘A Ltd’ and more particularly whether the Sheriff Court has jurisdiction to deal with such a petition. There was no opposition to the petition, therefore the sheriff heard submissions from counsel for the petitioner only, in relation to interpretation of S.120 of the Insolvency Act 1986.

In short, this section of the legislation provides that although the Court of Session has jurisdiction to wind up any company registered in Scotland, in the event that the company’s paid up share capital does not exceed £120,000, the sheriff court has concurrent jurisdiction.  Because companies limited by guarantee cannot generally have a share capital, the question before the sheriff was whether this section of the legislation could be interpreted so as to provide that the sheriff court has jurisdiction to wind up companies limited by guarantee.

 

The Facts & Arguments

Counsel for the petitioner explained that there has been only one previous case concerning interpretation of this statutory provision.  In the case of ‘Pearce v Cannon’, the Sheriff considered that S.120 of the Insolvency Act could only refer to companies limited by shares, with the result that a company limited by guarantee must be wound up by the Court of Session. This decision which was issued back in 1991 has, however, been the subject of criticism in recent years.  Counsel for the petitioner submitted that due to the reasoning of the sheriff being incorrect in the case of Pearce (not least because companies limited by guarantee could, prior to 22 December 1980, have a share capital), the matter was open for judicial consideration.

 

The Decision

The sheriff noted that although more complex litigation is generally reserved for the Court of Session, the share capital of a company is not, in itself, an indicator of complexity.  His lordship further noted that companies limited by guarantee often pursue charitable rather than commercial interests, with the amount of the guarantee often being nominal.  The Sheriff found that it was difficult to identify any particular reason to exclude guarantee companies from the jurisdiction of the sheriff court and particularly due to the fact that they often pursue non-commercial interests, it was held that there was no reason of policy to limit the jurisdiction of the sheriff court. 

 

Advice

This decision will be welcome news for Insolvency Practitioners.  Although companies limited by guarantee are fairly uncommon, the sheriff court is generally a quicker and cheaper forum in which to raise proceedings therefore it will be to the benefit of the company and its creditors if companies limited by guarantee can be wound up by the sheriff court. This decision also aligns with the recent increase in the privative jurisdiction of the Court of Session.  It would seem strange, for example, if a pursuer was required to be seeking to recover at least £100,000 before they could bring debt recovery proceedings in the Court of Session, yet a company limited by a very small guarantee must be wound up by the same court.

 

BBM Solicitors specialise in advising IP’s in both contentious and non-contentious matters (including transactional work). Contact: Eric Baijal (emb [AT] bbmsolicitors [DOT] co [DOT] uk) or Sheana Campbell (smc@bbmsolicitors.co.uk). This briefing note is current as at 11 January 2017 and is our understanding of the position described at that date.  Legal advice ought to be taken before relying on its terms (particularly to ensure the law has not changed).