Trustees In Bankruptcy – High Court Decision

In the recent decision of Hamilton and another v Brown and another [2016] EWHC 191 (Ch) the High Court has confirmed that trustees in bankruptcy of a shareholder do not need to be registered as members of a company in order to petition for the winding up of a company or claim shareholder entitlements to relief.

The trustees in bankruptcy of a shareholder (who had been a director) sought relief, and petitioned to wind up the company on the grounds that its affairs were being conducted in a manner which unfairly prejudiced the trustees’ interest in the company. The shareholding had vested in the trustees upon their appointment (under section 306 of the Insolvency Act 1986 (IA 1986)). However, the bankrupt’s shares had not been registered in his trustees’ names for the requisite period: section 124(2)(b) of the IA 1986 requires petitioning contributories to have held shares in their name for six out of the last 18 months before commencement of the winding up.

The High Court considered that the shares did not need to be registered in the names of the trustees in bankruptcy for the time period set out in section 124(2)(b) of the IA 1986: the trustees were deemed to be members of the company (with their names entered on the register) by section 250 of the IA 1986.

The High Court also held that it was unfairly prejudicial for the bankrupt to be involved in the management of the company. Undischarged bankrupts are prohibited from such activity, without permission of the court, under section 11 of the Company Directors Disqualification Act 1986. On the facts, the bankrupt was acting as a shadow director and the company’s assets – and share value – had been diminished.

Trustees in bankruptcy are rarely entered onto a company’s register of members in practice. The effect of this decision is that trustees in bankruptcy have the same standing as the bankrupt to present a winding up petition and may apply for relief from unfair prejudice from their date of appointment. It also appears to obviate any requirement for a trustee in bankruptcy to apply to rectify the register (under section 125 of the Companies Act 2006) before seeking relief from unfair prejudice.

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