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High Court does not have jurisdiction to stay criminal proceedings against a company in creditors' voluntary liquidation

03 February 2020
A waste management company ("the Company") was placed into creditors' voluntary liquidation in June 2018. After it was placed into liquidation, the National Resource Body for Wales ("NRW") commenced criminal proceedings against the Company and its directors under environmental protection legislation, namely for the company knowingly generating waste with no authorisation to store it and for breaching the conditions of its environmental permits. 

The Company's liquidators sought an order from the High Court to stay the criminal proceedings and asked the court to rule on a stay based on the statutory authority under Sections 126 and 112 of the Insolvency Act 1986 ("IA").

Section 112(1) IA provides that the "liquidator or any contributory or creditor may apply to the court to determine any question arising in the winding up of a company, or to exercise, as respects the enforcing of calls or any other matter, all or any of the powers which the court might exercise if the company were being wound up by the court." By Section 112(2), "the court, if satisfied that the determination of the question or the required exercise of the power will be just and beneficial, may accede wholly or partially to the application on such terms and conditions as it thinks fit, or may make such other order on the application as it thinks fit."  On that basis, the Company's liquidators argued that in the exercise of the statutory powers under Section 112(2) IA, the judge had the jurisdiction to make an order staying the criminal proceedings. 

The judge found no issue with the fact that this was a creditors' voluntary liquidation rather than the company being wound up by the court, stating that Sections 112(1) and 112(2) IA confer on the court the same jurisdiction and that this includes the statutory powers to stay or restrain proceedings under Sections 126(1) IA. 

However, the court clarified that Section 126 IA provides for a company to apply to the court in which the proceeding is pending for a stay of such proceedings. The judge found that there is no statutory power conferred on the court to intervene in proceedings before another court so as to impose a stay. 

The judge acknowledged that the High Court has repeatedly demonstrated a readiness to grant relief restraining creditors from pursuing proceedings in other courts against companies in liquidation. However, the judge stated that he was not referred to any case in which the High Court had stayed proceedings in other courts in the exercise of its insolvency jurisdiction. 

The judge reached the conclusion that whilst it would be open to making an order restraining NRW from pursuing criminal proceedings, the court did not have the jurisdiction to order a stay.

The judge also found that the offences against the Company were of a serious nature and that there were compelling public interest grounds to allow the criminal proceedings to continue, stating that these grounds substantially outweighed the disadvantage to the creditors. The judge stated that even if he did have jurisdiction to stay the criminal proceedings, he would decline to do so and dismissed the application. 

This is the first ruling on this issue and will set precedent that the High Court does not have jurisdiction to stay criminal proceedings against a company in voluntary liquidation. Given this ruling, any application of this nature should be made to the same court where the proceedings have been brought.