Company Law

Winding up - application by secretary of state on public interest grounds - sole director and shareholder ordered to pay costs - company's costs not to be paid out of company's assets until after payment of unsecured creditor paidSecretary of State for Trade and Industry v Arum Marketing Ltd and another: CA (Simon Brown, Schiemann and Mummery LJJ): 20 July 2000

The company raised money by reverse marketing promotion of health foods in magazines and on the Internet.

The scheme involved promising the public 100% profit on an initial payment of 40 to the company.

The Secretary of State successfully petitioned to wind up the company, of which the second defendant was sole director and shareholder, on public interest grounds.

The judge ordered the trade secretary's costs of the petition be paid out of the company's assets and refused applications for orders that the secretary's and company's costs of the winding up proceedings be paid personally by the sole director and shareholder of the company, and that the company's costs not be paid out of company assets until its unsecured creditor had been paid.

The trade secretary appealed.

Michael Green (instructed by Treasury Solicitor) for the trade secretary; Paul Greenwood, who did not appear below (instructed by Phillip Rudall, Swansea) for the second defendant.Held, allowing the appeal, that the effect of the judge's order was that the burden of costs of successful proceeding brought in the public interest to put an end to a swindle operated by the sole director and shareholder through the company was borne by the assets of the company found to be insolvent; that such an order was unjust and it was appropriate that the court should order the sole director and shareholder personally to pay the requested costs, and that the company's costs be paid out of its assets only once unsecured creditors had been paid.