In the Matter of The Financial Conduct Authority v Carillion Plc (in liquidation)  EWHC 2146 (Ch)
The applicant Financial Conduct Authority sought a declaration as to whether the court's leave was required for the issue of a "warning notice" against the respondent company under the Financial Services and Markets Act 2000 s.92 and s.126.
The respondent had been subject to a winding-up order. The declaration was sought because the FCA was considering whether to issue a warning notice setting out proposed disciplinary action against the respondent for breaching the Listing Rules which it had made under rule-making powers conferred by s.73A of the 2000 Act and/or contravening the Financial Services and Markets Act 2000 (Market Abuse) Regulations 2016. The Insolvency Act 1986 Pt IV s.130(2) provided that when a winding-up order had been made, "no action or proceeding" should be proceeded with or commenced against the company or its property except by leave of the court and subject to such terms as the court might impose.
The issue was whether the FCA's process of deciding whether to impose sanctions on a company (including the decision) was an "action or proceeding" within the meaning of s.130(2).
Need for leave - The FCA's "proceedings" were ones which Parliament intended to fall within the ambit of s.130(2). It seemed unarguable that the underlying purpose of s.130(2), namely the protection of the insolvent estate for all its creditors, applied. An immediate stay was required. The liquidator would need time to investigate the position before being able to respond to a warning notice or to permit the relevant company to continue to make representations, whether to the FCA Enforcement, the Regulatory Decision Committee or the Upper Tribunal depending on the stage at which the liquidation occurred. Time might be needed to ensure that resources were not diverted from other essential matters, such as taking legal proceedings and obtaining urgent injunctive relief because of the very actions or omissions relied on by the FCA. The officeholder would certainly need time to be able to assess the relevance to creditors of the warning and/or decision notice, including the potential effect of a penalty. To adapt the words of Lord Woolf in Railtrack Plc (In Administration) (No.2), Re  EWCA Civ 955, it would also be surprising to find that the FCA's particular statutory role would not be subject to the control of the insolvency court for a company in liquidation. It was of course correct that the "proceedings" arose as part of the FCA's statutory duties, including its general duties of formulating policy and fulfilling the integrity and strategic objectives. In the context of the subject of the potential warning notice, it would be acting as a body required to ensure that the markets functioned well and with integrity as defined within s.1D(2) of the 2000 Act. That was a context in which Parliament had considered it right for the FCA or the Upper Tribunal to reach decisions as to whether the Pt 6 Rules had been breached and/or there had been market abuse in breach of the 2016 Regulations justifying sanction. However, that role within that part of its particular functions required the FCA to hold and determine quasi-legal proceedings in accordance with a procedure which was fit for that purpose. It was not surprising that that specific process and type of decision should be subject to s.130(2) when it was a process and decision directly and specifically concerned with the insolvent company. It was a decision which would affect creditors, whether it affected the conduct and operation of the liquidation, its cost and expense, any distribution if the FCA became a creditor through the sanction of a penalty or otherwise howsoever. It was unsurprising that statutory measures protecting the company for the benefit of all its creditors applied. This was not a case where the court with insolvency jurisdiction would be assuming a supervisory role to ensure that the markets functioned well and with integrity. It was a case where "proceedings" would result in a decision whether penalties or other remedies should be imposed on the respondent because of its pre-liquidation actions or omissions. That was precisely the context for the s.130(2) stay. In the circumstances, the court's leave was required before a warning notice could be given, Railtrack and Frankice (Golders Green) Ltd (In Administration), Re  EWHC 1229 (Ch) considered (see paras 89-90, 92-95 of judgment).
Grant of leave - Leave would be granted to the FCA to commence and proceed with the statutory process required to impose sanctions against the respondent. However, conditions would be imposed. Among other things, there should be no execution of any penalty without the court's permission (para.101).
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