Criminal proceedings against companies which are in administration

United Kingdom

Environment Agency -v- Clark (administrator of Rhondda Waste Disposal Limited) - 10th February 2000

The Court of Appeal has recently held that criminal proceedings are “other proceedings” for the purposes of Section 10(1)(c) and 11(3)(d) of the Insolvency Act 1986. Therefore leave is required to commence or continue criminal proceedings against a company which is in administration or in relation to which an administration petition had been presented.

It may, however, often be the case that leave will be granted because public interest in prosecuting the criminal act outweighs the interests of the company's creditors.

More detail.....

Rhondda Waste Disposal Limited (the “Company”) operated a landfill site pursuant to a Waste Management Licence issued by the Environment Agency. The Company failed to comply with certain terms of the Licence and obnoxious odours were released from the site. The Company's trading losses eroded the Company's reserves to an extent that there were likely to be insufficient funds to finance the works required to comply with the licence.

On 23rd December 1998, the Company’s directors issued a petition for an Administration Order to be made. The Agency subsequently commenced criminal proceedings against the Company alleging contravention of the Waste Management Licence. Two days later, an Administration Order was made.

The Administrator applied to the Court for a direction whether leave was required to bring or continue criminal proceedings under Section 10 and/or Section 11 of the Insolvency Act 1986. At first instance, the Court found that leave was required and refused to grant leave on the basis that any fine imposed on the Company would be paid at the expense of unsecured creditors. The Environment Agency appealed both decisions.

Held

Was leave required?

There were no previous authorities on whether the relevant sections of the Insolvency Act applied to criminal proceedings but the Court of Appeal held that the words had a plain and clear meaning. The Court followed the decision in Paramount Airways (Bristol Airport Plc -v- Powdrill [1990] CH 744) that “other proceedings” were not restricted to legal proceedings or quasi legal proceedings such as arbitration. The Court recognised that the ambit of criminal offences that may be committed by corporations is very wide.

There was nothing inherently wrong with the Courts acting, in appropriate circumstances, to filter criminal proceedings against a company in administration. “When the public interest so dictates, leave to pursue criminal proceedings ought readily to be given but that will not be every case”.

The scope of Sections 10(1)(c) and 11(3)(d) of the Insolvency Act 1986 did include criminal proceedings and therefore leave was required.

Should leave be granted?

The Court of Appeal held that the lower Court had been wrong to consider only the interests of the Company’s creditors. There were compelling reasons why the Environment Agency should be granted leave to prosecute the Company which had over a long period of time, acted in breach of the Waste Management Licence resulting in pollution of the environment and serious detriment to the amenities of the locality. The second appeal was allowed and leave was granted.

For further information, please contact Janet Brier in our corporate recovery group on DDI: 020 7367 2326 or e-mail jemb@cms-cmck.com