Companies come in all shapes and sizes and by no means of all of them are of the standard, limited liability, variety. In one case, the unusual structure and constitution of a defunct insurance company required its liquidators to seek detailed High Court guidance on exactly how surplus funds should be distributed.
The company, which was founded in 1918, was limited by guarantee and thus had members, rather than shareholders. Prior to the sale of its business, it provided insurance cover to farmers who, on taking out a policy, automatically became members of the company on payment of a 25p subscription.
Their membership expired automatically on the second anniversary of the creation of their policies but, when the company was wound up and placed in liquidation, it still had over 1,900 policyholder members on its books. A sale of the company’s assets yielded a surplus of over £1 million after all its creditors were paid.
Cheques were sent to each member, representing his or her share of the surplus. In a number of cases, however, the cheques had not been cashed or letters had been either returned or not answered. Despite extensive advertising and other steps, it had proved impossible to contact those untraced members. Further difficulties arose after it emerged that some members had died and a number of companies and partnerships that had been members had been dissolved.
Dealing with the latter category, the Court found that, on the true interpretation of the company’s articles of association, memberships expired on death or dissolution. Given the relatively modest sum to which each untraced member in the former category was entitled, the liquidators had taken all reasonable steps to bring the distribution of the surplus to their attention.
The Court, however, stopped short of enabling the liquidators to pay unclaimed sums to those members who had responded and cashed their cheques. Section 112 of the Insolvency Act 1986 could not be interpreted so widely as to enable such a distribution of funds to those who would not otherwise be entitled to them.
The liquidators were directed to write a final letter to untraced members, giving them a further opportunity to exercise their rights. Any undistributed sums would then be paid into an interest-bearing account and would remain available for distribution to any untraced members who subsequently came forward. Special provision was made for a third category of member, just two in number, who had been contacted but who had failed to cash their cheques. That category included an unsighted member who had encountered difficulty in cashing his cheque.