In FCA vs. Carillion  EWCH 2871 (Ch), the High Court confirmed that the enforcement action of the Financial Conduct Authority (FCA) against Carillion Plc (in liquidation) (Carillion) in accordance with certain provisions of the Financial Services and Markets Act 2000 (FSMA) does not constitute a “Action or proceeding” and therefore does not fall within the scope of the statutory stay imposed by Section 130 (2) of the Insolvency Act 1986 (the Act).
Article 130 (2) of the Law
Section 130 (2) of the Act provides that where a winding-up order has been made or a provisional liquidator has been appointed, no action or proceeding may be pursued or brought against the company or its property, except with leave of the court and subject to such conditions as the court may impose.
Following its well-documented collapse into liquidation in 2018, the FCA issued confirmations (Opinions) against Carillion and some of its directors regarding alleged market abuse and violations of listing rules, pursuant to Articles 91 and 123 of the FSMA. In that case, the High Court considered an appeal against an earlier ruling that court leave was required under section 130 (2) of the law before the FCA could issue the opinions.
The opinions concerned a plan for public censorship by the FCA, rather than a monetary penalty, with both parties agreeing that court authorization would be required under Section 130 (2) in the circumstances where the FCA proposed to take action against Carillion to recover any sanction imposed.
While in its previous ruling, the court authorized the FCA to issue the opinions (which had been served on Carillion in September 2020), the High Court was asked to consider whether, as a point of statutory interpretation, it was correct that the court’s authorization was indeed required by the CAF to take this type of regulatory action. FCA viewed this issue as critical, given the significant legal and practical implications for how and when any future enforcement action it may wish to take.
The FCA considered that the moratorium under Article 130 (2) of the Law was limited to to research similar actions or proceedings or proceedings (such as arbitration) and argued that Parliament could not have intended that regulatory action – such as that taken by the FCA under the FSMA – should be included in the scope of this legal provision. The FCA noted that Parliament could not have intended the insolvency courts to be the “guardian” of the exercise of FCA’s statutory powers.
The FCA considered that its decision-making processes, including those related to the issuance of opinions, were not analogous to court proceedings and were purely internal regulatory processes, carried out as part of its statutory functions under the FSMA. .
The High Court held that leave was not required to give the opinions and that the previous judge had erred in concluding that the exercise of specific powers under the FSMA by the FCA constituted a “procedure” for the purposes of Article 130 (2). In making this decision, he concluded that the judge had adopted an overly broad interpretation of this provision and that the regulatory action taken by the FCA with respect to the notices was in any case not in accordance with the correct interpretation.
However, the High Court strongly emphasized that the ruling only concerned the specific FSMA provisions examined in this case (i.e. Articles 91 and 123). While the FCA has sought to broaden the application of the ruling to any regulatory action it may seek to take, the High Court has declined to take this approach. In doing so, he noted that there were differences in the decision-making processes employed by the FCA with regard to the different provisions of the FSMA. Therefore, questions as to whether other regulatory measures fall within the scope of Article 130 (2) should be decided separately by the court, as they arise. in other liquidations.
A copy of the full judgment can be viewed here.
David Steinberg, Co-Head of the Restructuring and Insolvency Department at Stevens & Bolton comments:
While this decision sheds useful light on the scope of the suspension imposed under Section 130 (2) of the Act, the High Court made it clear that it should in no way be interpreted as a “comprehensive decision”. »Applicable to all regulatory actions taken by the FCA in accordance with the FSMA. It therefore seems inevitable that this issue will be re-examined by the courts, albeit in the context of regulatory action taken under different statutory provisions.