FCA Warning Notices - update on the effect of the liquidation stay
05 November 2021
05 November 2021
After Carillion Plc entered compulsory liquidation in January 2018, triggering what is known as a "liquidation stay" under section 130(2) of the Insolvency Act 1986, no "action or proceeding" could be continued or commenced against Carillion Plc (in liquidation) without the leave of the court.
Subsequently, in October last year, ICC Judge Jones grappled with the question of whether leave of the court was therefore required before the FCA could issue a proposed Warning Notice against Carillion by way of enforcement in respect of alleged breaches of the Listing Rules (s.91 of FSMA) and the Market Abuse Regulation (s.123 of FSMA). He decided that it was, as we discussed here.
The FCA appealed, on the grounds that section 130(2) of the IA is limited to court actions and proceedings, or materially similar actions and proceedings (such as arbitration), and did not include regulatory action taken by the FCA under FSMA.
In allowing the FCA's appeal, Mr Justice Michael Green held that the FCA did not have to obtain the court's permission before issuing the proposed Warning Notice for the following reasons:
Although this decision in favour of the FCA could suggest a move away from the categorisation of such FCA enforcement action as "proceedings" caught by section 130(2) of the IA, uncertainty remains.
In particular, the Judge limited his decision to the specific power of the FCA to take action against Carillion under ss.91 and/or 123 of FSMA in respect of alleged breaches of the Listing Rules and market abuse. Such action could have included the imposition of a financial penalty, although none was actually imposed in the case. He explicitly declined to conclude that the FCA would not require the court's permission before issuing any other statutory notices under FSMA.
The consequence of this decision is that, in relation to FCA action pursuant to ss. 91 and/or 123 of FSMA at least, companies in compulsory liquidation are at risk of being required to incur costs engaging with FCA action and, where there is a deficit in relation to creditors (as is the case in Carillion), such costs will have to be met from public funds. As government support is wound down and with companies likely to face increased financial difficulty in the coming months, this risk may become a reality.
Authors: Louise Youngman, Senior Associate, and Ella Stokes, Trainee Solicitor
Case Reference: The Financial Conduct Authority v Carillion Plc (in Liquidation) [2021] EWHC 2871
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Readers should take legal advice before applying it to specific issues or transactions.