Pigs and Insolvency - a long history
Some of my friends do not like our little pink and muddy friends for religious, dietary or because of animal welfare reasons. I happen to like pigs not least in a sandwich or in blankets. Insolvency practitioners, scholars and students have other reasons to be grateful to these even toe ungulates of the Sus family. Pigs, it seems, have a long relationship with insolvency. I do not intend to go as far back as Sir Francis Bacon or to the more recent contributions of Quentin Hogg, or his father, Douglas Hogg (first and second Viscount Hailsham respectively). Instead we will examine some cases from more recent time periods to see how pigs have had an impact on the insolvency jurisdiction.
The first case of note which involves insolvency and pigs is Re Introductions Ltd  Ch. 199. This case is a leading company law authority on the question of corporate capacity and whether or not a company can be bound by ultra vires acts which are outside its capacity as defined in the company's memorandum of association (now articles of association). This question is now resolved by s.31 of the Companies Act 2006, which largely replicates s.35 of the Companies Act 1985 as amended by the Companies Act 1989, which in turn was influenced by Professor Dan Prentice's report on the subject of corporate capacity.
The objects of the company, at incorporation, were to provide facilities for the Festival of Britain. After a period of dormancy the juristic person was then used to provide the structure for a new business, one which was concerned with pig breeding. To finance the business the directors caused the company to take out a bank loan which was secured by a debenture. The "Anglican Pig Breeding" business was a disastrous failure and the company was put into compulsory liquidation. The liquidator took out a summons in the winding up to determine (i) whether pig breeding was intra vires the company, and (ii) whether the bank's debentures were valid. If the pig breeding was beyond the company's capacity then the associated borrowing was invalid.
On fondness for pigs Harman, LJ noted: "The venture of pig breeding is the type of adventure which has always drawn money from the pockets of the British public, who apparently much prefer to regard themselves as owners of an apple or an apple tree or a pig rather than a mere share in a company. Anyhow, this venture, like other similar ventures, has been a disastrous failure, and the company was ordered to be wound up in 1965." The Court of Appeal held that the pig breeding was ultra vires and that the bank's security was invalid therefore swelling the assets for the company's other creditors. The liquidator's arguments were successful. The case has an unhappy ending for the company's promoter, he unfortunately killed himself.
The second case which touches on pigs and insolvency involves winding up, preferences and pigs. The company carried on business as a bacon importer and wholesaler. In Re MC Bacon Ltd (1990) BCC 78, (1990) BCLC 324 the facts of the case show that traditional bacon was the corner-stone of the business for the first ten years of its life. In 1983, in response to the requirements of its principal customer, Dee Corporation, the company diversified into the supply of pre-packaged manufactured products such as gammon steaks, gammon joints and rashered bacon, and ran down the traditional side of the business.
The area of preferences was examined in Re MC Bacon. It is for this critique that the case is most well known, until now! Specifically the s.239 Insolvency Act 1986 (IA86) provisions and the statutory wording, "The court shall not make an order under this section in respect of a preference given to any person unless the company which gave the preference was influenced in deciding to give it by a desire to produce in relation to that person the effect mentioned in subsection (4)(b)” was examined. A preference has been defined as occurring, "where a company in financial difficulties…takes steps to ensure that the debt of one of its creditors is satisfied in full…creditor does not have to share rateably…” (Prentice, p.440).
Millet, J, as he then was, (later a Lord of Appeal in Ordinary and sometime member of the Cork Committee - pictured left with the Duke of Kent (who is on the right)) paid close attention to term desire in his judgment in Re MC Bacon. He noted:
"Intention is objective, desire is subjective. A man can choose the lesser of two evils without desiring either. It is not, however, sufficient to establish a desire to make the payment or grant the security which it is sought to avoid. There must have been a desire to produce the effect mentioned in the subsection, that is to say, to improve the creditor's position in the event of an insolvent liquidation. A man is not to be taken as desiring all the necessary consequences of his actions. Some consequences may be of advantage to him and be desired by him; others may not affect him and be matters of indifference to him; while still others may be positively disadvantageous to him and not be desired by him, but be regarded by him as the unavoidable price of obtaining the desired advantages. It will still be possible to provide assistance to a company in financial difficulties provided that the company is actuated only by proper commercial considerations. Under the new regime a transaction will not be set aside as a voidable preference unless the company positively wished to improve the creditor's position in the event of its own insolvent liquidation."
This description of intention has been queried. Professor Ian F. Fletcher took issue with this view in the JBL arguing, "Certainly, the standard dictionary definitions of the words 'intend' and 'intention' do not appear to invest them with any specially 'objective' characteristics, but are couched in terms - such as 'purpose', 'design' and 'ultimate aim' which are suggestive of a subjective connotation." ('Vodiable Preferences Judicially Explained'  JBL 71,73).
The next case which involves pigs and insolvency is Re Olympia & York Canary Wharf  BCC 866. The court was asked to approve a scheme for the exit from administration of the Olympia & York (O&Y) companies. These companies were responsible for developing Canary Wharf. O&Y was a privately owned world wide group of companies. By 1991 it had become the largest developers of commercial property in the world. The ultimate parent company was registered in Ontario, Canada, which was controlled by the famous Reichman brothers. The UK arm developing London’s Docklands area. As planned Canary Wharf was going to be one of the largest developments in the country with 11m square feet of high quality office accommodation in 32 buildings which offered offices of a higher standard than office accommodation in the City, but at a lower rent. There were five projected phases to the project. Only the first phase and part of the second phase had been completed when in May 1992 administration orders were made in England in respect of 14 companies in the O&Y group. The insolvency had been brought about by the change in the market for office space in central London (protectionism by the City landlords) in the late 1980s and early 1990s, plus some problems with the public transport system to the Isle of Dogs. This all caused the project to founder. Several banks were owed sums exceeding £700m – some or all of the loans were secured. Unsecured creditors are owed between £115 and 150 million. They would receive nothing because the Canary Wharf development was worth considerably less than the amounts owing to the banks on the security. If the building site was sold the development would result in a significant deficit.
Over a year the administrators put together a three stage rescue plan. This had a number of vital elements, namely, £278 million funding from the banks and the Jubillee line extension. The administrators thought there is a reasonable chance of success and that the development would attract tenants and higher rents. The administrators envisaged three stages to the reconstruction; Stage one: A new UK group structure was to be created. The banks would own all the shares in the companies which hold the essential property interests in Canary Wharf. Stage Two: On 30 September 1992 voluntary arrangements were approved by creditors of five of the 14 companies under which unsecureds would receive a dividend of about 10 to 14 per cent from a fund of £27m being provided by the banks for this purpose. The five companies would be restored to solvency by the banks also rescheduling their debts. Stage three: The administration orders would be discharged in respect of the five companies and three further companies that have no significant debts. The remaining six of the 14 companies in administration in England will in due course almost inevitably go into insolvent liquidation
The scheme was opposed by Ogilvy & Mather (O&M). O&M was a subsidiary of WPP Group plc (WPP). O&M was in occupation of two floors of 10 Cabot Square Canary Wharf with a 25 year lease agreement. WPP received nearly £7 million in inducements to enter this agreement. Over 25 years £70 million in rent and service charges was due under the contract. O&M argued that under the administrators’ proposals the future of the project was insufficiently clear and certain. The Landlord’s obligation were extensive and there were some unlet parts of the building. From these the landlord would receive no income to assist financially in the maintenance of the estate and its facilities. How could the landlord company financially be able to perform its obligations under the lease? The scheme envisaged that £21m would be needed in 4 years and there was no stipulation as to where this will come from. According to O&M (in the words of Sir Donald Nicholls VC) the court was being asked to buy a pig in a poke and it should decline to do so but should first insist on first seeing the pig.
Sir Donald Nicholls V-C held that the success of the scheme was far from assured and that the administrators did not claim otherwise. But the scheme stood a fair chance of success and provided the best hope for the companies and their creditors generally. It deserved to be given a chance. O&M was not a present creditor. The possibility that in the future there may be breaches of the landlords covenants was a matter which O&M could investigate. But it was a matter for the court in some other litigation. The possibility (of breach of covenant) was not a suffieicnt reason for in effect compelling these companies to go into liquidation by refusing to authorise the administrators to proceed. The whole rescue was conditional on Secretary of State giving permission for the jubilee line extension.
The fourth case which involves insolvency (this time in the guise of receivership) and pigs is Medforth v Blake and Others  Ch. 86. This case involved a negligence action against receivers who were running a pig business. The facts are as follows. In 1984 the defendants were appointed as receivers over the pig-farming business of the plaintiff. After the receivership had ended in 1988, the plaintiff brought an action alleging that the receivers had been negligent in their conduct of the business, that they had owed the plaintiff a duty of care and that their failure to request and obtain discounts for the purchase of pig-feed constituted a breach of that duty. On the trial of a preliminary issue, the judge ruled that the receivers owed the plaintiff a duty of care when conducting the business. This view was upheld in the Court of Appeal. Dr Frisby has examined this case in the brilliantly titled: 'Making a Silk Purse out of a Pig's Ear - Melforth v Blake & Ors'. (2000) Modern Law Review, 63(3), 413-423.
So next time you see a pig thank him or her for their species contribution to our subject!
"This is the ultimate statement of where the law on IVAs is to be found in our great common law...