East Riding Council (“ERC”) invested £20m of taxpayers’ money in a sub-fund of a Luxemburg Investment Company (“LIC”). The LIC was incorporated in Luxemburg and operated multiple sub-funds. Each investor would obtain shares in the LIC. The sub-fund was launched to invest in UK land assets and attracted £82m of investment.

In 2019, the sub-fund ran into financial difficulties and ran out of money due management charges and exposure on land options. The sub-fund reported that there would be no return to members.  

East Riding Council were not happy that they had just wasted £20m of your money and sought to wind up the sub fund under Section 220 of the Insolvency Act (“IA”) arguing that the sub-fund was an unregistered company.

The court refused to make the winding up order as it argued that S220 of IA did not allow it to wind up entities that were neither companies nor associations.

The Council appealed arguing that the sub-fund had characteristics of an association. The Court of Appeal dismissed the Council’s appeal arguing that the sub-fund could not be wound up as an unregistered company as the sub-fund was just a collection of assets managed by the LIC.

The key lesson is to remind creditors to review the structure of the entity holding the assets prior to investing to ensure that should you need to take enforcement action to recover your investment, you clearly understand your rights and remedies prior to making the investment decision.  At a time when public finances are extremely stretched, ERC has lost £20m and also incurred significant costs in pursuing this case to the Court of Appeal!