If a club devoted to serving a community benefit enters insolvency, should its surplus assets be distributed to its members, or the cause for which it was founded? The High Court tackled that issue in a case concerning a political club which had surplus funds in excess of £1 million when it was voluntarily wound up.
The club, founded in 1934, had the aim of promoting the principles of Conservatism and the implementation of Conservative Party policies. It was expressly affiliated to the Association of Conservative Clubs. After its membership dwindled and it began to suffer losses, its members voted in favour of winding it up.
Following the sale of its clubhouse, the club was left with a seven-figure sum in the bank and its liquidator set about distributing the money to its 137 known members. That prompted the Association to launch proceedings on the basis that it, rather than the members, should receive the surplus funds.
In rejecting the Association’s arguments, the Court found that, on a true reading of the club’s registered rules, the liquidator had no alternative but to distribute the surplus to members and that that represented the only proper outcome. The membership had unanimously voted three times in favour of winding up and procedural irregularities in the club’s decision-making had neither caused harm to creditors’ interests nor affected the final result.