Corporate insolvency – liquidators’ powers – commencement of proceedings
Following amendments to the Insolvency Act 1986 (effective post-26 May 2015) the liquidators of a company in compulsory liquidation no longer need the court’s sanction to bring legal proceedings against third parties. Nevertheless, the joint liquidators of Longmeade, a company in compulsory liquidation, applied for directions in relation to a potential claim against the Secretary of State for Business Innovation and Skills.
The company’s two largest creditor groups opposed the pursuit of the claim. HMRC did not wish to support litigation against a government department, while companies in the same group as Longmeade wished a swift end to the insolvency.
Snowden J held that the established principles governing liquidators’ decisions which do not require sanction should be applied to the post-26 May 2015 regime. Those principles were that:
(i) a court-appointed liquidator’s decision as to whether to commence proceedings is essentially a commercial decision which the liquidator is entrusted to take without obtaining sanction;
(ii) liquidators should act in what they believe to be the best interests of the company and all those with an interest in its estate;
(iii) liquidators may, but are not obliged to, consult the creditors (or contributories) who have an interest;
(iv) liquidators should normally give weight to the reasoned views of the majority of creditors, provided they are uninfluenced by extraneous considerations;
(v) if all those interested are fully informed and unanimously of the same view, liquidators should ordinarily give effect to their wishes;
(vi) the court should not generally give directions to liquidators as to how to make commercial or administrative decisions; and
(vii) the court should not generally interfere with a liquidator’s commercial or administrative decision after the event, unless it was a decision taken in bad faith or one that no reasonable liquidator could have taken.
In the instant case, the liquidators were not obliged to summon a creditors’ meeting, were entitled to discount the views of HMRC and the group companies, and should give the minority creditors a last opportunity to explain their wishes.
The decision provides useful guidance on the operation of the amended regime and emphasises the deferential approach to be taken to liquidators’ own discretion as to whether to commence proceedings.
