Do you need to involve a liquidation committee before pursuing a claim?

In Allen and another, Re Longmeade Ltd (in liquidation) [2016] EWHC 356 (Ch), it was considered whether a liquidator was required to involve the court or a liquidation committee before taking actions to pursue a claim, pursuant to the recent abolition of this requirement by the SBEE.

Facts

Longmeade went into compulsory liquidation in November 2010 and the Official Receiver (OR) was appointed as liquidator.

In October 2008, one of Longmeade's principal debtors (a US corporation) entered into bankruptcy proceedings.  This US corporation entered into a plan in 2011, whereby Longmeade was admitted as a creditor, and it was intended that a distribution would be made to Longmeade as part of this plan.

BIS appointed a representative to assist the OR, who requested certain tax forms to enable a distribution to be made by the US corporation to Longmeade.  These forms were never submitted by the Official Receiver and, as a result, Longmeade lost its entitlement to this distribution under the plan.

Subsequently, independent liquidators were appointed to replace the OR, who noticed the forms had not been submitted and took steps to rectify the problem.  This enabled Longmeade to receive subsequent distributions in 2013.

The liquidators investigated whether a claim would be available to them in respect of the losses to Longmeade as a result of the failure to file the required tax forms.  They were advised there was a good claim against BIS.  However, the vast majority of Longmeade's creditors (being associates of Longmeade and HMRC) were opposed to issuing proceedings against a government body.  The liquidators applied to court for directions as to whether they should convene a meeting of creditors pursuant to section 168(2) Insolvency Act 1986 and whether they should issue proceedings against BIS.

Held

It was confirmed that the overriding requirement of a liquidator was to exercise his professional judgement in the best interests of the insolvent company (and those with an interest in it).  Court will not generally interfere with the commercial decisions of a liquidator.  A liquidator is under no obligation to consult with creditors but should normally give weight to the (reasoned) views of the majority, provided that they were not influenced by other factors.  If the creditors are unanimous, the liquidator should ordinarily give effect to their wishes.

Comment

This case provides a clear and concise reminder of the principles to be adopted by liquidators in exercising their decision making powers where no sanction is required.

For more information, help or advice please contact Kelly Jordan on 0191 211 7899 or email [email protected].