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Overview Of Litigating For Fees Suggestion
The suggestion that in some cases an Insolvency Practitioner is litigating for fees is one that can sometimes be inferred from a Court judgment but it is a difficult area.
The duty of a Liquidator is to realise the property of the company which includes rights of action.
Ward v Hutt had a number of points that culminated in the Liquidator’s claim being dismissed but this article focuses only on the apparent suggestion that one might infer from the judgment that the Court seems to have formed the view that the Liquidator was litigating for fees.
It is not uncommon for a Liquidator to be faced with such suggestions when a disgruntled Director is being sued by them, instead of focusing on the merits of the claim.
What Are Liquidator Rights Of Action?
Liquidator rights of action are in effect new rights of action as Preferences or Transactions at Undervalue that arise on Liquidation. These rights of action are new only because they owe their existence due to a Liquidation being triggered. They are therefore not ‘company’ actions per se; they are officeholder actions.
Ward v Hutt
In Ward v Hutt the judge said the following about a Liquidator’s Preference action that was pursued:
I accept that the applicant is seeking to pursue his statutory duties. But I cannot ignore the fact that, even he does pursue them, the only economic benefit, so far as I can see, likely to accrue will accrue to the applicant himself. This is because, if the claim is successful against the three respondents, and, even assuming that there were no outstanding costs and fees to be deducted from the sum so recovered by the applicant liquidator as the monies passed through his hands, the monies so recovered would be paid back to the three respondents, in part as to a repayment of the debt owed to the third respondent, but subject to that to the three respondents as members of the company.
The Liquidator had brought proceedings against former Directors in respect of £160,000 paid to them on 2 June 2012. He considered it was a Preference and that the Directors were liable to pay back certain monies to the company as a result of their alleged breach of fiduciary duty.
Abuse Of Process Of Litigating For Fees
The Court in Ward v Hutt notably struck out the claim as an abuse of process:
I note that the third respondent’s solicitor Deanne Hamilton in making a witness statement dated 3 January 2018 on his behalf did not see fit to support the applicant liquidator against the first and second respondents’ application to strike out the claim. If he was to be so much better off by this litigation being pursued, why would he not do so? I further note that the applicant has not disclosed the amount of his fees and costs so far, despite a sensible suggestion by Mr Shipp (first witness statement, ) that he do so. This is plainly a relevant consideration, and it would have been easy for the applicant to comply. In these circumstances, I cannot even be satisfied that the third respondent will have his outstanding debt paid at all. Indeed, I may even be entitled to draw an inference adverse to the applicant as a result of his not having supplied this information: see eg Thames Valley Housing Association v Elegant Homes (Guernsey) Limited  EWHC 1288 (Ch), . But I do not need to. On the material which the parties have chosen to make available to me, I consider that this fresh claim is an abuse of process.
The Difficulty With The Abuse Of Process Position
The difficulty with the abuse of process position is that there is a duty on a Liquidator to realise claims which resemble the property of the company. The matter is explored in another article Statutory Order of Payment In Insolvency.
In a nutshell, there are expenses that rank ahead of the fees of a Liquidator in a Compulsory Liquidation. Therefore is it correct to say that in cases where such rights of action could be brought to enable such expenses to be paid that such litigation is an abuse of process? Certainly, the position in Official Receiver v Negus  EWHC 3719 (Ch) suggests this area is ripe for debate!
Partiality And Interest In Fees
In the case of Pagden v Soho Square Capital LLP  EWHC 944 (Ch) the Court had this to notably say about such matters that appeared to dispose of the impartiality problem:
Once an insolvency office holder has satisfied himself that grounds exist for proceedings to be brought against former directors, he will necessarily adopt a partisan approach. I also accept that where, as is so often the case, the likelihood of a liquidator recovering his fees will depend to a lesser or greater extent on recoveries in the litigation, he will unavoidably have an interest in seeing the litigation through to a successful conclusion. Such an interest should not, in my view, usually give rise to a conflict requiring him to retire from the case.
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