Limited Liability For Liquidators? Can You Sue A Liquidator?

Limited liability for liquidators? Can you sue a liquidator or could they have limited their liability? Yes, you can indeed sue a liquidator; they do not have limited liability. Statute is supreme, so a liquidator cannot pen out of the consequences of a statutory duty recorded in parliament’s sacred scrolls.

Enter Pagden & Ors v Fry & Anor [2025] EWHC 2316 (Ch) (“Pagden v Fry”), the latest skirmish in a protracted dispute, this time involving consideration of liquidator duties and liabilities. It highlights that liquidators cannot limit their liability personally.

Liquidators’ Engagement Letters

Two days of argument before Mr Justice Thompsell, sparked amongst other things by the former liquidators’ letters of engagement, in which they sought to cap their liability at £1 million for breach of duty.

A clause, no doubt, given that liquidators enter office as strangers, appears not unreasonable. Ultimately, as against liquidators’ personal liability, it seems that we can now deduce from Mr Justice Thompsell’s Solomonic clarity that such clauses may well be no more effective than an umbrella in a hurricane. That is not to say that such clauses have no utility, far from it, but Mr Justice Thompsell appears to have left that wound largely untouched to be largely patched up another day, perhaps.

We know that directors, despite any flirtation with the phrase “limited company,” do not themselves enjoy limited liability. Why, then, should their successors in insolvency?

Section 212 of the Insolvency Act 1986 makes it plain enough: liquidators can be sued for breach of duty. And can they limit this liability? Well, yes, by not breaching it! That it seems is really the only safe clause on offer – for them personally.

Statutory Trust Of Liquidation Assets

Maugham J in Re Home & Colonial Insurance Co Ltd [1930] 1 Ch. 102 said the Articles of a company could not outflank a liquidator’s statutory duty to creditors. 

A similar argument is that a liquidator holds company assets under a statutory trust, which does not afford such luxuries as variation of limited liability.

Judgment Highlights

Mr Justice Thompsell in Pagden v Fry said: 

Having regard in particular to the point regarding the statutory trust, I find, therefore, that the Claimants are correct in saying that the Company, whether acting through its directors or its shareholders, could not modify the responsibilities or liability of the Former Liquidators.

The existence of the statutory trust also distinguishes the position of liquidators from that of directors or auditors, and so explains why the reasoning in City Equitable (which I consider formed the main plank of the argument that Mr Deacock was making) cannot be read across to the position of liquidators.

Whilst none of the cases that to which I have been referred by Ms Addy that have included an objection to liquidators limiting their liability, have mentioned the statutory trust, it seems to me that if the matter is analysed in the detail that I have been obliged to analyse it as a result of the arguments put to me, that is the true basis of the objection, as it explains why a limitation of liability was allowed under the general law for directors and auditors but cannot be given to liquidators, as Maugham J found in Home and Colonial, quoted at [23] above.

Whilst the law has moved on from the proposition that a liquidator in general owes duties to the creditors or members, and City Equitable shows us that there may be a distinction between performing a statutory duty (such as that of auditors) and liability for failing to perform that duty to a particular standard, nevertheless the instinct of Maugham J was a good one: the statutory duties of liquidators are not owed, or at least not owed purely, to the company in question, and therefore the company cannot modify the liability of liquidators for performing them negligently.

…

As regards the Claimants’ point that whether a person can waive performance of a statutory requirement depends on legislative intention, having found that there is an established legislative intention to create a statutory trust, that question does not arise. It is established that that trust is a trust to fulfil the statutory purposes, not a trust of assets on behalf of particular persons. There is, therefore, no person who is able to waive performance of the statutory trust.