Overview Of Creditors Objecting To Liquidator Release
The effect of creditors objecting to Liquidator release is to halt the system that seeks to wipe the slate clean for a Liquidator at the conclusion of a case. The release however does not eradicate any liability.
Creditors may object to a Liquidator obtaining their release but it is perhaps important to consider the duties of a Liquidator when considering if the objection is likely to have merit.
Statutory Provisions Of Liquidator Release
The effect of release for a Liquidator is set out in Sections 173(4) of the Insolvency Act 1986 in a Voluntary Liquidation:
Where a liquidator has his release under subsection (2), he is, with effect from the time specified in that subsection, discharged from all liability both in respect of acts or omissions of his in the winding up and otherwise in relation to his conduct as liquidator.
But nothing in this section prevents the exercise, in relation to a person who has had his release under subsection (2), of the court’s powers under section 212 of this Act (summary remedy against delinquent directors, liquidators, etc.).
and 174(6) of the Insolvency Act 1986 in the case of a Compulsory Liquidation:
Where the official receiver or a liquidator or provisional liquidator has his release under this section, he is, with effect from the time specified in the preceding provisions of this section, discharged from all liability both in respect of acts or omissions of his in the winding up and otherwise in relation to his conduct as liquidator or provisional liquidator.
But nothing in this section prevents the exercise, in relation to a person who has had his release under this section, of the court’s powers under section 212 (summary remedy against delinquent directors, liquidators, etc.).
Restriction On Release Of A Liquidator From Liability
The restriction on the effect of a Liquidator having their release is if there has been a breach of duty that comes within the influence of Section 212 of the Insolvency Act 1986 ie. misfeasance, then the release may not be effective in avoidance of any liability that could be attributed to the Liquidator.
Creditors Objecting To Liquidator Release And Practical Considerations
It is perhaps worth noting that creditors may object to a Liquidator’s release because of some perceived action or inaction on the part of the Liquidator.
However, it will depend on the facts of the case as to whether or not the objection will have a material impact.
If a Liquidator has realised all the assets and done a proper job then it is likely that the Secretary of State will then grant the release even if the creditors do not do so.
Failure To Prosecute Claims
The duty of a Liquidator is to get in, realise and distribute the assets and property of the company in Liquidation.
Whilst the Liquidator has reporting duties in relation to the discovery of criminal matters, proceeds of crime, Bounce Back Loan Scheme fraud and so on, nevertheless the Liquidator is not a prosecuting authority. He or she reports to the prosecuting authorities.
Misconduct by Directors that a Liquidator may address directly can be for example:
Wrongful Trading
Breach of Duty
Antecedent Transactions
Overdrawn Director Loan Accounts
Illegal Dividends
However such claims arising from Director misconduct may be litigated by the Liquidator at personal risk of liability for adverse costs. Absent an available indemnity from the Liquidation estate and or funding from creditors, there may be no obligation for a Liquidator to bring such claims.
The requirement for a Liquidator generally is to be efficient, vigorous and unbiased.
This means he or she needs to act independently and in the interests of the creditors as a class, not in the interests of one creditor. Insolvency is a class remedy for creditors. In the matter of Re NG (A Bankrupt) [1998] 2 FLR 386 Mr Justice Lightman put it this way:
A trustee in bankruptcy is not vested with the powers and privileges of his office so as to enable himself to accept engagement as a hired gun. His duty is to exercise his powers and privileges for the benefit of the creditors for whom he is appointed a trustee.
An article on the release of the Trustee in Bankruptcy has been explored in some detail by Simon Hill of 33 Bedford Row.
