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Three ways for creditors to remove a Liquidator
Remove a Liquidator is not always a simple procedure or popular either. However, if creditors are unhappy with the Liquidator (or any other office-holder) it is open to them to remove him or her from office.
Are you a dissatisfied creditor in a Liquidation or some other insolvency process, seeking to consider how to replace or remove a Liquidator and to have someone else take over for the creditors?
The Insolvency Act 1986 sets out the requirements in Voluntary Liquidation in Section 171 of the Insolvency Act 1986 and for Compulsory Liquidation, the position is set out in Section 172 of the Insolvency Act 1986.
SUMMARY OF HOW TO REMOVE A LIQUIDATOR
- Creditors can requisition a Decision to remove a Liquidator.
- Liquidator removal can be done by a Court application.
- A creditor can ask a Liquidator to voluntarily leave office and be replaced.
Why Might You Or Creditors Want To Remove A Liquidator?
There might be many and varied reasons for creditors seeking to remove a Liquidator such as:
- A failure to respond to creditor enquiries, communications and the wishes of creditors.
- A failure to fully investigate the conduct of the directors in the Liquidation.
- Selling assets at a perceived undervalue or for the less than what creditors might know or believe the assets to be worth.
- When the interests of creditors are not considered to be furthered by the Liquidator.
- When creditors have concerns that the Liquidator is acting in the interests of the Directors and not the creditors.
- An unwillingness on the part of the Liquidator to disclose information and documentation to the creditors upon request.
- Someone might have managed to purchase the company assets more cheaply than their perceived market value.
Notwithstanding examples of such potential reasons, a Liquidator might have a good reason for having conducted himself or herself in a way that might be at odds with what a given creditor wants. It is not the duty of the Liquidator to act in the interests of one creditor but in the interests of the creditors as a whole.
Insolvency is a class action when creditors come together and their interests are furthered as a group and not individually. Their interests are then furthered and pursued by the Liquidator for their benefit as a whole. The assets are then once realised, after costs and expenses of the Liquidation then distributed pursuant to a statutory order of payment set out in Rule 7.108 of the Insolvency (England and Wales) Rules 2016.
How to Remove a Liquidator
Removal can be effected in the following ways:
- Requisitioning a Decision Procedure of the Creditors
- Application to Court
- Request The Liquidator Removal
It is the duty of a liquidator to be efficient, vigorous and unbiased and if the liquidator does not live up to this standard then the court is likely to act without hesistation to remove him or her accordingly.
How to Requisition a Decision Procedure
Requisitioning a Decision Procedure can be undertaken from compliance with Rule 15.18 of the Insolvency (England and Wales) Rules 2016. The key threshold to overcome is having 25% of creditors by value supporting your proposed resolution of creditors to remove the Liquidator and to replace them with a nominee who has consented to act.
This procedure may well involve the need to pay a deposit as security for the costs of convening the procedure by virtue of Rule 15.19 of the Insolvency (England and Wales) Rules 2016. To require a deposit the Liquidator will need to set out (within 14 days of the request to requisition the procedure), details of how the sum requested for the deposit is broken down.
So removal of Liquidator by creditors could be a phone call away or it could be a long way away; it could be unmerited and simply not happen at all. If you are a dissatisfied creditor do not suffer in silence if you have real and merited concerns, get in touch and Our CEO Elliot Green will consider the matter for you and give you the benefit of our view.
Requisition A Decision Procedure In A Creditors Voluntary Liquidation
In a Creditors Voluntary Liquidation if you wish to Requisition a Decision Procedure to remove a Liquidator, then the threshold that you have to meet is set out in Rule 15.18(4) of the Insolvency (England and Wales) Rules 2016 which says that creditors seeking the Decision must amount to 25% of creditors by value, not including those creditors connected with the company. In practice, this will be unconnected creditors with unsecured claims against the company that is in Liquidation because secured creditors are not permitted to vote except if they have waived their security.
Requisition A Decision Procedure In A Compulsory Liquidation
In a Compulsory Liquidation if you wish to Requisition a Decision Procedure to remove a Liquidator, then the threshold that you have to meet is set out in Section 172(3) of the Insolvency Act 1986 which says that creditors seeking the Decision must amount to 25% of creditors by value. In other words, if the total amount of creditors is £100,000 spread across 20 different creditors then all that is required is for £25,000 worth of creditors to come together to support the requisition of the decision procedure to remove the Liquidator. As in the case of a Creditors Voluntary Liquidation, only the unsecured creditors will be permitted to vote on this type of decision.
If you would like to explore your options in a case relevant to you then you can contact Our CEO Elliot Green by emailing him at email@example.com or call us to speak to him on 020 3925 3613. He will give you the time of day but this does not mean the other practitioner or Liquidator should or indeed will be removed. The facts of each case need to be very carefully considered and there is no presumption one way or the other.
Someone’s concerns and suspicions can sometimes take over and objectivity can on occasion be lost. An Insolvency Practitioner is in effect a servant of the creditors, not their ‘hired gun‘ as a court has been known to promulgate as Mr Justice Lightman did in Ng v Ng (1998) 2 2 FLR 386, (1997) BCC 507:
“A trustee in bankruptcy is not vested with the powers and privileges of his office so as to able him to accept engagement as a hired gun.”
How to Apply to Court to Remove a Liquidator
Application to Court requires what is referred to as ‘just cause’. Removal of Liquidator is not intended to be a procedure capable of being deployed by creditors if they just fancy a changing of the guard or they have fallen out with the Liquidator for reasons unrelated to the Liquidator’s material conduct in the administration of the insolvency estate (Liquidation, Administration, Bankruptcy etc).
It would be very expensive if Liquidators were replaced on a routine basis. Imagine the duplication of effort alone that would be required for a new Liquidator to get up to speed on what has been going on and why the company entered insolvent liquidation. Such costs would be at the expense of all creditors.
A Liquidator is a Licensed Insolvency Practitioner and Officer of the Court. The Court is not going to remove its own Officer without some reasonable basis for doing so. Consequently, if creditors want to remove the Liquidator then they have to have good reason. But what is good reason?
What is a Good Reason?
Good reason or just cause will depend upon the facts of the case. The burden will be on the creditor applicant to show why the Liquidator (or other Office-Holder) ought to be removed.
In general terms the Court will expect that the Liquidator to have been efficient, vigorous and unbiased; if not the Court may exercise its discretion to grant removal. However, an effective and honest liquidator will usually not be removed. Misconduct itself is not a prerequisite for an application for removal to succeed.
An example of how the Court viewed “vigour” in a particular case, can be seen in the matter of Re Keypak Homecare Ltd  BCLC 409 where Millett J said:
“If the liquidation had been conducted with any vigour at all, long before now the liquidator would be in a position either to allay the suspicions of the creditors or to lay papers before solicitors with a view to starting proceedings. Such proceedings might well include an application for the appointment of a receiver of Northern Brass Ltd. It need hardly be said that any such proceedings have to be conducted with great speed. Stock which has disappeared from one company is very likely to disappear from another under the same control.“
“There is nothing that can be said against Mr Edgar so far as his personal integrity is concerned. There is no evidence of any misconduct or wrongdoing on his part, or of his intimacy or friendship with the directors of the company at all. He is a professional, independent, and experienced liquidator. But I am not impressed by his performance in the conduct of this liquidation. I take the view that his experience, gained in times when liquidators were accustomed to directors simply removing the stock before liquidation and then paying for them afterwards at forced sale values, has stood him in ill stead. As a result, he has adopted a relaxed and complacent attitude to such conduct, and in my judgment the creditors, who were outraged by what they believed had happened, were perfectly reasonable in the view that Mr Edgar was not likely to pursue the directors with anything like sufficient vigour. If that was the view they adopted at the meeting, then it has been amply confirmed by all that has taken place since. I, too, take the view that Mr Edgar is unlikely to pursue the directors with anything like sufficient vigour.”
“In circumstances such as the present, the creditors are entitled to expect either the suspicious matters to be cleared up very shortly after the creditors’ meeting, or proceedings to be commenced against the former directors with speed and pursued with vigour. A liquidator who can see from the statement of affairs that there are likely to be insufficient assets to enable him to discharge his duties ought to make the position clear at the meeting of creditors and insist on being authorised by those present at the meeting to take such steps as may be necessary. But simply to stand back and do nothing and then claim that that is justified by the lack of finance is not, in my judgment, good enough.”
Why Do Applications To Court By Creditors Often Fail
An application to Court by a creditor to remove a Liquidator often fails because the burden is on the creditor making the application to demonstrate that there is a real need and benefit for the Liquidator to be removed. A lack of evidence is likely to be one of the main reasons why such an application might fail. It is also likely to be an expensive risk for a creditor to take because if the application is unsuccessful then the creditor will typically be liable to pay not only its own legal costs but the legal costs and expenses of the Liquidator that they sought to remove from office.
If an application to Court by a creditor to remove a Liquidator is largely confined to a series of speculative grievances that the creditor has concerning the conduct of the Liquidator, then that is unlikely to be sufficient to demonstrate to the satisfaction of the Court that the Liquidator has done something sufficiently wrong. A Court is generally going to be reluctant to step in and take the serious step of removing the Liquidator from office without proper evidence of either misconduct or insufficient diligence in the execution of the duties of the office of Liquidator.
In exercising its discretion of removal a Court will in effect be substituting its view for that of the Liquidator by removing him or her from office and could be seen to be sending a message to the Liquidator being removed: ‘you could and should have done a much better job’. The Court will be alive to the potentially serious professional implications that can sometimes arise from stepping in and making such a move and having also to provide its reasons for taking such robust action against a Liquidator.
Case Study: Remove A Liquidator
The case is useful because it demonstrates some of the difficulties that can be faced and hurdles that need to be vaulted for creditors to remove a liquidator. In that case which is the subject of a Blog post on this site called Application For Removing Administrators Dismissed, it was an Administrator involved but most of the key principles are the same for a Liquidator.
In the Fox Street Case, a point made by the Court included that matters concerning conduct arising before the appointment of the Insolvency Practitioners would not obviously have been relevant. It is the conduct of the Insolvency Practitioner themselves that is in question when a removal application is being considered, except where there is for example only, some evidence of inappropriate collusion. In other words, the fact that other parties prior to the appointment of an Insolvency Practitioner have (at least perhaps in the minds of a creditor) behaved incorrectly is not usually going to have much or indeed any relevance to the matter of the removal of an Insolvency Practitioner from office who was appointed afterward. Additionally, there appear to have been communication difficulties that arose and suspicions but even so that was not considered sufficient grounds for removal.
Request The Liquidator Removal
Another perhaps not so obvious way to remove a Liquidator is simply to ask them to leave office voluntarily. When a creditor is unhappy with an Insolvency Practitioner they can simply ask them to accept being removed and in some cases this can work. The old adage if you do not ask, you don’t get can still hold true.
There may be circumstances in which a Liquidator is actually happy to let someone else take over the conduct of the company in Liquidation, so it is always worth asking the question. You might be pleasantly surprised by the outcome.
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If you have any questions, queries or concerns in relation to this page How To Remove A Liquidator then contact us as soon as possible for advice. Oliver Elliot offer a fresh approach to insolvency and the liquidation of a company by offering specialist advice and services across a wide range of insolvency procedures.
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