Why Remove A Liquidator?
There might be a number of reasons creditors want to remove a Liquidator:
- A failure to respond to creditor communications and their wishes.
- A failure to investigate the directors of the company that has gone into Liquidation.
- Concerns about the sale of assets for less than their value.
- Creditors concerned the Liquidator is acting in the interests of the Directors.
- A Liquidator is unwilling to disclose information and documentation to the creditors.
However, 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.
Insolvency is when creditors come together and their interests are furthered as a group, not individually. Their interests are 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.
The Insolvency Act 1986 sets out the requirements for Liquidator removal in Voluntary Liquidation in Section 171 of the Insolvency Act 1986. For Compulsory Liquidation, the position is set out in Section 172 of the Insolvency Act 1986.
Requisition A Decision Procedure To Remove The Liquidator
A Liquidator may be removed from office by a Decision Procedure when a company’s creditors vote to remove the Liquidator.
To requisition a Decision Procedure to remove a Liquidator is undertaken by compliance with Rule 15.18 of the Insolvency (England and Wales) Rules 2016. The key is having 25% of creditors by value supporting a liquidator’s removal so they can be replaced with another person.
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 creditor deposit the Liquidator will need to ask for it within 14 days of the request for the voting procedure.
Requisition A Decision Procedure In A Creditors Voluntary Liquidation
In a Creditors Voluntary Liquidation if you wish to remove a Liquidator, then according to Rule 15.18(4) of the Insolvency (England and Wales) Rules 2016 the creditors seeking the voting procedure 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.
Requisition A Decision Procedure In A Compulsory Liquidation
In a Compulsory Liquidation if you wish to vote to remove a Liquidator, then according to Section 172(3) of the Insolvency Act 1986 creditors 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 request for a decision to remove the Liquidator. As in the case of a Creditors Voluntary Liquidation, only the unsecured creditors will be permitted to vote.
Application To Court To Remove The Liquidator
An application to the Court can be made for an order to remove the Liquidator.
A Court application for a Liquidator’s removal requires a good reason. Removal of the Liquidator is not intended to be a procedure capable of being done too readily or for reasons unrelated to the Liquidator’s material conduct in the administration of the insolvency estate (Liquidation, Administration, Bankruptcy etc).
It would be 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 a Liquidator without some reasonable basis for doing so. Consequently, if creditors want to remove the Liquidator they have to have good reason. But what is good reason?
Why Do Court Applications By Creditors Often Fail?
An application to the 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 their own legal costs but also the legal costs and expenses of the Liquidator that they sought to remove from office.
If an application to the 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 the Liquidator has done something 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 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.
For more information on why such applications are potentially difficult, our article Why Is Creditor Removal Of A Liquidator Hard? explains matters further.
Conduct Before A Liquidator’s Appointment
In the case of Re Fox Street Village Ltd [2020] EWHC 2541 (Ch) (“the Fox Street Case”), an application was made by a creditor seeking to remove the Insolvency Practitioners from office. The case is in the post Application For Removing Administrators Dismissed, it was an Administrator involved but most of the key principles are the same for a Liquidator. The Court included matters concerning conduct arising before the appointment of the Insolvency Practitioners would not obviously have been relevant. It is the conduct of the Insolvency Practitioners themselves that is in question when a removal application is being considered, except where there is, for example, some evidence of inappropriate collusion.
Request The Liquidator’s Removal
Another way to remove a Liquidator is 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.
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.
