Court Application For A Liqudator’s Removal Overview
A Court application for a Liqudator’s removal from office can be a difficult affair because the Court is likely to be slow to remove a Liquidator, being one of its own Officers without good reason. In some jurisdictions considering the removal of a Liquidator this is known as having to show ‘just cause’.
This principle is perhaps little different from the Court’s general reluctance to control a Liquidator except when they have acted in a manner that no Liquidator would act and with a degree of perversity.
A Liquidator is considered an Officer of the Court. Certainly in the case of a Compulsory Liquidation. Even in a Voluntary Liquidation, a Liquidator is ultimately under the control of the Court.
In a Voluntary Liquidation, the application to the Court can be made pursuant to Section 171(2) of the Insolvency Act 1986 and in a Compulsory Liquidation it can be made under Section 172(2) of the Insolvency Act 1986.
Why The Court Might Be Slow To Order A Liquidator’s Removal From Office
The reason the Court is likely to be slow to Order a Liquidator’s removal from office is because it will recognise that a Liquidator often cannot usually please all people all of the time. It is an occupational hazard.
It is perhaps inevitable that if a Liquidator has been advising a company’s Directors prior to Liquidation that they might regard it unwelcome if a Liquidator later on asks one of them to repay an Overdrawn Director’s Loan Account for example only. Alternatively, a creditor that is concerned that there might have been Wrongful Trading may be unhappy with a Liquidator who then informs them that their investigations have found insufficient evidence to progress such an action.
The Court is therefore likely to be alive to the position that a Liquidator has a difficult job to do in many insolvent Liquidation cases in particular, that result in complaints arising. However, a Court application for a Liquidator’s removal is not to address complaints other than matters of reasonably serious misconduct that suggest a Liquidator has failed in their duty to creditors in a material way.
The Liquidator’s duty is to the creditors as a whole not to each creditor individually.
Provision Of Evidence For A Court Application For A Liquidator’s Removal
The Court is likely to be slow to remove its own Officer but it nevertheless will act usually without hesitation if a Liquidator’s conduct falls below the requisite standard that is required. The well known soundbite is that a Liquidator needs to be efficient, vigorous and unbiased.
As a Liquidator’s removal from office is a serious matter both reputationally before the creditors and as a member of a regulated profession as an Insolvency Practitioner, the Court will generally wish to see persuasive evidence.
The Court is likely to wish to be provided with a detailed Witness Statement that not only sets out all the facts complained about but which is supported by documents that prove at the time the points highlighted.
The potential problem for a creditor is that a Liquidator’s files are not an open book. Whilst a Liquidator has a duty of transparency where creditors are concerned, to explain and account for their actions, creditors may not so easily find themselves in possession of key documents to substantiate their claims, particularly if such documents are required to evidence a person’s intentions and motivations. To evidence serious misconduct such documents may be required to satisfy the Court of any alleged wrongdoing by a Liquidator but nevertheless, provision of documents highlighting the same might very much be an uphill struggle to come by.
The modern day proliferation of electronic message-based communications such as emails may provide some opportunity to provide evidence that highlights a person’s intentions and motivations on the one hand but on the other hand, it may also mean that people are more guarded about how they express themselves when deploying written communications.
Removal Application likely To be Contested
Given a Court application for a Liquidator’s removal is a serious matter it is quite likely to be a contested affair. As a result, it is also likely to be a costly matter with the potential need to instruct both solicitors and a barrister.
If a person seeking the removal of a Liquidator issues such an application without ensuring they do indeed have sufficient contemporary documentary evidence to satisfy the high bar that a removal application will require, then they can find themselves in for a substantial bill for not only their own legal costs but also those of the Liquidator as well.
The removal of a Liquidator from office because a Director or creditor is unhappy with something the Liquidator has done is something that needs to be considered carefully with appropriate professional advice taken. It is conceivable depending on the facts of a particular case, that a complaint may be more appropriately lodged with the Liquidators regulatory body rather than with the Court. A complaint lodged with a regulatory does not have all the potential adverse cost risks that can accompany a Court application.
