The answer to the question Why Is Creditor Removal Of A Liquidator Hard? is that any Court is likely to be reluctant to remove its own officer. A liquidator is an officer of the court entrusted with adherence to the highest of standards of conduct.
Although a court expects a liquidator to be efficient, vigorous and unbiased; and will have little hesitation removing a liquidator it finds to have engaged in misconduct, nevertheless, the process involves legal proceedings. The Court will usually expect to be shown where the liquidator has gone so wrong to justify being removed from office by a creditor.
Even if the creditor seeking to undertake the difficult task of removing the liquidator is the largest one with a majority of the voting rights, they still will need to show very good reasons for the order for removal to be made. It is not a simple matter of being the majority creditor and saying to the Court you are not satisfied with the liquidator’s performance to date.
Cost Of Creditors Removing A Liquidator From Office
Legal proceedings are often expensive and time consuming.
The creditor (or shareholder) in a solvent liquidation will need usually to hire a legal team to pick its way through the communications to examine the allegations against the liquidator. They will then need to put forward a case that the conduct is sufficiently poor that there is little alternative other than the liquidator’s removal.
If the creditor gets the application wrong and does not satisfy the court of the position then the usual rule in such legal proceedings is the losing party pays the costs of the winner. These legal costs can be substantial, particularly if the liquidator has spent a good deal of time responding to the application for removal. The more allegations of poor conduct then the more time the liquidator and their advisers would need to spend addressing and evidencing perhaps why they might consider the suggestions to be wrong, not evidenced and even conceivably without merit.
Creditor Removal Of A Liquidator Is A Serious Matter
In reality, the removal of a party from an official position usually is a difficult matter. No Insolvency Practitioner is likely to welcome a court ordering their removal from office and therefore perhaps more likely than not will contest such proceedings, particularly when they have fully complied with their obligations and acted properly in accordance with their discretion.
Removal of a liquidator is a serious matter for the Insolvency Practitioner concerned. If the court were to order their removal then it is conceivable their regulator may have concerns. Generally, the Court is likely to be reluctant without a very good reason properly being evidenced to order the removal of a liquidator.
Although misconduct is not an automatic requirement that must be shown, if a removal is ordered it may suggest some failure of compliance with the Insolvency Practitioner Code of Ethics.
Burden On The Creditor To Show Why The Removal Of A Liquidator Is Required
The burden of proof is with the party seeking the liquidator’s removal to show there is a very good reason for the liquidator to be removed. That is difficult because the liquidator’s duty of transparency to creditors is not unrestricted and creditors cannot usually have any access to the liquidator’s working papers to check out in advance of issuing an application for removal if each of their suspicions is correct and can be proved.
It is perhaps often the case a party such as a creditor might have suspicions that they simply cannot prove.
View Of The Largest Creditors On Removal May Cause Difficulties
Whilst the court is likely to take into account the views of the largest creditors and any majority creditor, it is not obliged to do so.
The duty of the liquidator is to take into account the interests of the creditors as a whole when undertaking a liquidation. The interests of a specific creditor can potentially be at odds with those of creditors as a whole and that might mean that the real motivation of a creditor will be reflected upon by the court, particularly perhaps if the largest creditor is aligned with a party against whom the company itself has claims against. An example would be if the removal of a liquidator was sought by a connected creditor who appeared to be seeking to stop claims being brought by the liquidator against the directors to recover money for the creditors as a whole.
Alternatives To The Hard Creditor Removal Of A Liquidator
The alternative to the matter of removal of a liquidator by court proceedings is explained in the article How To Remove A Liquidator which sets out the more straightforward process for a majority creditor or creditors with 25% or more of the voting rights to convene a decision procedure.
