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Author: Elliot Green
Last Updated: May 20, 2024

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Are You Unhappy With A Liquidator?

If unhappy with a Liquidator then creditors can potentially change a Liquidator by requisitioning a Decision Procedure or issuing a Court Application.

The Liquidation process involves companies realising their assets and closing down business operations with the appointment of a Liquidator. Solvent and insolvent are two main types of Liquidation. Solvent Liquidation will typically involve a company’s Director retiring or closing down the business. The business will usually cease trading. Solvent Liquidation is also known as Member’s Voluntary Liquidation.

On the other hand, a company undergoes an insolvent Liquidation process when it cannot carry out its business operations due to a lack of finances. Insolvent Liquidation involves aims to realise the assets to provide a dividend return to creditors.

However, the chances are that unsecured creditors receive less than what they are actually owed by the company.

Are you unhappy with a Liquidator? What can you do? Let us answer these questions and give you some details.

The Role of Liquidator In The Insolvency Process

A Liquidator plays a crucial role in realising the company’s assets and distributes them among the creditors after the costs of the Liquidation procedure. A Liquidator also deals with issues arising from any outstanding contracts, provides information to creditors, and registers the company with Companies House.

The role of any Liquidator is to investigate and report where applicable on the conduct of the Directors of the company. The Liquidator will often interview the Director to collect information.

It will be important to you to know your rights as a creditor during the Liquidation process, especially if you are unhappy with the Liquidator.

Your Rights As A Creditor In The Liquidation Process

Secured and unsecured creditors have rights, whether it is a Voluntary Liquidation or Compulsory Liquidation process. If you are a secured creditor, you will often receive any dividends before other creditor groups do during the Liquidation process.

Whilst it might be thought that unsecured creditors have fewer rights than secured creditors, they can influence proceedings to ensure the Liquidator informs them through the process. Let us now discuss the rights of secured creditors and unsecured creditors during the Liquidation process.

Your Rights As A Secured Creditor

Once the Liquidation process starts and the costs are covered, you will often receive any dividends in priority (subject to the prescribed part rules) before any other creditor groups. It typically means you will rank ahead in the “hierarchy” for payment from the assets realised from the Liquidation process. If you have a fixed charge on a single or multiple companies’ assets, you will receive funds from their sales in the Liquidation process.

For instance, a fixed charge typically covers tangible assets, such as land, property, plant, machinery, vehicles, and intangible assets, such as intellectual property and patents. Bear in mind that whether you are a secured or unsecured creditor, you can challenge the Liquidator’s remuneration if you feel it is too high. It is possible that such a challenge can take the form of legal action against the Liquidator.

Your Rights As An Unsecured Creditor

Changes made recently to the legislation restrict the Liquidator from holding “in-person meetings” or otherwise known as physical meetings with unsecured creditors. However, the Liquidator can have an “in-person” meeting with you if you request it.

However, you cannot do this alone because the law requires at least 10% of creditors to request such a meeting. Otherwise, the Liquidator will send proposals and notices through emails, correspondence, or publish such content on websites. Here are a few other rights you have as an unsecured Liquidator.

Liquidator Appointment

As an unsecured creditor, you have the right to play a crucial role in the Liquidator’s appointment during Voluntary Liquidation. For instance, you can vote on the appointment of the Liquidator. Even if the shareholders have already appointed a Liquidator, you have the right to vote and choose a different Liquidator if indeed you are unhappy.

Liquidation Committee

Unsecured creditors have the right to establish a Liquidation Committee during the Voluntary Liquidation or Compulsory Liquidation procedures. Bear in mind that the Liquidation Committee consists of 3-5 members who will monitor and analyse the Liquidation process on your and other unsecured creditors’ behalf as a group.

Although the Liquidation Committee members usually agree with the office-holder’s fee, they can have a role in overseeing or assisting in the Liquidator’s activities during the procedure to ensure everything goes smoothly. However, the role of the Liquidation Committee is not one in which they are likely to be able to control the Liquidator. In addition, the members of the Liquidation Committee do not receive payment for their duties and responsibilities. However, they are entitled to receive their traveling expenses.

Moreover, the Liquidation Committee may seek to request meetings with the Liquidator at any stage during the Liquidation process. However, the Liquidation Committee members must communicate with the Liquidator to decide the meetings’ dates.

The Liquidator must usually also provide up-to-date reports to the Liquidation Committee members regularly. The purpose is to remain informed about the proceedings.

Retention Of Title To Reclaim Goods

Creditors can assert their entitlement to a retention of title and potentially, therefore, reclaim the goods if the debtor company has assets/goods that belong to them. It is however crucial to provide enough evidence to prove your ownership. Remember, you have the right to make a claim for the return of the goods.

Interest On Debts

As an unsecured creditor, you also have the right to claim interest on the debt during the Liquidation proceedings. However, you can claim interests on debts if you have stated your intention within the initial contract but you will be entitled to statutory interest in any event.

Distribution To Creditors Through The Liquidation

Unsecured creditors receiving a distribution through the Liquidation will do so after all other creditors have received payments during after Liquidation process. It is because you rank towards the end of the hierarchy to receive a dividend.

However, it is not always the case that creditors and a Liquidator see eye to eye on all matters.

How To Replace When Unhappy With A Liquidator

If you are unhappy with the Liquidator, you can make efforts and take legal action to remove them from the office. However, removing the Liquidator can be a daunting and time-consuming task.

So, if you think the Liquidation process has not met your approval and have concerns, you can seek to replace or remove a Liquidator based on the requirements of the Insolvency Act of 1986. Before we tell you how to remove the Liquidator, let us discuss possible reasons for a creditor to perhaps be unhappy with a Liquidator and wish to remove a Liquidator from office.

There are various reasons that a creditor might want to remove the Liquidator from the office. For instance, if you think the Liquidator has not responded to your questions or has failed to investigate the Directors’ conduct in the Liquidation process, you might be unhappy with a Liquidator and wish to replace or remove them.

Likewise, if you consider that a Liquidator has sold the company’s assets for less than their true worth or market value, you might be unhappy with a Liquidator and wish to replace or remove them. The Liquidator’s role is to work in the best interest of creditors.

Moreover, if a Liquidator is unwilling to respond to your requests for information disclosure or fails to provide you transparency as to the course of the Liquidation, you might be unhappy with a Liquidator and wish to replace or remove them.

Ways To Replace When Unhappy With A Liquidator

There are many ways to remove the Liquidator. However, no matter how unhappy you are with a Liquidator (if indeed unfortunately that is the case) you might not be able to replace him or her. The usual ways to remove the Liquidator are requisitioning a decision procedure, application to the court, and requesting the Liquidator removal.

A Liquidator must be efficient, impartial, and work for the best interest of the creditors involved in the Liquidation process. However, if the Liquidator fails to live up to these standards, creditors can conceivably take legal action.

Requisition Of A Decision Procedure When Unhappy With A Liquidator

According to Rule 15.18 of the Insolvency Rules 2016 for England and Wales, a creditor of a Liquidation can seek to carry out this procedure. However, you have to meet the compliance requirements of Insolvency Rules 2016.

The rules state that at least 25% of creditors need to support your proposed resolution for the Liquidator removal and replace him/her with another one who is authorized under the Insolvency Act. The procedure typically involves paying a deposit as security to carry out the procedure.

Remember, this is often an essential requirement of Rule 15.19 of the Insolvency Rules 2016 for England and Wales. The Liquidator has 14 days to set out details about the sum requested. As a creditor unhappy with a Liquidator, replacing the Liquidator can potentially be both manageable and daunting because sometimes, it is just a phone call away, and other times, it takes a long time.

That’s why it can be helpful to take advice from another Insolvency Practitioner who might be able to monitor things and carry out the process smoothly on your behalf. No matter how unhappy with a Liquidator a creditor might be, replacing a Liquidator can only arise if the criteria are satisfied.

Creditors Voluntary Liquidation

Suppose you request the requisition of a decision procedure to remove the Liquidator in Voluntary Liquidation. In that case, you have to meet the requirements of rule 15.18(4) of the Insolvency Rules of 2016 for England and Wales.

The rule states that you can only request the process if you have 25% of creditors by value. Remember, this does not include creditors connected to the company. If you are a secured Liquidator, you must waive your security to vote.

So, the process involves unconnected creditors with unsecured claims in the Liquidation. In practice, it does not permit secured creditors to vote, but if you waive your security, you can vote for removing the Liquidator if you are also unhappy with a Liquidator.

Compulsory Liquidation

If you request the decision procedure for removing the Liquidator in a creditors’ compulsory Liquidation, you must meet the threshold or requirements mentioned in Section 172(3) of the Insolvency Act of 1986. The act states that creditors who seek the decision must amount to at least 25% of creditors by value.

For example, if the total amount is £200,000 spread across 20 different creditors, the act requires £50,000 worth of creditors to support the decision and remove the Liquidator. Remember, this is different from Voluntary Liquidation, where unsecured creditors can vote to remove the Liquidator.

If you are unhappy with a Liquidator it can be helpful to take advice from another Insolvency Practitioner who might suggest a solution for you. For instance, if you want to replace the Liquidator but it does not benefit you, the expert might help you make a better and informed decision.

It is because each case has different facts and considerations that it may not require a Liquidator to be replaced.

Application To Court When Unhappy With A Liquidator

An application to Court is another potential way to remove the Liquidator if you are unhappy with a Liquidator, requiring you to provide just cause and evidence the merits of replacement. However, the court may not entertain your application because it might often be reluctant to remove its own Officer. Remember a Liquidator is often considered to be an Officer of the Court.

Likewise, it can be expensive to replace Liquidators routinely or frequently. The primary reason is that the appointment of a new Liquidator requires a lot of effort and duplication of work is very likely.

Bear in mind that reasons will depend on the case, and you will have the burden to prove before the court that the Liquidator has not lived up to their duties or responsibilities.

The Court will analyse the case by examining the evidence, and if they find just cause as reasonable, they will no doubt consider the replacement request. However, the Court will not replace the Liquidator if the evidence you provide to the court is inadequate or is lacking. The Court is going to want (no matter that you are unhappy with a Liquidator) to see evidence of some real failings by the Liquidator.

Reasons Your Application To Court May Fail

There are many reasons why your application to Court may fail. For example, a lack of evidence is the primary reason why your application where you are unhappy with a Liquidator may fail. The Court is going to want to be shown clear signposts evidencing the failings complained about before it steps in and takes what is a serious professional matter to replace a Liquidator under Court instruction. Be aware that, if your application to court is unsuccessful, the court is likely to make you liable for paying the legal costs and expenses of the Liquidator.

Removing a Liquidator requires careful consideration, and you may want to hire an Insolvency Practitioner to explore your best options. Remember, if your application is based on a series of speculative grievances the court may well not accept your application notwithstanding that you are unhappy with a Liquidator.

It is because such personal grievances of creditors may well not be supported by evidence that proves any failings on the part of the Liquidator.

The court will conceivably criticise your application to replace the Liquidator or any other office holder if your application is based on purely tactical reasons. Both sides should cooperate, collaborate, and play a constructive role in resolving the conflict.

Oliver Elliot CommentOliver Elliot Comment

Liquidators can deal with companies run by people who conduct companies for their personal benefit and deal with potentially unlawful conduct which has been to the detriment of shareholders and creditors. That is not the fault of the Liquidator who steps in to take charge and control when the Liquidation process kicks off.

However, it is possible that Liquidators can act in a way that leaves creditors unhappy for some reason. So, creditors who are unhappy with a Liquidator can potentially challenge the Liquidator’s conduct before the court.

As a creditor, if you are unhappy about the Liquidator’s decision on the value of a security or a proof of debt, you can appeal to the court because the Rule 14.8 of Insolvency (England and Wales) Rules 2016. In addition, the court also has a general ability to intervene but will be reluctant to do so and typically not interfere in commercial decisions that are at the discretion of the Liquidator.

Generally, it is suggested that a creditor who is unhappy with a Liquidator discusses matters with the Liquidator in the first instance to seek to resolve any conflict outside the Court to avoid legal consequences, particularly that of costs.

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