Removal of Liquidator

Removal of Liquidator

Removal of Liquidator is not always a simple procedure. However, if creditors are unhappy with the Liquidator (or any other office-holder) it is open to them to removal him or her from office.

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.

Removal can be effected in the following ways:

  • Application to Court
  • Requisitioning a Decision Procedure of the Creditors

Application to Court

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.

Consequently if creditors want to remove the Liquidator then they have to have good reason. But what is 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 appliation 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 [1987] 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.”

Requisitioning 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.