Liquidator and Liability for Misfeasance

  • Insolvency

Liquidator and liability for misfeasance, under section 212 of the Insolvency Act 1986

Could a former liquidator be entitled to relief from liability under section 212 of the Insolvency Act 1986, where her conduct was found to have fallen well short of the standard to be expected and where she had allegedly paid away substantial sums which might otherwise have been available to the body of creditors?

This was the point that came to be considered by His Honour Judge Simon Barker QC, sitting as a Judge of the High Court.

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The Facts

In summary the applicants, creditors of a company in creditors’ voluntary liquidation (the “Company”), applied for an order pursuant to Section 212 of the Insolvency Act 1986 that, in breach of fiduciary duty, the former liquidator of the Company (the “Liquidator”) negligently authorised a series of payments of Company monies amounting to £548,074.56 (the “Monies”) to a third party.

The Decision

The judge found that the Liquidator had failed to properly consider the Company and its affairs before negligently authorising payment of the Monies: there was a clear lack of understanding and competence in her handling of the liquidation.

The Court considered, obiter, that the Liquidator had shown such conscious disregard for the assets in her charge on a material scale that payment of the Monies amounted to breach of fiduciary duty.

It was no defence that the Liquidator had obtained and acted on legal advice from an experienced insolvency lawyer in relation to the Monies, as the advice had been given in the context of incorrect and inadequate instructions.

Our thoughts on the case

As we all know the main duty of a liquidator is to realise and distribute the assets of a company and as long as they do so in good faith and after taking proper advice if necessary, they will not be challenged.