Liquidators will not be second guessed by the Courts!
The High Court recently considered an application by creditors for directions calling upon a liquidator to reconsider advice he had provided in a report to the ODCE and to carry out further and more forensic investigation into the circumstances which led to the liquidation of the company.
Background
The disgruntled creditors had filed a petition to wind up Sutton Castle Developments Limited (the Company) for an unpaid award of damages they had obtained at arbitration. However, before the creditors could get to Court, the Company appointed Jim Butler of GBW Accountants as liquidator at a creditors meeting. It was in those circumstances that the creditors applied pressure on the liquidator from the outset to investigate the directors and their management of the Company. Ultimately, the liquidator filed a report with the ODCE and sought relief from his obligation to restrict the directors. The creditors set out their allegations in relation to the behaviour of the directors in detailed correspondence with the ODCE. The ODCE had the benefit of both sets of submissions and decided to relieve the liquidator from his obligation to restrict the directors.
The creditors embarked on a sustained campaign to have the liquidator reconsider his position and engage in further investigations into the Company’s affairs and more particularly the director’s management. Ultimately the creditors were not satisfied with the detailed explanations provided and filed a Motion for Directions seeking various reliefs against the liquidator. The reliefs sought included a determination that the liquidator had not fulfilled his obligations as a liquidator. The Motion was vigorously fought and numerous affidavits were exchanged between the parties.
Applicable law
The applicant creditors set out their allegations against the liquidator as well as the directors of the Company for the benefit of the Court.
The liquidator set out his statutory obligations to the Court but also relied on the relevant case law. The High Court had considered the commercial judgment of insolvency practitioners in the 2015 examinership of Ladbrokes (Ireland) Limited[1] and had held that the courts should be reluctant to question the commercial judgment of the examiner (in that case) and followed the UK case of Edennote Limited[2] which had held that
“a court will only interfere with the act of a liquidator if he has done something so utterly unreasonable and absurd that no reasonable man would have done it”.
Court’s Judgment
In a very important judgment for all insolvency practitioners (be they liquidators or examiners) which effectively confirms that it is not the Court’s function to second guess the commercial judgment of a liquidator in the performance of statutory duties.
This decision will be of great assistance to liquidators when there is any challenge to decisions made in relation to the investigation of directors’ management of insolvent companies and indeed could reasonably apply to examiners considering competing bids for a business in preparing a Scheme of Arrangement.
It is a timely endorsement of the commercial probity and professional independence of insolvency practitioners.
November 2019
[1] Re Ladbrokes (Ireland) Ltd [2015 IEHC 381
[2] Re Edennote Ltd [1996 2 BCLC 389