Key points

  • Principles applying to exercise of liquidators’ powers are the same as those prior to legislative changes
  • Views of creditors influenced by personal considerations to be disregarded
  • The overriding requirement is for liquidators to exercise their professional judgment in the best interests of creditors

The facts

Longmeade Limited, an entity within the UK Lehman group, went into compulsory liquidation in 2010. The OR failed to file certain tax forms meaning Longmeade did not receive approximately $26m in distributions from a US Lehman entity.

Independent liquidators were appointed and investigated bringing a claim against BIS in negligence. The claim was to be fully funded and there was no financial risk to Longmeade’s creditors. Despite that, creditors which together held approximately 99.7% of the claims in Longmeade’s liquidation opposed the liquidators bringing the claim.

The largest of the creditors were HMRC (which opposed the litigation on political grounds i.e. that one government department should not endorse litigation against another) and LBHI (which expressed concerns regarding potential negative publicity).

As a result of the amendments to the Insolvency Act brought about by the Small Business Enterprise and Employment Act 2015 (“SBEE 2015”), the liquidators did not require sanction to commence litigation. Nevertheless, in light of the strong opposition, they sought directions from the Court.

The decision

The Court held that the law relevant to the exercise of liquidators’ powers which did not require sanction prior to the SBEE 2015 equally applied following its enactment. The leading authority, (Re Greenhaven Motors) held that while the Court would give weight to the liquidators’ views, it would also take into account the wishes of creditors if uninfluenced by personal considerations.

The Court found that the views of HMRC and LBHI were influenced by personal factors and, while the remaining creditors should be given one final opportunity to express their views, even if there were only one or two small creditors who would lose out if the claim were not pursued, taking the decision to pursue the litigation would be within the range of decisions that a reasonable liquidator could take.

Comment

The judgment confirms the position following the SBEE 2015 in relation to the exercise of powers by liquidators. It also reiterates that liquidators may act against the express wishes of the majority of creditors where those wishes are influenced by personal considerations.

Re Longmeade Limited (in liquidation) [2016] EWHC 356 (Ch)