Liquidators may often consider it necessary to bring proceedings on behalf of the insolvent company to seek to recover assets or obtain compensation on the company’s behalf. If that action fails, and the insolvent company does not have the funds to meet any costs order made against it, the liquidator is potentially personally exposed to paying those costs pursuant to a non-party costs order. This could operate harshly for liquidators. Every piece of litigation has a winner and a loser. If the liquidator is seeking to make a recovery for the company, in the interests of its creditors, should it face personal liability for costs in the event the action is unsuccessful?
On 11 November 2015, the Hong Kong Court of First Instance handed down an important judgment clarifying the applicable test to determine the personal liability of liquidators for non-party costs arising out of the pursuit of litigation in liquidations.
In Super Speed Limited (in Liquidation) v Bank of Baroda HCCW 273/2012 and Marshel Exports Limited (in Liquidation) v Bank of Baroda HCCW 274/2012, the Court determined that the liquidators’ conduct in pursuing the litigation must be shown to meet the higher threshold of ‘impropriety’ as opposed to ‘unreasonableness’. This is a key decision for liquidators, who could otherwise face significant personal liabilities if they are unsuccessful in pursing claims on behalf of the insolvent company.