Last years decision of the High Court in Kean v Lucas (Re J&R Builders (Norwich) Ltd)  EWHC 2684 (Ch) puts into further context a number of cases concerning the rights of creditors to requisition a meeting to replace a creditors’ voluntary liquidator (or by analogy officeholders generally). But does it provide any answers?
References below to ‘Sections’ or ‘Rules’ are references to the Insolvency Act 1986 and Insolvency Rules 1986 respectively.
The Law at a Glance
- Sections 171(2) and 172(2) provide for a liquidator to be removed pursuant to a general meeting of creditors summoned specifically for this purpose or by an order of the Court.
- Rule 4.114-CVL specifies that a meeting pursuant to sections 171 and 172 to remove a liquidator may only be called if summoned by a creditor (or creditors) constituting 25% in value of the company’s unsecured creditors (excluding connected parties).
- Rule 4.57 requires that a requisition for a creditors’ meeting should be made in the specified form (Form 4.21) and Rule 4.61 requires the requisitioning creditor to deposit a sum with the Liquidator sufficient to cover the expenses of holding the creditors’ meeting.
In this case a former director and shareholder sought to requisition a creditors’ meeting on the basis that she had the support of creditors in excess of 25% in value. Having investigated the claim extensively the Liquidator rejected the party’s request and refused to requisition the meeting, a decision which was subsequently appealed.
On appeal the Court held that:
- there is no mechanism to appeal the decision of a Liquidator to requisition a creditors’ meeting (which suggested that a lower burden of proof should be applied set at this stage);
- accordingly, a Liquidator must only investigate claims at this initial stage to ensure that the claim was bona fide and not obviously misconceived (a similar test as applied in Re Green haven Motors Ltd  BCC 463);
- further investigation should be reserved to a creditors’ meeting where the Chairman has specific powers to limit or object claims and which provides for a clear appeals process
In this case the Court agreed that whilst the evidence of the creditor’s claim was weak, contradictory and unsupported by evidence, they did not consider that it was made in bad faith or that it was entirely misconceived (despite the Liquidator’s argument to the contrary). The Liquidator was therefore obliged to call the meeting pursuant to 4.114-CVL.
The decision is helpful in identifying how an officeholder should address the assessment of creditors’ claims at this initial stage and helps contradict the practice whereby officeholders often undervalue claims unreasonably.
It is important to note that Kean v Lucas did not address previous decisions in which the Court refused to utilise their discretion to call a creditors’ meeting, such as the following:
- where the meeting was not in the best interests of creditors and the estate in light of all the circumstances and where there was no justifiable criticism of the officeholder’s conduct (applying Managa Properties Ltd v Brittain  EWHC 157 (Ch));
- where the meeting would not serve any useful purpose and where it would only serve to further waste resources and increase costs (applying Re. J. Burn  1 Ch 247); and
- where the meeting would not further the proper operation of the insolvency estate and where it would not be conducive to the aim of doing justice amongst all creditors.
These decisions do therefore provide some comfort to those who have reason to question the motives of a creditor seeking to requisition a meeting to replace an officeholder, parties who are often connected and only seeking to frustrate investigations or insolvency proceedings generally.