Key Issue

A former liquidator would not be entitled to relief from liability under section 212 of the Insolvency Act 1986 where her conduct had fallen well short of the standard to be expected and she had paid away substantial sums which would otherwise be available to creditors.

The Facts

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 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.

Comment

The case serves as a useful reminder that the core duty of a liquidator is to realise and distribute the assets of a company and, where they do so in good faith and after taking proper advice if necessary, they will not be challenged.  

Top Brands Limited & Ors v Sharma & Ors