Nov 2016
Author: Nigel Cook
Longmeade was part of the UK Lehman Brothers group. It went into compulsory liquidation in 2010 and the Official Receiver (OR) was appointed liquidator. The company had the opportunity to participate in distributions from US and Canadian insolvency processes but these were irretrievably lost as a result of inaction by the OR. Eventually new liquidators were appointed in place of the OR and they obtained legal advice that the losses to the company could be recovered by bringing a negligence claim against the Government ‘s BIS Department. Funding was available both for their costs and also against an adverse costs order.
However, the majority of the shareholders by value – which included HMRC – did not wish a claim to be brought. In the case of HMRC, it considered that it should not sanction proceedings against another Government Department – a view which the judge found unappealing!
The liquidators applied to the Court for directions as to whether they should convene a creditors meeting or commence proceedings without a meeting.
The background to this was the changes to the liquidators’ powers brought in by the Small Business, Enterprise and Employment Act 2015 under which in compulsory liquidations the liquidators would no longer have to obtain sanction to commence or defend proceedings. This was intended to bring them into line with administrators who have always had discretion in these matters.
In reviewing previous authorities in both liquidations and administrations, the Judge summarised the principles,. He confirmed that a creditors meeting did not need to be called, although the liquidators might do so if they wished to canvass opinion on what they proposed. Whilst creditor views should be given due weight, this did not give them a veto – unless there was 100% opposition.
He confirmed that the liquidators’ decision is a commercial one and within their discretion as officeholders which the Court would be very unwilling to disturb as long as they had regard to the overall interests of the estate – and the Court would interfere only if bad faith were proved or the decision was one which no reasonable liquidator would make.
For further information, please contact Nigel Cook on 01306 502294 or [email protected].
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