[2025] EWHC 2760 (Ch)

The release arises from the effect of a series of provisions in the Act and the Rules.

No authority was cited to me about the proper construction of Rule 5.6(1)(d) but I observe that the other ways in which a release arises under the Rules require that members and/or the company receive notice of the removal and release. No notice is needed in the case of Rule 5.6(1)(d) and no external approval needs to be sought. There is no requirement to give notice beyond the requirement to file Form LIQ06. The Rule must import a degree of objectivity and the liquidators’ opinion must (a) as a matter of fact actually be held and (b) be reasonably held. If liquidators are to take advantage of the ability to obtain a release using this mechanism they must be able to demonstrate that the two elements upon which the Rule turns are present. First, both of the liquidators, or all of them if more than two, must have considered the position that will result from the resignation. Secondly, they must both, or all, (reasonably) be of the opinion that continuing with the same number of liquidators is no longer expedient. Active consideration and forming of an opinion is needed rather than what might be termed mere form filling compliance by staff other than the liquidators themselves. There is no need to add a gloss to the Rule to say that strict proof is required but in the absence of a written record of the decision being made, and the basis for it, showing active consideration by both or all the liquidators, the court may expect first hand evidence from all the office holders about the process they undertook and their state of mind about the opinion they formed and the basis for it.

Ms Swan says in her witness statement dated 18 August 2025:

“21.

I resigned as joint liquidator of Cedar Securities Limited on 16 June 2022. This was in accordance with rule 5.6(1)(d) of the Insolvency Rules 2016, on the basis that I was acting jointly with Mr Philips [sic] and we were both of the opinion that it was no longer expedient for there to be two joint liquidators. I completed the required form LIQ06 [Notice of Resignation], which was filed at Companies House on or around 21 June 2022. In line with rule 5.6(5), my resignation became effective 21 days after the notice was delivered, meaning my release took effect on 12 July 2022. From that point, I was released from all liability in respect of anything done or omitted in the winding up, and from any other obligations arising from my role as liquidator, except where the court has granted permission for an application under section 212 of the Insolvency Act 1986.”

The first sentence in this passage is not as clear as it might be and could be read as saying no more than that the basis for Ms Swan’s resignation was Rule 5.6(1)(d) without confirming that the requirements of the Rule were met. The claimants point to Mr Phillips’ subsequent bankruptcy and his delinquent history in relation to his tax affairs over an extended period. Mr Walshe’s third statement describes Mr Phillips’ finances based upon the information contained in HMRC’s petition as “chaotic, with long histories of late filing penalties, and failures generally to pay taxes due from him to HMRC over many years.” The claimants say that it would not have been possible for Ms Swan and Mr Phillips to have decided that it was expedient for him to continue as sole liquidator.

Ms Swan’s knowledge about Mr Phillips’ tax history is in issue. She says she had no knowledge of it. If that evidence is accepted there is a further issue, namely could Mr Phillips, acting objectively, have concluded that he was suitable to act on his own given what he knew about his affairs?

Ms Swan’s case about her resignation may face real evidential difficulty at a trial. The reliance upon Rule 5.6(1)(d) will need to be considered in the context of Ms Swan’s evidence that she resigned as liquidator of Cedar as part of her plan to retire from practice. Retirement relying upon rule 5.6(1)(b) might have been a more obvious mechanism to have used although it would have involved following the procedure specified in rule 5.6(2).

Nevertheless, an application for permission to amend is not the occasion for the court to conduct a mini trial about the evidence. It is not possible for the court to draw conclusions about the evidence, such as Ms Swan’s state of knowledge about Mr Phillips’ financial affairs, without it being tested at a trial. It is only necessary for Ms Swan, for the purposes of her application, to show that her evidence, taken with the notice of resignation, suffices to demonstrate she has a real prospect of success at a trial of proving that both she and Mr Phillips had reasonably formed an opinion that two liquidators were no longer needed. It will be open to her to supplement her evidence and seek evidence from Mr Phillips. The absence of any direct evidence from Mr Phillips on the point at this stage or any documentary record of their having considered the relevant test before reaching a decision do not quite prevent Ms Swan from reaching the necessary evidential threshold on her application. Although I have real doubts about the evidence before the court at the moment, I am unable to say that Ms Swan’s case about the application of Rule 5.6(1)(d) is fanciful.

The claimants seek to meet the new defence based upon Ms Swan’s release by two alternative means that are specified in the section 212 Application.

First, the court is invited to exercise its power under Rule 5.6(6) in the passage I have highlighted. The Rule does not provide any indication about the circumstances in which the court may ‘order otherwise’ and read literally there is no temporal limitation about when such an order may be made. No authority was cited to me about the proper construction of this Rule.

As to when an order may be made, since the members do not have to be notified in advance of the liquidators’ reliance upon Rule 5.6(1)(d), it must be possible to exercise the power after notice of the resignation has been filed. There is no limitation period stated in the Rule although it may be the longer after the date of resignation the less likely it may be that an order will be made.

As to the basis for making an order, it appears that the court is required to exercise a broad discretion that takes into account all the circumstances and gives proper weight to depriving the liquidator of the benefit of a release. The relevant context here is:

An indication of the normal approach adopted by a court which is asked to approve a release can be seen from in Re Nortel Networks France SAS [2019] EWHC 2447 (Ch) at [19]. The decision concerns administrators seeking a release. Snowden J (as he then was) observed:

“19.

When asked to grant a discharge, the Court is naturally concerned to ascertain what, if any, liabilities the administrators in question might possibly have in respect of any of their actions.

…”.

If liquidators face a possible claim, a release will normally be refused until that claim has been resolved. In the Nortel case there were no liabilities and the administrators were released. Here, a release was obtained without the shareholder being aware that a release was sought in the context of a possible claim against the liquidators being intimated. There is little doubt that had the shareholder been asked to approve Ms Swan’s resignation, having been aware of its effect, consent would not have been forthcoming. If Ms Swan had stated in response to the letter of claim that she relied upon the release, it would have been open to the claimants to apply for postponement prior to pursuing the claim. This is not, as Mr Goodfellow puts it, the release being circumvented. The issue is whether it is just in the circumstances I have summarised for her to rely upon it.