CR-2024-000675 - [2025] EWHC 2069 (Ch)

The final topic for consideration is the cross-undertaking in damages. Counsel accepted that the starting point, even for liquidators with no personal gain in sight, is that an unlimited undertaking in damages should be provided (see: JSC Mezhdunarodniy Promyshlenniy Bank v Pugachev [2015] EWCA Civ 139; [2016] 1 WLR (at [68] to [84] and Hunt v Ubhi [2023] EWCA Civ 417; 2023 Bus LR 1827 (at [29]) In the relevant parts of [29], Newey LJ summarised the applicable principles as follows:

“iv)

It may also be appropriate to depart from the "default position" where the applicant has no personal interest in the litigation and is bringing the claim on behalf of others (paragraph 68). That being so, the fact that the claimant is a liquidator of an insolvent company is a highly relevant factor (paragraph 69);

v)

Even so, the mere fact that litigation is being brought by a liquidator of an insolvent company does not compel the conclusion that the cross-undertaking should be capped (paragraph 69). The burden lies on the applicant who says that he should not be required to give an unlimited cross-undertaking to demonstrate why that is so (paragraph 85);

vi)

In that context, it can be relevant to consider whether one or more creditors could be expected to indemnify the applicant. Where there are numerous small creditors, it may be impractical to obtain an indemnity, but the position may be different where there are larger creditors (paragraph 81) and, if the liquidator is being funded by a creditor, that may put a "different complexion" on it. ….. In Pugachev itself, Rose J had been entitled to conclude that the liquidator had failed to discharge the burden on it given "the lack of evidence about what efforts the [liquidator] had made to persuade substantial creditors, for whose benefit the recoveries would enure, to back the cross-undertaking" (paragraph 85);

vii)

The availability of insurance can also be of significance (paragraph 68 and In re DPR Futures Ltd [1989] 1 WLR 778, at 785);

viii)

A defendant need not show that the freezing order is likely to cause him a loss before a cross-undertaking of unlimited amount is required (paragraph 78). "It is … fairness rather than likelihood of loss that leads to the requirement of a cross-undertaking" (paragraph 77); and

ix)

Whether a cross-undertaking should be of unlimited amount is a separate question from whether an applicant should fortify the cross-undertaking by the provision of security.”

With those principles in mind, Counsel submitted that the nature and extent of any undertaking in damages required from an insolvency office-holder is intensely fact-sensitive, especially in circumstances where, as here, the Liquidators say that the Respondents are themselves prima facie culpably responsible for the lack of funds in the liquidation estate and the claims against them are, the Liquidators contend, particularly strong. I agree that there is a wide spectrum of circumstances. At one end there is a director who simply absconds with small investors’ funds on the eve of liquidation – in such a case it is foreseeable that a court might dispense with a need for a cross-undertaking. At the other end, the creditor victims might be large financial institutions who have lost many millions and who can be expected to fund the liquidator.

In this case, there does not appear to have been any recognisable corporate governance of the Company as between directors who were husband and wife. They dipped into the Company’s funds as a matter of course and at will, acting in the manner of individuals using their personal bank accounts, leaving no funds for a liquidator. In the absence of any funds and in circumstances where Investec have refused to fund – objectively, it can be said that they have already suffered enough - the liquidators have sought and obtained “cross-undertaking in damages insurance”, (“CUDI”), an insurance product which ensures that the liquidators have access to sums within the policy limit to satisfy any call upon the cross-undertaking in damages.

The CUDI insurance is capped in the sum of £200,000.00. Cover is in respect of “Cross Undertaking in Damages” where the court has ordered <the insured> to pay them. “Cross Undertaking in Damages” is defined as any opponents damages and costs arising out of an order by the Court to compensate the Opponent as a result of the Order for a Freezing Injunction and Other Associated Relief against the Opponent.

The Liquidators’ position is that they have initiated the Application (and the underlying misfeasance proceedings) in the interests of the Company’s creditors in pursuit of their duties and statutory functions as liquidators of the Company. They have no skin in the game personally. Accordingly, the Liquidators submitted that it is appropriate to seek to limit the sums upon which the cross-undertaking in damages is based to the indemnity from the CUDI policy and any recoveries in the liquidation of the Company.

On the information before me, I consider a cap on the cross-undertaking of £200,000 provides sufficient protection for the Respondents. This, in common with all other aspects of the Order, can be reviewed at the Return Date or earlier if the Respondents seek to apply.