[2025] EWHC 2316 (Ch)

The argument that the statutory regime does not provide for, and therefore excludes limitations of liability

The Claimants’ primary argument is that s.92(1) Insolvency Act 1986 (“IA 1986”) provides that it is the company in general meeting that fills any vacancy arising by death, resignation or otherwise in the office of liquidator (although, in addition, s.108 IA 1986 provides that in any voluntary winding up if there is no liquidator acting, the court may appoint a liquidator and that the court may, on cause shown, remove a liquidator and appoint another). Upon their appointment as joint liquidators pursuant to IA 1986, the Former Liquidators assumed a statutory role and any liability for their conduct in that role (as distinct from under any contract they might subsequently enter into with a third party on behalf of any of the Claimant Companies) arises under a framework created by statute and is a matter for the jurisdiction of the court. Neither their role nor their potential liability could be limited otherwise than in accordance with the legislation; it could not be circumscribed or constrained by means of any contract entered into with the relevant company either prior to or upon their appointment.

A further plank of this argument is that only licensed insolvency practitioners may be appointed as liquidators (s.230(3) IA 1986); only individuals (not firms) may be insolvency practitioners (s.390(1) IA 1986); and insolvency practitioners must be a member of a professional body recognised for these purposes and authorised by that body to act as a liquidator (s.390(2) IA 1986).

In my view this plank does not add substantially to the argument. It has not been suggested to me that any relevant body has used its rules or regulations to limit the ability of a liquidator to benefit from any limitation of liability.

The proposition that it is individuals who are appointed as liquidators is clearly correct as a matter of law. However, the proposition is somewhat at odds with the commercial reality that liquidators are chosen because they work for a particular firm which has the resources and expertise to support liquidators.

This was commented on in Re Sankey Furniture [1995] 2 B.C.L.C. 594 (“Sankey”) where Chadwick J (as he then was) was considering the question whether the court should approve a change of a liquidator in circumstances where one of the liquidators was moving firms or whether the matter needed to be referred back to a meeting of creditors (this was an insolvent liquidation). He found (on page 600) that:

“… the problem arises, as it seems to me, because the practice in relation to the administration of insolvency, at least in the case of large firms with many skilled and experienced employees, may not fit easily into the current legislative framework. The 1986 Act provides that a person who is not an individual cannot be qualified to act as an insolvency practitioner (see 390 (1))…. The effect is that, in law, appointment as a liquidator or trustee in bankruptcy is an appointment which is personal to the individual who accepts it. It is not an appointment to the firm of which he or she happens, for the time being, to be a member. But in large firms containing a number of partners and employees who are qualified as insolvency practitioners it is not unlikely that the work comes to the firm rather than to the individual. It is the collective expertise of the firm which attracts the appointment … The day-to-day administration is carried out by employees of the firm.”

Surprisingly, given the importance of this issue and the length of time for which the office of liquidator has been present, there is next to no authority that clearly determines whether the Claimants’ argument is correct or not. However, to make good their proposition, the Claimants’ counsel refer me to the decision of Maugham J in In Re Home & Colonial Insurance Co Ltd [1930] 1 Ch. 102 (“Home & Colonial”).

In that case, a liquidator in a voluntary winding up who was accused of not properly performing his duties sought to rely on a provision in the articles of the relevant company excluding liability for directors/other officers of the company as a defence in misfeasance proceedings.

Maugham J (at pages at 126-127) held there was “no evidence whatever that the respondent was appointed to be liquidator on the condition that art. 157 should apply” and that:

“it seems hardly possible that art. 157 can afford any protection to a liquidator in proceedings for the benefit of creditors of the company, since the liquidator has a statutory duty towards them which the Article cannot affect; and this forms an additional reason for not extending the Article to the acts of a liquidator”.

This last comment does suggest that the judge was not relying only on the conclusions he had already reached (that the liquidator was not a party to the articles and that it was unlikely that he had contracted on the implicit understanding that he would be protected “for the grossest negligence, idleness or incapacity”) but was making an additional point that it was not possible to contract out of the liquidator’s statutory duties.

Ms Addy KC also referred me to Re Rhino Enterprises Properties Ltd [2020] EWHC 2370 (Ch); [2021] BCC 18 at [101]–[109]. Here it had been argued that a claim under paragraph 75 of Schedule B1 of the IA 1986 against former joint administrators by contributories was barred by a term within a Company Voluntary Arrangement (“CVA”) (the route of exit from the administration) to which the company had agreed, and which released the former joint administrators from liability.

HH Judge Simon Barker QC accepted an argument to the effect that the release, having been formulated and proposed to creditors by the joint administrators for their own benefit, was in breach of the rule that powers must be exercised for the purpose for which they are granted and in breach of the joint administrators’ fiduciary obligations. As such, it was ineffective and unenforceable.

The submissions accepted by the court included that:

“[i]t would be inconsistent with the scheme of Sch.B1 to allow an office-holder to exclude liability or the risk of liability expressly provided for and preserved after release by the statute itself” and that it was “improper for an administrator to use the machinery of a CVA to exclude a liability after the event which could not be excluded before or during the event”.

This case largely turned on the proposition that it was misfeasance on the part of the liquidators to use their powers to benefit themselves through causing the company to approve a CVA which provided them with exculpation, and so it is distinguishable from the case before me, where it was the directors of the Claimant Companies who agreed the limitation of liability. I would not rely on it by itself as establishing the proposition that the Claimants are trying to establish here, but certainly the reasoning is not inconsistent with the case that they are making, particularly as it appears that the party seeking to avoid the exculpation clause in that case had argued that it would be inconsistent with the scheme of Schedule B1 to allow an office-holder to exclude liability or the risk of liability expressly provided for and preserved after release by the statute itself.

Next, Ms Addy referred me to Fulham Football Club(1987) Ltd v Richards and another [2011] EWCA Civ 855 ; [2012] Ch. 333, and in particular dicta of Patten LJ expressed at [74] to the effect that the members of a company cannot, whether by contract or otherwise, in advance of liquidation override the exercise of the liquidator’s powers under sections 238 to 239 of the Insolvency Act 1986. This a reference to powers rather than to duties (or to liability for breach of duties), but nevertheless is consonant with the theme that the Claimants seek to establish.

Finally in relation to this point, Ms Addy cited Insolvency Practitioners, Appointments, Duties, Powers and Liability (second edition) at paragraph 8.45 as follows:

“Once an IP takes office, they become subject to the supervision of the court and the statutory requirements of their role. It is not possible for the IP to limit the scope of their duties or otherwise to limit their liability in the context of carrying out their role as office-holder, since to do so would otherwise have the potential to conflict with the IP’s duties under the statutory scheme. This would amount to an attempt to oust the jurisdiction of the court. However, the IP is not prevented from limiting or excluding liability under contracts entered into as office-holder, provided that such terms do not interfere with the statutory scheme.”