[2025] EWHC 2316 (Ch)

WOULD ANY POWER TO LIMIT LIQUIDATORS’ BE FOR ONLY FOR SHAREHOLDERS TO EXERCISE?

The Claimants’ fallback argument, if I did not accept their primary argument that there is no way in which the liability of liquidators can be limited, is that any ability to limit the liability of liquidators in the case of a solvent members winding-up would be in the hands of shareholders rather than directors. It is the company through its shareholders in general meeting (or the court) that appoints a liquidator, and which fixes the remuneration of the liquidator and therefore only that body that could approve a provision modifying the liability of the liquidator.

As I have found for the Claimants in relation to their primary argument as regards the liquidators, this question becomes otiose. Nevertheless, for completeness I will say something about the point, on the assumption that, contrary to my finding, there could be a power to limit the liability of liquidators.

Clearly it is correct that a company must act through its shareholders in appointing a liquidator (see s. 84(1)(b) IA 1986, and s.91(1) IA 1986).

The Claimants argue that, once appointed, whatever their business relationship with the Company may have been previously, the individual’s role thereafter is that of a liquidator appointed under the statutory framework and, upon their appointment, all the powers of the directors cease, except in so far as the company in general meeting or the liquidator sanctions their continuance (section 91(2) IA 1986).

This is all correct, but of itself I do not see this argument to be determinative of the question.

First, the fact that the powers of the directors cease on the appointment of a liquidator does not of itself nullify any agreement that the directors (lawfully) entered into on behalf of the Company. If one of those agreements was that if the liquidators were to be appointed they (and/or the firm supporting them) would benefit from limited liability in certain circumstances, why does the fact that the liquidators now exercise all the powers previously exercised by the directors nullify that agreement?

Secondly, why should the fact that the shareholders undertake the appointment nullify that agreement, particularly in a case (not this one) where the shareholders appoint a liquidator in the knowledge that these terms have been agreed on behalf of the company. After all, where shareholders appoint a director, the director may serve on the basis of a director’s service contract on behalf of the company.

The Claimants refer me to Bethell v Trench Tubeless Tyre Co [1900] 1 Ch 408. The facts of this case were that the company passed a subjoined resolution for the voluntary winding up of the company and the appointment of a Mr Walker as liquidator. Notice was given to the shareholders that there would be a further meeting to consider confirming the winding-up and the appointment through separate special resolutions. At that meeting the first resolution was passed but the second failed for want of a seconder and a resolution was then proposed and carried that someone else, a Mr Marreco, should be appointed as liquidator. The case turned on the question whether Mr Marreco had been duly appointed – the argument being that the shareholders had not been given notice of any proposal to appoint him. It was decided that the appointment was valid on the basis that once a resolution had been passed to wind up the company it was competent for the company without notice to proceed to appoint a liquidator.

The Claimants refer me in particular to a comment at page 410 made by Lord Lindley, who gave the leading judgment, when he said that to hold otherwise:

“… we do in substance give to directors power to palm off upon the company the liquidator of their nomination, unless the company consents to postpone the meeting and give fresh notice.”

The Claimants argue that self-evidently, much greater concern would arise if the directors had power to limit the liability of the liquidator.

I do not agree that this proposition is self-evident or follows from that case.

I do not think that this observation provides a reason why, if a liquidator is willing to act, but only on the basis of his or her enjoying a limitation of liability previously agreed by the directors, that appointment could not be put to the shareholders and, if approved by the shareholders, remain a valid appointment.

In the case before me, it may be objected that the shareholders were not told about the limitation of liability, and the fact that they gave their sanction to the appointment was therefore not made on an informed basis. The Defendants argue that this makes no difference. If there was a failure in the explanations given to the shareholders when voting on this resolution, that point goes only to the culpability of the directors in allowing this failure, and does not affect the validity of the resolution to appoint them or to the agreement made on behalf of the Claimant Companies, that if appointed, it would be on terms providing for limitation of liability.

These are difficult points and did not get much airing within the hearing. In the light of this, and in view of my finding for the Claimants in relation to their principal argument, which anyway renders this argument otiose as regards the appointment of the liquidators, I will not seek to resolve this point.