Validity of Liquidators' Appointment via deemed consent
The recent decision in the case of Cash Generator Limited v. Fortune and others  EWHC 674 (Ch) will be welcome news for liquidators appointed in respect of Creditors Voluntary Liquidations (“CVL”) following the deemed consent regime.
The comment of ICC Judge Jones in the judgement of “many, if not the majority, of appointments within creditors’ voluntary liquidations will be open to uncertainty and the risk of litigation” means that this decision will provide comfort to office holders in the event that notice has not been given to all creditors. This appears to be the first reported decision on the deemed consent regime.
The other interesting observation from the judgment is ICC Judge Jones’ plea that the relevant provisions of the Insolvency Rules 2016 (“IR 2016”) be reconsidered saying that the rules that he had to refer to “were numerous, to be found in a variety of different places and feature so many requirements that they may be difficult to apply in practice.”
This mirrors what both lawyers and practitioners alike have found when trying to get to grips with the Rules.
The case was brought by Cash Generator Limited for a reversal of the nominations of liquidators to three companies or their removal as liquidators.
The reversal of the nomination was based upon the contention that as a purported creditor of the companies Cash Generator had not been given notice of the nomination. Removal was sought on the contention that the liquidators would not carry out adequate investigations into the assignment of the business leases shortly before their appointment and/or that they were conflicted due to the sale of the stock and assets shortly after their appointment.
On the reversal of the nomination issue ICC Judge Jones considered the mandatory wording of s100 Insolvency Act 1986 (“IA 1986”) and Parliament’s intention when constructing the IA 1986. The imperative created a binding statutory obligation with which the directors should comply, however with no reference to invalidity in the event of non-compliance.
As the deemed consent regime was introduced to encourage creditor participation it would be surprising if any omission by the company and/or its directors should adversely affect the decision reached by those creditors who had voted, by nullifying their decision.
Indeed this is consistent with r15.15 IR 2016 which states “Where a decision is sought by a notice in accordance with the Act (IA 1986) or these Rules, the decision procedure or deemed consent procedure is presumed to have been duly initiated and conducted, even if not everyone to whom the notice is to be delivered has received it.”
ICC Judge Jones concluded that the imperative in the relevant statutory provisions was to ensure compliance by the director, not to produce the result of any invalid appointment in the event of breach.
On the removal point ICC Judge Jones concluded that no cause had been shown for removal after consideration of the relevant legal principles.
For more information on this article please contact Katie George, or you can give us a call on 0345 070 6000.