In a recent judgment, the Isle of Man Court confirmed the legal principles applicable to an application to remove a liquidator.
In Broadsheet LLC (in liquidation) v VR Global Partners LP (17 January 2024), the principal creditor applied to remove the liquidator who had been in office for 14 years. The Court agreed to remove the liquidator notwithstanding that the liquidation was nearing (or, at least, appeared to be nearing) completion.
The Court considered the application for removal under two statutory provisions. Firstly, section 181(1) of the Companies Act 1931 (the Act) which provides:
“A liquidator appointed by the court may resign or, on cause shown, be removed by the court.”
Secondly, the Court considered its extensive supervisory powers under section 189(1) of the Act which provides:
“(1) The court shall take cognizance of the conduct of liquidators of companies which are being wound up by the court, and, if a liquidator does not faithfully perform his duties and duly observe all the requirements imposed on him by statute, rules, or otherwise with respect to the performance of his duties, or if any complaint is made to the court by any creditor or contributory in regard thereto, the court shall inquire into the matter, and take such action thereon as they may think expedient.”
Although there is no standing qualification requirement in either section, the Court will generally only entertain an application from a party “with a sufficient interest” to remove a liquidator. The Court referred with approval to Deemster Doyle’s judgment in Malone v Mitchell (2014). In that case, it was held that “cause shown” implies unfitness in a wide sense but the Court will exercise its powers whenever it is satisfied that it is in the interests of the parties to do so, for example, where there is a conflict of interest or where the liquidator defaults in the performance of any of his duties. The Court in Malone went on to state that “cause shown” (or “due cause” in similar statutory provisions) did not require anything amounting to misconduct or personal unfitness. It was sufficient if it could be shown that it was, on the whole, desirable that a liquidator should be removed.
In Broadsheet, Deemster Corlett made it clear that there was no requirement that the integrity, independence and experience of a liquidator must be criticised or indeed that there be clear evidence of misconduct or wrong-doing. It was sufficient simply that the Liquidator was not, on the facts of that case, conducting the liquidation with the “sufficient vigour” expected. The only caveat added by the Court was that any concerns of those seeking removal must be “reasonable”.
In an application such as this, the Court may have to carry out a difficult balancing exercise. On the one hand the Court expects any liquidator, whether in a compulsory winding up or a voluntary winding up, to be efficient and vigorous and unbiased in his conduct of the liquidation, and it should have no hesitation in removing a liquidator if satisfied that he has failed to live up to those standards at least unless it can be reasonably confident that he will live up to those requirements in the future. While the removal of the liquidator is not necessarily based on any fault on his part, most such cases will involve a degree of criticism.
Deemster Corlett cited with approval the principles set out in Re Keypak Homecare Limited [1987] BCLC 409.
The removed liquidator applied for leave to appeal his removal. The Appeal Division refused leave.
Tom Maher acts for the newly appointed liquidator.
A copy of the judgment can be found here.
1 February 2024
