In the recent English Court of Appeal case of Rubin v Coote, the court allowed a liquidator to settle litigation without having obtained the agreement of all creditors to the compromise.
The Facts
Following his appointment, the liquidator agreed to accept the sum of £1 million (payable in full within one year) in respect of the company's claims against its former directors. As at the date that the settlement was arranged, it would have allowed the creditors' claims to be paid in full. However, the largest creditor, Coote, was unhappy with the deferred nature of the settlement payment. Accordingly, the liquidator could not implement the settlement and negotiations continued, with the result that costs increased to the extent that full recovery by the creditors became unlikely.
In the absence of sanction by the creditors to the compromise, and faced with rising costs, the liquidator sought the alternative sanction of the court. On application to the High Court, the liquidator's action was successful. However, the dissenting creditor then appealed to the Court of Appeal.
The Decision
The court was required to balance the benefit to the creditors from the proposed settlement against the benefits available from any alternative course of action. In this case, the alternative was to continue to negotiate for immediate payment. That would have further increased the costs of the liquidation and would have reduced the likelihood of a successful settlement.
The court held that the settlement of £1 million with deferred payment was in the "best commercial interests" of all the creditors and sanctioned the compromise. In reaching its decision, it noted that had the dissenting creditor agreed to the initial settlement, they would have been paid in full (albeit at a later date). As a result of the refusal to accept the payment terms, and through no fault of the liquidator, full recovery was not now possible.
Comment
This decision, as well as serving as a reminder that the courts favour efficient resolution of insolvency cases, is notable from a Scottish perspective because liquidators in Scotland still need the agreement of creditors or the sanction of the court to any debt compromise, whereas this is no longer required in England and Wales.
Disclaimer
The material contained in this article is of the nature of general comment only and does not give advice on any particular matter. Recipients should not act on the basis of the information in this e-update without taking appropriate professional advice upon their own particular circumstances.
