UK: Liquidators powers to settle proceedings

Last Updated: 5 November 1998
Liquidators powers to settle proceedings

A decision of the Court of Appeal in the recent case of Re Greenhaven Motors Limited; Mayers -v- BG Funding Limited and Others, dated 31 July 1998, has helped to clarify the Courts approach when a liquidator applies for leave to compromise proceedings under section 167 of the Insolvency Act 1986.

A liquidator for Greenhaven Motors Limited ("Greenhaven") had been appointed in 1995 and the case related to a number of plots of land that had once been owned by the company, and which had all been subject to charges. The plots of land were sold by the mortgagees and they were all ultimately acquired by BG Funding Limited ("BGFL"). In 1994, BGFL commenced proceedings for possession of one of the plots and Mr Ronald Mayers, a shareholder and director of Greenhaven, and Greenhaven itself were joined to those proceedings. Greenhaven asserted a claim to one of the plots on the basis that the mortgagee sale to BGFL was a collusive sale at an under value.

During the course of the proceedings, the liquidator became aware that he might be exposed to a personal liability for costs and he therefore took steps to try and settle the proceedings between Greenhaven and BGFL. Eventually, BGFL, Greenhaven and the liquidator entered into a settlement agreement and the liquidator obtained leave from the registrar to compromise the proceedings. An order for possession of the land was then made against Greenhaven. Mr Mayers appealed against the registrar's order but it was held that the settlement was one a reasonable liquidator could have made under section 167(3) of the Insolvency Act 1986 and the appeal was dismissed. Mr Mayers decided to appeal that decision.

The Court of Appeal decided that the power which the liquidator had wanted to exercise actually fell within section 167(1)(a) of the Insolvency Act 1986 and that the liquidator could not enter into the settlement agreement without obtaining the sanction of the Court (there being no liquidation committee). The Court of Appeal decided that this was not a case within section 167(3) of the Insolvency Act 1986.

The Court of Appeal further held that when asked to sanction the exercise of a power under section 167(1)(a), the Courts should have regard to the wishes of creditors and contributors. If a creditor or contributor wanted to comment on the settlement and these comments were made bona fide and were not misconceived, the claimant should be heard. It was then a matter for the Court to decide whether or not to sanction the compromise. The Court should attach considerable weight to the liquidator's views but, in this case, the Court had applied the wrong test in holding that the liquidator's wish to exercise the power should prevail unless he was not acting bona fide or was acting as no reasonable liquidator would act. The Court should consider whether the interest of those with a real interest in the assets of the company would be best served by entering into the compromise.

On considering the terms of this specific compromise, the Court of Appeal decided that it appeared to confer no discernible benefit on any creditor or contributory of Greenhaven (other than Mr Mayers, who opposed the settlement).

It was noted that the settlement might have conferred some benefit on the liquidator personally but this was not a reason to sanction the compromise. In addition, the Court of Appeal held that there was a risk that the very wide terms of the release might also cause loss to Greenhaven. The Court of Appeal therefore allowed the appeal and refused to sanction the compromise.

Comments

This case provides some useful guidelines as to how the Court will deal with an application under section 167(1)(a) and it helps clarify the distinction between an application under that sub-section as compared to an application under sub-section 167(3). Under section 167(1)(a), the Court should take the views of a creditor and/or contributor into account when considering the terms of a compromise. The Court should not be bound by these views but it should also not simply agree with a liquidator. The fact that a liquidator might benefit is not a good enough reason to sanction a compromise. In comparison, under section 167(3), it would be up to a creditor or contributor to apply to the Court for an order to restrain a liquidator from exercising some power that he was otherwise free to exercise.

In these circumstances, the Court will only intervene with a decision of a liquidator if it is shown that the transaction is unsuitable, ie if the liquidator did not exercise a discretion bona fide or acted in a way in which no reasonable liquidator would have acted.

This article was first published in Marcfarlanes' Banking and Insolvency Practice Notes of November 1998.

Macfarlanes' Banking and Insolvency Practice Notes are intended to provide general information about some recent and anticipated developments which may be of interest. They are not intended to be comprehensive nor to provide any specific legal advice and should not be acted or relied upon as doing so. Professional advice appropriate to the specific situation should always be obtained.

If you would like further information or specific advice please contact Tony Evans at Macfarlanes' London office.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.