Liquidators need to be wary when they have notified a party of a claim, continued to maintain the claim has merit, but then chosen not to actively pursue the claim – matters might be taken out of their hands….
In a recent decision (Fennell v Halliwells LLP), the applicant asked permission from the Court to apply for a negative declaration that claims the respondent partnership had (through its administrators then liquidators) advanced against him would fail due to a complete release contained in his retirement deed from the partnership. The claims were valued in the six figures. The liquidators did not want to pursue the claims further for the time being; the preferred strategy was to leave all claims outstanding, partly to use as leverage for settlement of other claims they had.
The law on this area is clear – although the cases usually concern a party wishing to bring its own claim against a company that is in limbo because of the statutory moratorium:
- permission to bring proceedings against a company in liquidation should normally be refused if the issues raised by the proposed proceedings can be conveniently decided in the liquidation;
- the Court has a broad and unfettered discretion to do what is right and fair in all the circumstances;
- on an application for permission, the Court should not investigate the merits of a claim beyond being satisfied that there is a genuinely arguable claim; and
- the Court should be cautious before exposing the liquidators to dealing with time-consuming and difficult litigation.
More than two years had passed since the claims were raised in correspondence. Negotiations to settle the claims had failed. The applicant was not happy that the claim should be ‘postponed indefinitely pending global settlement negotiations or mediation involving other parties’. He gave evidence that the unresolved claim was causing financial and reputational hardships and that this was unreasonable and unfair, particularly since the retirement deed was so clear in its intention.
The defendants contended that the Court should not interfere with the liquidators’ strategy of seeking to negotiate and mediate all claims, rather than litigate on a piecemeal basis and that the Court should allow the liquidators to make their own decisions as to when and if to pursue claims formally.
The Companies Court held that the liquidators’ opposition was not justifiable given the failure of negotiations, the hardship caused to the applicant and the fact that the application was unlikely to involve more than a day of court time, being centered on the interpretation of a contract.
This case shows that whilst it is entirely reasonable for a liquidator to insist on a proper attempt to resolve such a claim by mediation or negotiation, once such an attempt has been made and failed, the Court may well resolve, in the face of a well-advised prospective defendant that they must either pursue a claim or agree to abandon it. Unless there are compelling reasons to do so, it is simply not reasonable to leave the claim in limbo.
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