The powers of a liquidator in winding-up a company are set out in Schedule 4 of the Insolvency Act, which all IPs will be familiar with. The schedule lists specific powers including the power to:

  • agree settlement arrangements with creditors;
  • bring or defend legal actions in the name of the company; and
  • carry on the business or to sell all or part of it. 

There is also a ‘catch all’ provision within the Schedule which grants liquidators the power to “do all such other things as may be necessary for winding-up the company’s affairs and distributing its assets”. The Courts have considered this paragraph on several occasions and, understandably, have been reluctant to interfere with the liquidator’s assessment of what is ‘necessary’. It is clear that in this context, ‘necessary’ does not mean ‘essential’, but must be considered in a commercial context and can include anything which ‘would be highly expedient in all the circumstances for the beneficial winding-up of the company’*.

A recent case** has highlighted how widely the word ‘necessary’ can be construed. In this particular case, several individuals (the Investors) had invested in an unregulated collective investment scheme, run as a limited partnership (the Partnership) which the two defendants operated. Each of the Investors had a claim against the defendants for unlawfully promoting the fund and producing misleading promotional material. When the Partnership was wound up, the Investors assigned those claims to the Partnership on terms that any realisations made as a result of those claims would be paid to the Partnership and distributed among the creditors equally. However, when the liquidators brought the claims against the defendants, the defendants argued that the liquidators had acted outside their powers in purporting to take the assignments.

The defendants argued that the liquidators’ duty to get in, realise and distribute the assets of the Partnership did not include getting in assets which were not the property of the Partnership before the winding up and that the ‘catch all’ provision was merely an ancillary power which could only be used to support an act that was specifically provided for elsewhere in the Schedule. The liquidators’ position was that the provision was a separate power in its own right and that the assignment of the claims came within the remit of that power. The Court agreed with the liquidators, confirming that it was a stand-alone power with a sufficiently broad scope to include taking such assignments. In addition, the Court stated that it would be very odd for a liquidator not to accept a cost-less asset after the liquidation starts, simply on the basis that it was not an asset of the Partnership before it was wound up and that ‘provisions dealing with the affairs of the business need to be seen in the light of commercial realities’.

Going forward

It seems therefore that as long as the liquidator himself is satisfied that his intended action is of use in the winding-up, the action will fall within his powers and the court is unlikely to interfere with that decision.

This post was edited by Lisa Smith. For more information, email blogs@gateleyuk.com.

*Re Wreck & Salvage Co (1880) 15 Ch D 353

**The Connaught Income Fund, Series 1 v Capita Financial Managers Ltd and another [2014] EWHC 3619 (Comm)

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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.