A recent High Court case has clarified how creditors can reach the 25% threshold to request a meeting to remove the liquidator. We also consider if the new Insolvency Rules will have any effect…

At present, creditors representing 25% in value of all the company’s creditors can ask the liquidator to call a meeting to vote on his own removal[1].

The liquidator is obliged to investigate the creditors’ claims to decide whether they are valid and if the 25% threshold has been reached.

In Kean v Lucas it was confirmed that creditors only have to demonstrate that their claim is not obviously wrong for the purpose of being counted towards the 25% threshold. The liquidator should only investigate enough to ensure the creditor is a bona fide creditor and not any further.

The court was swayed by the lack of appeal procedure available to creditors whose claims were rejected by the liquidator at this early stage.

It held that the test for assessing the merits of claims must be much lower here than the test applied at the meeting when the chairman decides whether to admit or reject a claim for voting purposes (where there is an appeals procedure available to creditors).

In Kean v Lucas, the unlucky liquidator could not provide sufficient information to demonstrate that the creditor’s claim was wrong.

The new insolvency rules

With the new insolvency rules coming into force 6 April 2017, will Kean v Lucas still provide good guidance?

The short answer is “yes”[2]. Our view is that the test clarified by this High Court decision will continue to be useful for liquidators asked to call a creditor’s meeting for their own removal.

The only additional point to note is that the request for the meeting must state the supporting creditors and their claim values that reach the 25% threshold.

Advice for liquidators

Faced with a vocal minority of creditors whose claims that you cannot easily discredit, you have little option but to concede gracefully and hope the remaining creditors turn up and vote in your favour, or consider whether the court can be persuaded that calling the meeting would not be conducive to the proper progression of the liquidation, or justice for all those interested in it[3].

For further information please contact: Hannah Drozdz, Associate – Professional Support Lawyer, DD: 0121 234 0230, Email: Hannah.Drozdz@gateleyplc.co.uk

[1] Rule 4.114(1) Insolvency Rule 1986 (SI 1986/1295)

[2] Rule 15.18(4), Chapter 5, Part 15, The Insolvency (England and Wales) Rules 2016

[3] Re Barings plc (No 6) [2001] 2 BCLC, 159

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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.