In the Matter of Quaid Project Limited, 7 Nov 2008
Compulsory Winding Up - Challenge to Liquidator's Decision - Disclosure of Documents
Iain Pester acted for the Creditor in this case on a direct access basis.
It is never easy for a creditor to complain effectively of decisions made by a liquidator in the course of a winding up. The liquidator is an officer of the Court, and the exercise of his powers in the winding up is subject to the control of the Court. An aggrieved creditor can apply for directions that the liquidator's act or decision be reversed or modified, pursuant to the Insolvency Act 1986, Ss. 167(3) and 168(5). However, the test to be applied when challenging acts or decisions of the liquidator, as confirmed by the Court of Appeal in Re Edennote Ltd, Tottenham Hotspur v Ryman [1996] BCC 718, is a steep one. The creditor needs to show that the liquidator acted in bad faith, or so perversely as to demonstrate that no reasonable liquidator, properly advised, could have acted in that way.
In this recent case, the Liquidator wished to sell the Company's principle remaining asset, the copyright in a film, by public auction. One creditor wished to see the underlying documents relating to certain transactions which had been carried out in relation to the film, both licensing agreements and the grant of any security over the copyright or negatives in the film, before bidding. The Liquidator refused to provide those documents, or to confirm, beyond indicating in the most general terms, what dealings in the film had been carried out, citing an alleged obligation of confidence and the cost of providing the information. The creditor applied to the Court on short notice. David Richards J, in a short judgment, agreed that the Liquidator would act entirely unreasonably if the documents were not disclosed, without good reason. After going on to analyse the reasons given, the Court held that they were not sufficient on the facts of the case to justify the refusal to provide. The Liquidator had acted in a way that no reasonable liquidator, properly advised, should act. The Court ordered the production of certain classes of documents. On the other hand, certain directions as to the conduct of the auction, which the creditor had sought, were refused: the Court held that these were commercial matters, which were properly left to the Liquidator.