Removal of Liquidators, Quickson & the Deloitte’s case

Section 108(2) of the Insolvency Act 1986
Section 108(2) provides that the "court may, on cause shown, remove a liquidator and appoint another."


Quickson (South & West) Ltd v Katz [2004]

In recent times there has been case law when the Court has required some “show cause” reflecting characteror unfitness. This has been correctly "re-aligned" when the Court has said that there is no need for such special circumstances - Ehterton J in Quickson

Etherton J in Quickson,
…………… therefore, that it is quite clear from the entire line of authority stretching back to 1867 that, in appropriate circumstances, there may be good cause to remove a liquidator, notwithstanding the failure of the applicant to prove misfeasance as such, and even though no reasonable criticism can be made of his conduct.
In my judgment, that summary of the application of the legal principles to the present case is too narrow and too rigid, and does not properly reflect the broad discretion of the court under IA s.108(2). It appears to be an analysis which has transformed the observation of Neuberger J in AMP Enterprises that the court expects any liquidator to be efficient and vigorous and unbiased in his conduct of the liquidation (at para [23]) into a pre-condition of removal under s.108(2) that, in order to succeed, the applicant must show that the liquidator has failed to act in an efficient, vigorous and unbiased manner, and will continue to fail to do so in the future.

Neuberger J himself emphasised (at para [21]) that it is inappropriate to lay down what facts will and what facts will not constitute sufficient grounds for removal under s.108(2). In that case, he made helpful and practical comments that it should not be seen to be easy to remove a liquidator merely because it can be shown that in one or more respects his conduct has fallen short of the ideal, and it is necessary to bear in mind the expense and disruption of a substitute appointment. Similarly, as I have already said, Nourse LJ in Edennote (at p.398) observed that the creditors’ lack of confidence in the liquidator must be reasonable, and the court will pay due regard to the impact of removal on the liquidator’s professional standing and reputation. Factors such as those might, taking into account all the circumstances, warrant a refusal to remove a liquidator even where there are reasonable criticisms that can be made of the liquidator’s conduct of the liquidation.

On the other hand, it is quite clear from the entire line of authority stretching back to 1867 that, in appropriate circumstances, there may be good cause to remove a liquidator, notwithstanding the failure of the applicant to prove misfeasance as such, and even though no reasonable criticism can be made of his conduct: see Millett J in Re Keypak Homecare at p.416, approved by the Court of Appeal in Re Edennote at p.398.

In my judgment, the touchstone for an appraisal of whether good cause has been shown for the removal of a liquidator is the principle stated by Bowen LJ in Re Adam Eyton (at p.306) :


"The due cause is to be measured by reference to the real, substantial, honest interests of the liquidation, and to the purpose for which the liquidator is appointed."

See Also
Deloitte’s case Privy Council Appeal No. 44 of 1998

1. The statutory jurisdiction to remove a liquidator.
The companies legislation which was under consideration by the Court of Appeal was the Companies Law (1995) Revision. The legislation has since been consolidated and revised as the Companies Law (1998) Revision. The parties are agreed that there are no material differences between the two, though the section numbers have been altered as a result of the addition of a new section 4 in the 1998 Revision. Their Lordships will refer to the provisions of the 1995 Revision. The legislation is based upon the English Companies Act 1862.

Section 106(1) provides:-
“(1) Any official liquidator may resign or be removed by the Court on due cause shown; and any vacancy in the office of an official liquidator appointed by the Court shall be filled by the Court.”

It is common ground that this section applies not only to a compulsory liquidation but also (by virtue of section 153) to a liquidation which is continuing subject to the supervision of the court. The corresponding section which applies to a voluntary winding up is section 143. This provides:-
“143. If, from any cause whatever, there is no liquidator acting in the case of a voluntary winding up, the Court may, on the application of a contributory appoint a liquidator or liquidators; and the Court may, on due cause shown, remove any liquidator and appoint another liquidator to act in the matter of a voluntary winding up.”

Their Lordships make two observations on these sections. In the first place, each of the sections has two limbs, one enabling the court to appoint a liquidator to fill a vacancy, and the other enabling it to remove a liquidator for cause. In the second place, save in the case of the appointment of a liquidator in a voluntary winding up where the application must be made by a contributory, there is no express restriction on the category of person who may make the application. Where an insolvent company is being voluntarily wound up, it appears that a creditor who wishes to apply for the appointment of a liquidator must either petition for a compulsory winding up or apply for the liquidation to continue under the supervision of the court.

In the course of argument reference was made to the cases on the corresponding statutory provisions in England. For convenience, therefore, their Lordships set out the terms of the relevant English section which corresponds to section 106 of the 1995 Revision. This is section 108 of the Insolvency Act 1986, which provides:-
“(1) If from any cause whatever there is no liquidator acting, the court may appoint a liquidator.

(2) The court may, on cause shown, remove a liquidator and appoint another.”

It will be seen that the two sections are in largely similar terms. Each contains the same two limbs; neither prescribes the person or persons who may make the application.

The appellants submit that as a matter of ordinary construction section 106 confers on the court a power to remove a liquidator for cause without any limitation on the category of person who may make the application. They draw a contrast with other sections of the Companies Law which do contain such a limitation. Section 95, for example, restricts the right to apply to the court for the winding up of a company to creditors and contributories. Sections 102 (application for a stay of proceedings), 140 (determination of questions in a winding up), and 143 (set out above) all contain express restrictions on the person or persons who may make the application. By contrast section 106 contains no requirement that the applicant should be a creditor or contributory, or that he should have a direct financial interest in the conduct of the liquidation. There is certainly no express requirement and, it is said, none should be implied, since it is impossible to foresee all the circumstances which may justify the removal of a liquidator.

The appellants concede that not everyone is a proper person to make the application. They submit that any person who has an interest in making the application or who may be affected by its outcome is a proper person to make it. They say that they are such persons since they are critically affected by decisions which the liquidators will make in the conduct of the proceedings which the Company has brought against them. The real question is whether they can establish due cause for the removal of the respondents as liquidators. This, it is submitted, is a separate question which can only be determined after a full investigation of the grounds upon which the removal of the liquidator is sought. Unless obviously ill founded, they submit, an allegation of impropriety could not be summarily dismissed without investigation; and an alleged conflict of interest is in like case. It is not to be supposed that the court would lightly permit its own officers to place themselves in a position where their interest conflicts with their duty.

The appellants have cited numerous authorities on the circumstances in which the English Court will exercise its power to remove a liquidator for cause. Their Lordships do not find them helpful to the appellants. They show that impropriety is not necessary; that it is sufficient to satisfy the court that the removal of the liquidator will be for the general advantage of the persons interested in the liquidation; that in the absence of impropriety the court will have regard to the wishes of the majority of those interested; but that where impropriety is shown the court may override their wishes. They do, however, show that the court has consistently regarded the creditors (in the case of an insolvent liquidation) and the contributories (in the case of a solvent liquidation) as the proper persons to make the application, being the only persons interested in the liquidation. Their Lordships have not been shown any case in which the court has removed a liquidator who is able and willing to act on the application of anyone who is not a creditor or contributory as the case may be.

The appellants place much reliance on recent cases in England under section 108(1) of the Insolvency Act 1986. They have been concerned with the situation which arises when an office-holder with numerous appointments is incapable of continuing in office. Where he has automatically vacated office on having his authorisation withdrawn, the court has appointed another office-holder in his place on the application of the former office-holder himself, his former partners, the Secretary of State, and the Insolvency Practitioners Association. The court has also acceded to an unopposed application by the former partners of an office-holder who has resigned from his firm and is unable to continue in consequence to remove him and appoint another partner in his place. In all these cases the applicant has had a professional or official responsibility to bring to the attention of the court the existence of a large number of vacancies which needed to be filled. The only question of substance was whether it was necessary to incur the expense and delay of calling meetings of the creditors in every case in order to fill them. The court was prepared to remove the office-holder and thus create the vacancies it was asked to fill only where the office-holder accepted that he was incapable of acting. In such a case it recognised the reality of the situation, which was that the office was to all intents and purposes already vacant. But it refused the application and left the decision to the creditors where the office-holder, though unwilling to continue in office, was capable of doing so: see In re Sankey Furniture Ltd. [1995] 2 B.C.L.C. 594 and In re A. & C. Supplies Ltd. [1998] 1 B.C.L.C. 603.

In their Lordships’ opinion two different kinds of case must be distinguished when considering the question of a party’s standing to make an application to the court. The first occurs when the court is asked to exercise a power conferred on it by statute. In such a case the court must examine the statute to see whether it identifies the category of person who may make the application. This goes to the jurisdiction of the court, for the court has no jurisdiction to exercise a statutory power except on the application of a person qualified by the statute to make it. The second is more general. Where the court is asked to exercise a statutory power or its inherent jurisdiction, it will act only on the application of a party with a sufficient interest to make it. This is not a matter of jurisdiction. It is a matter of judicial restraint. Orders made by the court are coercive. Every order of the court affects the freedom of action of the party against whom it is made and sometimes (as in the present case) of other parties as well. It is, therefore, incumbent on the court to consider not only whether it has jurisdiction to make the order but whether the applicant is a proper person to invoke the jurisdiction.

Where the court is asked to exercise a statutory power, therefore, the applicant must show that he is a person qualified to make the application. But this does not conclude the question. He must also show that he is a proper person to make the application. This does not mean, as the appellants submit, that he “has an interest in making the application or may be affected by its outcome”. It means that he has a legitimate interest in the relief sought. Thus even though the statute does not limit the category of person who may make the application, the court will not remove a liquidator of an insolvent company on the application of a contributory who is not also a creditor: see In re Corbenstoke Ltd. (No.2) (1989) 5 B.C.C. 767. This case was criticised by the appellants: their Lordships consider that it was correctly decided.

The standing of an applicant cannot therefore be considered separately and without regard to the nature of the relief for which the application is made. Section 106(1) does not limit the category of persons who may make the application. The appellants, therefore, do not lack a statutory qualification to invoke the section. But the question remains whether they have a legitimate interest in the relief which they seek. They are not asking the court to appoint a liquidator to fill a vacancy. They are asking the court to remove incumbent liquidators for cause. The English cases relied upon by the appellants show that an interest which is sufficient to support an application of the former kind may not be sufficient to support an application of the latter kind.

The Company is insolvent. The liquidation is continuing under the supervision of the court. The only persons who could have any legitimate interest of their own in having the respondents removed from office as liquidators are the persons entitled to participate in the ultimate distribution of the Company’s assets, that is to say the creditors. The respondents are willing and able to continue to act, and the creditors have taken no step to remove them. The appellants are not merely strangers to the liquidation; their interests are adverse to the liquidation and the interests of the creditors. In their Lordships’ opinion, they have no legitimate interest in the identity of the liquidators, and are not proper persons to invoke the statutory jurisdiction of the court to remove the incumbent office-holders.

The appellants’ case is not advanced by alleging that the respondents have a conflict of interest. This is not the same as impropriety or want of probity. Their Lordships observe that the expression “conflict of interest” is an abbreviation for “conflict of interest and duty”. The rule is that a fiduciary may not without the informed consent of his principal place himself in a position where his interest may conflict with his duty to the principal. The danger is that his interest may affect him in the discharge of his duty to the prejudice of his principal. The only persons with a legitimate interest in complaining of a breach of the rule are the persons to whom the duty is owed; and they may waive the breach. The appellants do not allege that the respondents have an interest which conflicts with any duty owed to them. They do not plead any such duty. They allege that the respondents have an interest which conflicts with their duty to the Company and its creditors. If such a conflict exists, it is for the creditors alone to decide what if anything to do about it.

2. The inherent jurisdiction of the Court over its own officers.
As liquidators of the Company the respondents are officers of the court. The court’s inherent jurisdiction to control the conduct of its own officers is beyond dispute. But it does not follow that the appellants are proper persons to invoke that jurisdiction. They say that the respondents are behaving unconscionably by reason of their conflict of interest. But they cannot say that the respondents are acting unconscionably to them.

The appellants complain of the manner in which the respondents have conducted the proceedings against them in Cause 104. Thus they make the application as defendants to existing proceedings. They do not allege that those proceedings disclose no cause of action or are an abuse of the process of the court. If such were the case, the appellants would have an obvious remedy. They complain that the respondents have not made Coopers & Lybrand UK defendants to Cause 104. But the appellants have the remedy in their own hands. If they want to make Coopers & Lybrand UK parties to the action, they can bring them in themselves as third parties. They complain that the respondents, being the persons in control of the proceedings on behalf of the Company, have interests which conflict with those of the Company and may accordingly not properly discharge their duties to the Company. It is strange to hear defendants complain that the proceedings against them may not be pursued with sufficient vigour. If the Company were not in liquidation, the appellants could not be heard to complain of such conduct on the part of its directors. It would be a matter within the exclusive competence of the shareholders. Their Lordships do not accept that the fact that the Company is in insolvent liquidation and that the liquidators’ duties are owed to the creditors rather than the shareholders gives the appellants a standing to complain which they would not otherwise have had.


Their Lordships consider that the answer they have returned to the first question effectively disposes of this question also. They will humbly advise Her Majesty that the appeal and the petition for special leave should both be dismissed. The appellants must pay the respondents’ costs of both the appeal and the petition before their Lordships’ Board.