Insolvency – Creditors Have a Legal Right to Be Kept in the Know

20/02/2018


Creditors are entitled to be kept informed at every stage of an insolvency process and any failure to afford them their rights can have serious consequences. In one case on point, joint liquidators engaged in the winding up of a debt-laden insulation company had the validity of their appointments placed in doubt.

A single liquidator was initially appointed when the company resolved to enter members’ voluntarily liquidation on making the required declaration of solvency. Contrary to Section 84(2A) of the Insolvency Act 1986 (the Act), no written notice of that resolution was given to a bank which held a floating charge over the company’s assets.

It subsequently emerged that the company owed many millions of pounds to HM Revenue and Customs and the joint liquidators were, following a creditors’ meeting, appointed after the liquidation was converted into a creditors’ voluntary liquidation. The earlier failure to comply with the statutory notice provision, however, gave rise to concern that they had not been validly appointed.

In resolving the matter, the High Court noted that there was no dispute that the bank held a qualifying floating charge, within the meaning of Section 72(A) of the Act, and should thus have been notified of the insolvency proposals so that it could take its own counsel.

In ruling that the original members’ resolution and the successive appointments of liquidators were valid, however, the Court found that, when a resolution is passed to wind up a company, that resolution is valid notwithstanding any failure to give notice to a qualifying charge holder.

The bank may well have had a remedy if dissatisfied with the result. It could have petitioned for the compulsory winding up of the company or for a stay of the winding up so as to enable it to appoint an administrator. However, in the event, the bank had not objected to the creditors’ voluntary liquidation or the liquidators’ appointment.

Bevan & Anr v Walker & Ors. Case Number: 8055 of 2016

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