Liquidators' appointment valid despite breach of deemed consent procedure (Cash Generator Ltd v Fortune and others)

Liquidators' appointment valid despite breach of deemed consent procedure (Cash Generator Ltd v Fortune and others)

David Oliver, a consultant solicitor with the insolvency and business turnaround team at Verisona Law, examines an Insolvency and Companies Court decision that non-compliance with the statutory provisions for the appointment of liquidators did not invalidate the first and second respondents’ appointments as joint liquidators of three companies. There was also no cause for their removal to enable an independent investigation into the assignment of the companies’ leasehold interests in the business premises and the sale of their stock and assets.

Cash Generator Ltd v Fortune and others [2018] EWHC 674 (Ch)

What are the practical implications of the judgment?

The decision means that nominee liquidators need not worry about their appointment under the deemed procedure being declared invalid if a creditor is not sent notice of their nomination and a statement of affairs, in accordance with the statutory rules.

What was the background?

The three companies had, as franchisees, operated pawn-broking and ‘payday’ loan businesses before they became insolvent as a result of a tax mitigation scheme which was challenged by HM Revenue and Customs.

The companies nominated the first and second respondents as their joint liquidators and, when fewer than 10% of the relevant creditors objected, they were duly appointed under the deemed consent procedure under the Insolvency Act 1986 (IA 1986) and the Insolvency (England and Wales) Rules 2016, SI 2016/1024 (IR 2016).

Before the companies’ liquidation began, they assigned their leasehold interests in their business premises to a third party; and after the liquidation commenced, they sold, acting by the first and second respondents, their stock and assets.

The applicant, as franchisor of the companies’ businesses and claiming to be a creditor, sought declarations that:

  • the appointment of the first and second respondents as liquidators was invalid
  • the first and second respondents be removed from office
  • the first and second respondents be replaced by its own nominees or the court’s appointments

What did the court decide?

Invalidity

The applicant argued that as it and two other categories of creditors (which were not parties

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About the author:

Anna joined the Restructuring and Insolvency team at Lexis®PSL in August 2013 from Berwin Leighton Paisner where she was a senior associate in the Restructuring Team.

Anna has worked on a number of large scale restructurings primarily in the UK market acting on behalf of lending institutions.

Recent transactions include the restructuring of a UK hotel chain and the administration sale of part of the Connaught group. Anna has also spent time on secondment at The Royal Bank of Scotland and trained at Clifford Chance qualifying in 2007.