Managing liquidation funds from future product liability claims—Re Powertrain Ltd (In liquidation)

Managing liquidation funds from future product liability claims—Re Powertrain Ltd (In liquidation)

What can liquidators learn from Re Powertrain Ltd (in liquidation)? Tina Kyriakides of Radcliffe Chambers examines this recent judgment, in which the court was asked to sanction a proposed distribution to creditors against the backdrop of potential future product liability claims.

Original news

Re Powertrain Ltd (in Liquidation) [2015] Lexis Citation 308, [2016] All ER (D) 48 (Jan)

The Chancery Division held that, on the facts, there was a strong case for liquidators of a company in creditors’ voluntary liquidation proceeding to make distributions without regard to product liability claims that might emerge in the future. The liquidators were also granted relief under section 1157(2) of the Companies Act 2006 (CA 2006).

What was the background to the case?

Powertrain Ltd (Powertrain) was part of the MG Rover Group. It carried on business in the design, manufacture and sale of engines and gear boxes. Powertrain went into administration on 8 April 2005. On 22 July 2005, the administrators entered into a contract of sale for the sale to Nanjing Automobile (Group) Corporation of the majority of Powertrain’s assets. Although Powertrain’s activities were curtailed at that point, it continued to effect sales until February 2006. On 20 March 2006, it went into creditors’ voluntary liquidation.

The liquidators reached a position whereby they did not expect to make any further realisations of significance other than the possible receipt of dividends on Powertrain’s claims made in the liquidation of the MG Rover Group. The liquidators held a balance of funds of £10.5m and wanted to distribute these funds to the company’s creditors. However, they were concerned about potential product liability claims that might later be made in respect of products sold between the date of administration and February 2006, when Powertrain ceased trading. The liquidators accordingly wanted to know whether they could distribute the whole of the funds in their hands to the then known creditors.

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About the author:

Stephen qualified as a solicitor in 2005 and joined the Restructuring and Insolvency team at Lexis®PSL in September 2014 from Shoosmiths LLP, where he was a senior associate in the restructuring and insolvency team.

Primarily focused on contentious and advisory corporate and personal insolvency work, Stephen’s experience includes acting for office-holders on a wide range of issues, including appointments, investigations and the recovery and realisation of assets (including antecedent transaction claims), and for creditors in respect of the impact on them of the insolvency of debtors and counterparties.