Scotland—challenging a liquidator’s decision—the proper approach of the court (Re West Larkin Limited (in liquidation) (No 2))

Scotland—challenging a liquidator’s decision—the proper approach of the court (Re West Larkin Limited (in liquidation) (No 2))

A recent decision of the Court of Session has considered the proper approach of the court to an application under section 167(3) of the Insolvency Act 1986 (IA 1986) which sought to have the liquidator directed by the court to bring a challenge to an agricultural tenancy notice. In refusing the application, the court held that the liquidator’s decision not to challenge the notice was not unreasonable having regard to the circumstances of the case. This analysis examines the court’s decision and the factors and considerations which should be taken into account by a liquidator in reaching a decision as to whether to bring a challenge or raise litigation. Written by Stuart Clubb, partner and solicitor advocate, at Shoosmiths.

Re West Larkin Limited (in liquidation) (No 2) [2020] CSOH 6

What was the background?

The case concerned a note presented in the liquidation by a Mr Sweeney, seeking the making of an order under IA 1986, s 167(3) to have the liquidator directed to challenge the registration of a notice of interest registered by the tenants (the Urquharts) of an agricultural tenancy of the company’s only asset, a parcel of agricultural property.

If effective, the notice of interest would create certain statutory rights of pre-emption in favour of the Urquharts, entitling them to buy the property. On the other hand, if the notice was invalid, the liquidator would be free to sell the property on the open market.

This property had been the subject of a large number of disputes and litigations between the Sweeney and Urquhart families over a number of years, and there remained a fundamental dispute between the families as to whether the agricultural tenancy of the property still subsisted.

The liquidator had however refused to challenge the notice for reason that such a challenge would not be in the interests of the general body of creditors of the company, having regard to the uncertainty of outcome—the significant cost and expense that would be incu

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About the author:

Zahra started working as a paralegal at Lexis Nexis in Banking and Insolvency teams in April 2019. Zahra graduated with a 2.1 honours in a BA French and Spanish, completed the GDL at BPP University and is seeking some experience before commencing the LPC. She has undertaken voluntary work for law firms in London, Argentina and Colombia.