Quicksons (South and West) Ltd. v Katz & Anor

The discretionary power to require security for a liquidator’s costs under Insolvency Rules 1986, rule 4.120(3), is principally merits-based. It operates as an additional filter for applications to remove liquidators, analogous to summary judgment or conditional permission to defend. The court may require security where an application is arguable but likely to fail, as an alternative to dismissing it at the initial filtering stage. The power is not primarily a general protection against the liquidator’s personal exposure to costs. Where no sufficient cause is shown, the application may be dismissed under rule 4.120(2); but where the removal application has an arguable case and is not said to have no reasonable prospect of success, security should not be ordered.

Quicksons, the parent company of Buildlead Ltd, applied under section 108(2) of the Insolvency Act 1986 to remove the company’s liquidators. The liquidators applied under rule 4.120(3) of the Insolvency Rules 1986 for security for their costs in the sum of £59,750.

The removal application criticised the conduct and duration of the liquidation. The liquidators’ principal concern related to possible recovery of transfers made by Buildlead to Quicksons’ bank account. The issue was how the court should exercise the discretionary security power in rule 4.120(3), particularly whether it was security-based or merits-based.

1. Application refused. The court declined to order Quicksons to provide security for the liquidators’ costs.
2. Rule 4.120(3) confers a permissive discretion. Its possible purposes fall under two heads: protecting liquidators from personal liability for the costs of defending removal proceedings, and filtering applications which have little prospect of success.
3. The proper approach is merits-based. A predominantly security-based approach would give rule 4.120(3) a wider operation than the conditions governing security for costs under CPR 25.13. The rule is therefore best understood as operating at the initial filtering stage in rule 4.120(2).
4. At that stage, where an application is arguable but likely to fail, the court may order security as an alternative to dismissing it for showing no sufficient cause. The power is analogous to the summary judgment jurisdiction under CPR Part 24 and to conditional permission to defend.
5. In this case the liquidators did not contend that Quicksons’ removal application had no reasonable prospect of success or showed no sufficient cause. Security was therefore inappropriate. The same result would have followed under a security-based approach because Quicksons was solvent and able to pay the sum sought.