Bezant v Cork

A creditor’s standing to apply under section 212 of the Insolvency Act 1986 must exist when the application is heard and determined, not merely when it is issued. A person who has been paid in full and has ceased to be a creditor therefore has no locus standi.

A liquidator is not subject to an absolute duty to take every possible step to recover assets or pursue alleged wrongdoers. The liquidator must exercise reasonable care and skill, investigate within reasonably available resources, and use judgment in deciding whether proceedings are justified. Allegations of breach must be properly pleaded, particularised and supported.

Dr Bezant applied under section 212 of the Insolvency Act 1986 for an examination of the conduct of Stephen Cork, the former liquidator of Tertiary Enterprises Ltd, and for compensation for alleged misfeasance and breach of duty.

The liquidator applied to strike out the application under CPR 3.4(2)(a), (b) and (c), and under the inherent jurisdiction. Dr Bezant’s sex-discrimination claim, which formed the basis of her proof in the liquidation, had subsequently been settled and paid in full under a compromise agreement. The central issues were whether she remained a creditor entitled to apply under section 212 and, alternatively, whether her allegations disclosed a properly pleaded and sustainable case.

1. The section 212 application was struck out. Section 212(3) permits an application by the Official Receiver, the liquidator, a creditor or a contributory. Dr Bezant’s standing therefore depended on her being a creditor when the application was made and dealt with by the court, not merely when the application notice was issued. The compromise agreement expressly confirmed that she was no longer a creditor, and she had been paid in full. She consequently had no locus standi or basis for the application.
2. This conclusion was substantive rather than technical. Dr Bezant had suffered no loss and had no conceivable ground of complaint in respect of the settled claim.
3. The alternative strike-out grounds would also have succeeded. A liquidator does not owe an absolute duty to take every possible step to collect assets or to bring proceedings against directors or other alleged wrongdoers. The liquidator must exercise reasonable care and skill and make a reasoned decision whether proceedings are justified. The court will not lightly interfere with that discretion.
4. A possible duty existed to investigate, within the limits of reasonably available resources, the validity of proofs and the realistic prospects of increasing the company’s assets. But a claimant advancing such a case had to identify what investigation should have been undertaken, what was omitted, and how the omission would have made a difference. General assertions that the liquidator should have investigated properly and would then have recovered money were insufficient.
5. The allegations of fraud, conspiracy, statutory breaches and concealment were inadequately pleaded and particularised, and were unsupported by sufficient evidence. The alleged duty under section 219 was not engaged because no criminal proceedings had been instituted by the Director of Public Prosecutions or the Secretary of State. The application would therefore also have been struck out as disclosing no reasonable grounds or as an abuse of process.