Abbey Forwarding Ltd v Hone & Ors

The court will interfere with a liquidator’s discretionary decision only on a high threshold. Apart from bad faith, interference requires conduct so unreasonable and absurd that no reasonable person would have acted in that way. Removal from office is a more serious step and requires substantial grounds, although the statutory jurisdiction is not confined to specified categories. The court should not conduct a mini-trial of disputed underlying facts when deciding whether the liquidator acted reasonably. A tax tribunal’s jurisdiction to determine assessments does not displace the Chancery Court’s jurisdiction over claims concerning directors’ conduct and the company’s assets.

Abbey Forwarding Ltd was being wound up following substantial excise-duty assessments by HM Revenue & Customs. Its former shareholders and directors applied to remove the liquidator under section 172 of the Insolvency Act 1986, or alternatively to obtain conduct of appeals against the assessments under sections 167(3) and 168(5).

The applicants argued that the liquidator’s refusal to appeal was unreasonable and that an appeal would allow the tax tribunal to determine whether the goods had been diverted. They also alleged a failure to preserve other parts of the company’s business. The central issues were whether the liquidator’s decisions justified court intervention or removal, and whether the tax tribunal’s jurisdiction affected the application.

1. Application dismissed. None of the orders sought was made.
2. Under sections 167(3) and 168(5) of the Insolvency Act 1986, the applicants accepted that the decision whether to appeal the assessments belonged to the liquidator. It was insufficient to show that an appeal would have been a reasonable option. The applicants had to show that the only reasonable course was to appeal.
3. Applying the test adopted by the Court of Appeal in Re Edennote Ltd [1996] 2 BCLC 389, and absent bad faith, the court would intervene only where the liquidator had done something so utterly unreasonable and absurd that no reasonable person would have done it. The evidence did not establish that standard. The court declined to determine finally, at this stage, whether the consignments had been diverted.
4. The applicants’ own conduct was relevant. They had not opposed the winding-up petition on the basis that the assessments were appealable, had not provided substantive evidence promptly, and had participated in the directors’ proceedings. Granting relief would also jeopardise a trial due to begin within three weeks.
5. Section 172 did not prescribe particular grounds for removal, but substantial grounds were required before taking so serious a step. The alleged failure to preserve unrelated business was supported by no sufficiently substantial evidence.
6. The principle concerning the tax tribunal’s exclusive jurisdiction, discussed in Glaxo Group v IRC [1995] STC 1075 and Stow v Stow [2008] Ch 461, had no direct application. The present proceedings concerned alleged breaches of fiduciary duty and compensation, not the taxpayer’s liability to HMRC. The applicants could defend those proceedings by disputing diversion, and relevant HMRC documents could be sought under CPR 31.17.