Hobbs & Anor v Gibson & Ors

For a move from administration to creditors’ voluntary liquidation, creditors must nominate a different liquidator in the prescribed manner and within the prescribed period. Substituting a different decision-making process does not satisfy that requirement. Fundamental defects, including an exercise of powers which the relevant creditors or committee did not possess, are not cured by provisions dealing with formal irregularities. A liquidator may be removed where there is due cause measured by the interests of the liquidation, even without misconduct. A conflict between acting as liquidator and defending claims arising from an earlier administration may make continued office undesirable, particularly where the liquidation is stalled and costs continue to accrue.

The applicants sought orders under section 108 of the Insolvency Act 1986 concerning the liquidators of Tanit Motors Limited and Robin Hood Recycling Limited. The companies had entered administration following the death of their sole director and subsequently moved into creditors’ voluntary liquidation.

The central dispute was whether Neil Gibson and Keith Stevens, rather than Gibson and Mark Tailby, had been validly appointed. The court also considered the validity of later meetings purporting to confirm Gibson and Stevens and remove Tailby, and whether the existing liquidators should themselves be removed because the liquidations were not being progressed effectively.

1. Appointments. Under paragraph 83(7) of Schedule B1 to the Insolvency Act 1986, read with the applicable rules, creditors had to nominate a different person as liquidator after receiving the administrators’ proposals and before their approval. Allowing a creditors’ committee or representatives to choose the liquidator was a different process, not the prescribed nomination. Stevens was therefore not validly appointed, and Gibson and Tailby became the liquidators of both companies.
2. Creditors’ committee. The Tanit committee did not come into existence because the certificate of due constitution had not been issued within the meaning of the rules. In any event, the committee lacked power to nominate a liquidator. The saving provision for defects in the establishment of a committee was therefore not engaged.
3. Later meetings. The meetings purporting to confirm Gibson and Stevens and remove Tailby were invalid. They were convened without the required period of notice and without the creditors’ request required by rule 4.114-CVL. The Robin Hood notice also failed to identify removal as a purpose of the meeting or draw attention to the release provisions in section 173.
4. Formal irregularities. Rule 7.55 did not cure these defects. They were fundamental defects involving powers which the relevant persons did not possess, rather than formal defects or irregularities. The restrictive construction of “insolvency proceedings” in Re Blights Builders Ltd [2007] BCC 712 and Re G-Tech Construction Ltd [2007] BPIR 1275 also made the rule’s application doubtful.
5. Removal. Applying the guidance in Keypack Homecare Ltd [1987] BCL 409 and AMP Music Box Enterprises Ltd v Hoffman [2002] BCC 996, the applicants established due cause. Gibson could not effectively investigate or pursue claims against the estate while defending related proceedings arising from his earlier administration. Tailby had never acted as liquidator. Continued office was undesirable and likely to prejudice the efficient progress of the liquidations.
6. Gibson and Tailby were removed as liquidators. The creditors were left to choose new liquidator or liquidators. The judgment made no determination on the merits of the separate proceedings concerning the administrations.