Beattie v Smails & Anor

The court’s power to remove liquidators for cause shown is exercised by reference to the real, substantial and honest interests of the liquidation and the purpose for which the liquidators were appointed. A potential conflict between competing duties in the liquidations of associated companies does not, by itself, justify removal. The court should consider whether the conflict can be managed through directions or approval of transactions. Removal may be refused where it would cause a real and substantial loss, such as disrupting important litigation that represents the company’s only significant asset, while the conflict remains theoretical or manageable.

Kimberley Scott Services Ltd and Atrium Training Services Ltd were associated companies involved in recruitment, payroll and substantial disputed PAYE, NIC and VAT liabilities. Mr Smailes and Mr Ryman were appointed liquidators of both companies. Mr Beattie, a creditor of Kimberley for £5,000, applied under section 108 of the Insolvency Act 1986 for their removal, alleging conflicts between their duties to the two companies.

The liquidators had commenced substantial fraudulent-trading proceedings against the companies’ directors. The central issue was whether the potential conflicts arising from intercompany claims justified replacing the existing liquidators, despite the risk of prejudicing that litigation.

1. Application dismissed. The application to remove Mr Smailes and Mr Ryman as liquidators of Kimberley was refused.
2. Liquidators are fiduciaries who must protect, realise and distribute assets for creditors and contributories, and must act impartially. Under section 108(2) of the Insolvency Act 1986, the court may remove them where cause is shown.
3. The relevant standard was the principle stated in Re Adam Eyton Ltd (1887) 36 Ch D 299: the due course of the liquidation is measured by the real, substantial and honest interests of the liquidation and the purpose for which the liquidator was appointed.
4. A conflict between a liquidator’s duty and personal interest is distinct from a conflict between competing duties owed to associated companies. The latter is regularly encountered in group liquidations and does not of itself disqualify a liquidator. It may be managed through an application for directions or approval of a compromise, as explained in Re Corbenstoke Ltd [1990] BCLC 60 and Parmalat Capital Finance Ltd [2009] 1BCLC 274.
5. The court balanced the theoretical conflicts concerning PAYE, NIC, VAT, accounting and proprietary claims against the real disadvantage of disrupting the fraudulent-trading proceedings, which were Kimberley’s only substantial asset. The existing liquidators were already familiar with the affairs, had secured litigation funding and insurance, and were no less capable than any replacement. The conflicts could be addressed within the existing proceedings or by directions.
6. The proprietary claim to money in Atrium’s bank account was described as threadbare. Mr Beattie’s small creditor interest did not outweigh the substantial prejudice that removal would cause. He was ordered to pay the liquidators’ costs on the indemnity basis.