Kean v Lucas, Re: J&R Builders (Norwich) Ltd)

For the purpose of deciding whether creditors have requisitioned a removal meeting with the required support, a liquidator must apply a low threshold. Claims should be included unless they are connected-party claims, obviously wrong, or made mala fide. A liquidator must not require strict proof or conduct a detailed merits investigation. The meeting is the proper forum for testing the claim, because the chairman has express powers to admit or reject claims for voting purposes. Suspicion or serious misgivings are insufficient to exclude a claim at the requisition stage.

The applicant, a creditor and former director and shareholder of the company, sought a declaration that the liquidator had wrongfully refused to call a creditors’ meeting to consider his removal. The liquidator had concluded that the request lacked support from creditors representing 25 per cent in value because he required detailed proof of a disputed claim made by Grand Prix Paint Plant.

The central issues were the correct approach to valuing claims at the requisition stage under the Insolvency Rules 1986, and whether the disputed claim should be included in calculating the statutory threshold.

1. Outcome. The liquidator had applied the wrong test by putting the disputed claimant to strict proof and conducting an unnecessary investigation. The claim was to be included for the purpose of calculating whether the 25 per cent threshold had been met. The application therefore succeeded and the meeting was to be called.
2. At the requisition stage, the liquidator’s task is limited. Claims must be discounted if they are connected-party claims or if they appear obviously wrong or are made mala fide. The liquidator is not required to make a reasonable or detailed assessment of the merits of each claim. The court adopted the approach in Re Greenhaven Motors Ltd (in liquidation) [1999] 1 BCLC 635 as apposite to this exercise, although the meeting-stage exercise is different.
3. At the creditors’ meeting, the chairman has an express power to admit or reject a claim for voting purposes under rule 4.70. The existence of an appeal mechanism against that decision supports a higher level of scrutiny at the meeting than at the requisition stage. There is no equivalent appeal mechanism against the liquidator’s decision at the requisition stage, which confirms that the threshold test is low.
4. The evidence supporting the disputed claim was weak and contradictory, and the liquidator had substantial reservations about its genuineness. Nevertheless, the claim could not be excluded merely because of suspicion or serious misgivings. There was insufficient evidence at that stage to establish bad faith. The court must not usurp the function of the creditors’ meeting or anticipate the chairman’s decision.