Allen & Anor, Re Longmeade Ltd (In Liquidation) (Rev 1)

A liquidator’s decision to commence proceedings is ordinarily a commercial decision for the liquidator. The liquidator must act in the best interests of the insolvent company and its estate as a whole. Creditors’ reasoned views normally deserve weight, but views based on extraneous interests may be discounted. If all fully informed interested persons are unanimous, the liquidator should ordinarily follow that view. The court should intervene only for bad faith or where no reasonable liquidator could have taken the decision. A liquidator may properly accept litigation risk where proceedings may benefit creditors.

The joint liquidators of Longmeade Limited sought directions concerning a potential negligence claim against the Secretary of State for Business, Innovation and Skills. The claim arose from the Official Receiver’s failure to file tax and OFAC forms, causing Longmeade to lose approximately US$26 million under a United States insolvency plan.

The proposed claim was fully funded and could substantially increase creditor distributions. More than 99 per cent by value of creditors opposed it, but the judge considered that the principal creditor groups were influenced by interests unrelated to their capacity as creditors. The issues were whether a creditors’ meeting was required, how the creditors’ views should be treated, and whether the claim could be pursued or assigned.

1. The liquidators were not obliged to summon a meeting under section 168(2) of the Insolvency Act 1986. Existing creditor views had already been obtained, and a meeting would not bind the liquidators.
2. The removal of the need for sanction to commence proceedings did not alter the established approach to liquidators’ commercial decisions. Liquidators should act in the interests of the insolvent company and all interested persons. They may consult creditors, should normally give weight to reasoned views uninfluenced by extraneous considerations, and should ordinarily follow a fully informed unanimous view.
3. The court should not generally direct or review commercial and administrative decisions by liquidators. Intervention is justified only where the decision was taken in bad faith or was one which no reasonable liquidator could have taken.
4. The liquidators could properly pursue the claim with third-party funding if some creditors would lose a materially increased distribution and the claim had a sufficient prospect of success. They could accept some litigation risk; they were not required always to choose the course carrying the lowest risk.
5. The judge expressed the provisional view that Re Oasis Merchandising, Ward v Aitken [1998] Ch 170 did not prevent assignment of the proposed common-law claim. That case concerned a statutory cause of action vested solely in the liquidator, whereas the proposed claim might constitute property representing the company’s original debt or rights under the plan.