Adele Lock v Paul Stanley (in his capacity as liquidator) & Anor.

An applicant under section 168(5) of the Insolvency Act 1986 must be a person aggrieved and must have a legitimate interest in the relief sought. A creditor challenging a liquidator’s disposal ordinarily needs to act in the interests of creditors generally. Standing is absent where the relief would serve an interest adverse to that class.

Fraud and bad faith apart, the court will interfere with a liquidator’s act only if it was so unreasonable and absurd that no reasonable person would have acted in that way. A liquidator has no general duty to offer an assigned claim to its proposed defendants. Whether omission of that opportunity is perverse depends on all the circumstances. Perversity is assessed objectively, so an unsatisfactory explanation does not itself invalidate an objectively reasonable decision.

A creditor and former director of a company in liquidation applied under section 168(5) of the Insolvency Act 1986 to set aside the liquidator’s assignment of claims against her and members of her family to a litigation funding company. She contended that they should have been given an opportunity to acquire and terminate the claims.

The High Court dismissed the application in [2021] EWHC 2970 (Ch). It held that the applicant lacked standing because her interest was adverse to that of creditors generally, and that the assignment was not perverse. The applicant appealed on both grounds. The central issues were the requirements for standing under section 168(5) and whether failure to invite an offer from the proposed defendants rendered the assignment perverse.

1. Appeal dismissed. Section 168(5) of the Insolvency Act 1986 requires a two-stage inquiry. The applicant must fall within the statutory category of a person aggrieved and must also have a legitimate interest in obtaining the particular relief sought. Although the appellant qualified as a creditor, that status alone did not confer standing.

2. On an application challenging a liquidator’s disposal of property, including an assignment of a claim, a creditor ordinarily has a legitimate interest where the relief would benefit creditors generally, typically by maximising the estate’s assets. Standing is absent where the relief would advance an interest adverse to creditors as a class. The appellant sought to avoid claims which she maintained lacked merit and provided no satisfactory or realistic evidence that she would match or improve upon the assignee’s terms. Her interest as a defendant was therefore contrary to the class interest in maximising recoveries.

3. The merits and standing inquiries remain distinct. Fraud and bad faith apart, the court may interfere with a liquidator’s act only where it was so utterly unreasonable and absurd that no reasonable person would have acted in that way. This is a formidable threshold.

4. A liquidator has no general duty to give proposed defendants an opportunity to acquire or settle claims before assigning them to a litigation funder. Doing so may often be sensible or good practice, but whether an omission is perverse depends on careful scrutiny of all the circumstances. Re Edennote Ltd was distinguishable because the proposed purchasers there were likely to make a better offer and the liquidator had acted under a legal mistake without obtaining advice on an issue affecting value.

5. Perversity is an objective question. The judge could uphold the assignment even though the liquidator’s stated explanation was unsatisfactory. Here there had been no meaningful pursuit of an offer by the appellant or her family, despite warning of a proposed sale, and no reason to believe that they would improve upon the assignee’s upfront payment and share of recoveries.

6. Section 168(5) confers a discretion rather than requiring reversal whenever a relevant defect is established. The court observed, obiter, that setting aside this assignment without clear evidence of a better offer would serve no purpose and would further delay the underlying trial, contrary to creditors’ interests.

1. Court of Appeal (Civil Division): The appeal in [2022] EWCA Civ 626 was dismissed. The court upheld the findings that the appellant lacked standing and that the assignment was not perverse.
2. High Court, Business and Property Courts in Manchester: In [2021] EWHC 2970 (Ch), His Honour Judge Halliwell dismissed the application under section 168(5) of the Insolvency Act 1986.