In the matter of Torotrak Plc (in liquidation)

The joint liquidators applied under section 112 of the Insolvency Act 1986 for directions about the distribution of a surplus of £304,859.20 in a creditors' voluntary liquidation which has effectively become a members' distribution. The principal legal questions were whether the court could permit a selective distribution to only the largest shareholders, what steps to take to trace and notify members, how to set a cut-off for claims, and whether the liquidators' capped remuneration should be increased to cover additional distribution costs.

The court held that it did not have power to reallocate rights between members so as to limit distribution only to the largest shareholders because section 107 (and the company’s article 184) require distribution according to members' rights and interests. The court directed a proportionate tracing and notification process: letters to known members at last-known addresses, a single advertisement in the London Gazette and notice on the liquidators' portal, each containing a clear cut-off date for claims. The court authorised an increase to the agreed remuneration cap for additional work specifically attributable to the wider distribution, and granted prospective relief to the liquidators in respect of distributions made in accordance with the court's directions.

Background and parties: Torotrak Plc entered administration in December 2017 and thereafter became a creditors' voluntary liquidation; the joint liquidators (applicants) seek directions about a £304,859.20 surplus now available for distribution to members. There are approximately 8,759 members, the majority individuals, and practical difficulties and costs of distribution mean most members would receive only very small sums.

Nature of the application: Directions under section 112 Insolvency Act 1986 as to (i) tracing and notifying members, (ii) to whom and in what proportions the surplus may be distributed, (iii) the setting of any cut-off for claims, and (iv) approval of an increase in the liquidators' remuneration to cover extra distribution costs.

Issues framed: (1) What steps are proportionate and should be taken to trace members and how should their cost be financed? (2) Whether the court may permit a selective distribution limited to a subset of members (for example the top 81 or top 100 shareholders). (3) How to set a mechanism and timetable (including a cut-off) for members to claim the surplus. (4) Whether and how to vary the liquidators' agreed capped remuneration.

Court’s reasoning and outcome: The court concluded that it lacked power to adjust members’ rights so as to carry out a selective distribution to only the largest shareholders because section 107 of the Insolvency Act 1986 (reinforced by article 184 of the company’s articles) mandates distribution among members according to their rights and interests. The judge relied on authorities which support the proposition that the court cannot confine a distribution to only some entitled persons. Nevertheless the court adopted a pragmatic, proportionate approach to administration: the liquidators were directed to write to known members at their last-known addresses, place a single advertisement in the London Gazette and post notice on the liquidators' portal; each communication should specify a clear longstop date for claims and explain likely low dividend amounts and the evidence required for succession claims. The court authorised an increase to the remuneration cap to cover additional costs attributable to the wider distribution (on a time-costs basis only for additional work beyond the assumptions on which the cap was agreed) and granted prospective relief to the liquidators, treating distributions made in accordance with the order as a good and sufficient receipt and releasing them from liability in respect of those distributions.

Wider context: The judgment balances the statutory requirement to distribute pari passu among members against the need for proportionality and finality in insolvency, and endorses the use of a cut-off and limited advertising/notification to conclude protracted insolvencies without readjusting substantive membership rights.

The application for directions under section 112 of the Insolvency Act 1986 was allowed in part. The court refused to permit a selective distribution limited to only the largest shareholders (as inconsistent with section 107 and the company’s article 184) but directed a proportionate notification and claims process (letters to known members, a single London Gazette advertisement and portal notice with a cut-off date). The court authorised an increase to the liquidators' capped remuneration for additional work required to carry out the wider distribution and granted prospective relief to the liquidators for distributions made in accordance with the court's order.