Laurence Pagden & Ors v Mark Robert Fry & Anor

Members of a company in members’ voluntary liquidation do not have a general power to control the liquidator’s conduct of the winding-up, including decisions to pursue litigation. That principle is not displaced merely because the company has been restored to the register after its members were not initially consulted.

A member wishing to challenge a liquidator’s decision must use the statutory mechanism under Insolvency Act 1986, principally section 112 and, where appropriate, section 168(5). The court will ordinarily intervene on the merits only where the liquidator’s decision is perverse, absent fraud or bad faith. A defendant to the company’s claim lacks a legitimate interest in relief contrary to the interests of members generally.

The proceedings concerned applications to lift stays imposed over a Part 7 claim by three venture capital trusts in liquidation and related proceedings against their former liquidators. The stays had been imposed while replacement liquidators reviewed the claims, pursuant to an undertaking given in earlier restoration and liquidation proceedings.

The companies had previously been restored to the register following proceedings involving members and former office-holders. The Court of Appeal directed that members should be consulted on whether restoration should continue and whether the court-appointed liquidators should remain in office. The central issue was whether a further shareholder vote was required before the replacement liquidators could continue the litigation.

1. Disposition. The stays were discharged. The court rejected the request to make their lifting conditional on a further shareholder vote.
2. Members’ powers. The Court of Appeal’s summary of the law, in Fakhry and ors v Pagden and ors [2020] EWCA Civ 1207, established that members do not enjoy powers to control the actions of a liquidator, even in a members’ voluntary liquidation. Under section 165 and Schedule 4 of the Insolvency Act 1986, the power to bring proceedings in the company’s name and on its behalf rests with the liquidator.
3. Effect of restoration proceedings. The member consultation directed by the Court of Appeal concerned whether the companies should be restored to the register, not which claims should be pursued after restoration. Once restoration was approved, the liquidation was to proceed as if the companies had not been struck off.
4. Statutory remedy. Section 112 provides the appropriate route for a member seeking to challenge or control a liquidator’s acts. The court will ordinarily interfere under section 168(5) only where the decision is perverse, namely so unreasonable and absurd that no reasonable person would have made it, absent fraud or bad faith: Re Edengate Homes (Butley Hall) Ltd; Lock v Stanley [2022] EWCA Civ 626. The applicant must also be a person aggrieved with a legitimate interest aligned with the interests of the relevant class.
5. Application. The defendants’ interests as defendants to the company’s claim were adverse to the interests of members generally. The replacement liquidators’ decision to continue the claim could not be characterised as perverse. Requiring a further vote would create a restriction on the liquidator’s freedom of action that does not ordinarily exist in a members’ voluntary liquidation and would conflict with the legislative policy favouring liquidator independence.

The judgment was a first-instance decision on applications to discharge stays. It records earlier restoration and liquidation proceedings, including the Court of Appeal decision in Fakhry and ors v Pagden and ors [2020] EWCA Civ 1207, and the subsequent decision of ICC Judge Burton in Pagden and Ors v Soho Square Capital LLP and others [2022] EWHC 944 (Ch).