Cedar Securities Limited (in liquidation) & Anor v Mark Richard Phillips (a bankrupt) & Ors

Permission to amend a defence may be refused where the proposed case has no real prospect of success, is inadequately explained, or causes disproportionate prejudice. Withdrawal of admissions requires a full and frank explanation and consideration of the non-exclusive factors in CPR rule 14.5.

A liquidator’s statutory fiduciary obligations arising from the statutory trust cannot be limited or excluded by contractual terms agreed with the company or a firm providing services. The same principle applies whether the clause limits liability or excludes it, and whether the alleged breach concerns assets or the discharge of liabilities.

A release obtained on resignation under rule 5.6 is not absolute. The court may postpone its effect, and section 212 provides a procedural route for a meritorious claim against a released liquidator.

Cedar Securities Limited and its shareholder claimed against former joint liquidators for losses arising from the late filing of a corporation tax return and late payment of tax. The claim was issued after one liquidator had retired and was later amended following the appointment of a new liquidator.

The court considered the former liquidator’s applications to amend her defence to rely on a statutory release under the Insolvency Act 1986 and a contractual limitation clause. It also considered an application under section 212 of that Act for permission to pursue the claim against a released liquidator.

The central issues were whether the proposed amendments had real prospects of success, whether admissions could be withdrawn, whether the contractual clause could affect the liquidator’s personal liability, and whether the statutory release should be postponed.

1. Amendment and withdrawal of admissions. Permission to amend was governed by the principles summarised in CNM Estates (Tolworth Tower) Ltd v Carvill-Biggs. The court had to avoid a mini-trial unless the proposed case had no real prospect of success, while balancing the applicant’s position against prejudice, finality and the overriding objective. The proposed statutory-release defence and the proposed limitation-clause defence were distinct.
2. Withdrawal of admissions engaged CPR rule 14. The court had to consider all the circumstances, including the grounds for withdrawal, new evidence, the parties’ conduct, prejudice, the stage of proceedings, prospects of success and the administration of justice. A party seeking withdrawal ordinarily had to provide a full and frank explanation, including how the admission was made and why it should be withdrawn. Ms Swan’s explanation was inadequate, and permission to withdraw the admissions was refused.
3. Limitation clause. Pagden v Fry was binding and directly applicable. A liquidator’s liabilities arising from the statutory trust cannot be limited or excluded by contractual agreement. There was no relevant distinction between limitation and exclusion of liability, or between duties concerning assets and duties concerning the discharge of liabilities. The proposed defence therefore had weak prospects and could not be introduced.
4. Release and section 212. Rule 5.6(1)(d) required both joint liquidators actually and reasonably to form the opinion that continuing with the same number of liquidators was no longer expedient. Mere filing compliance was insufficient. The release under rule 5.6(6) could be postponed after resignation, under a broad discretion taking account of all the circumstances. In the circumstances, the release could not be relied upon in the present claim.
5. Section 212 was procedural and supplied an alternative route for the same underlying claim. Permission depended principally on a reasonably meritorious cause of action and a reasonable likelihood of benefit to the company, with delay also relevant. Those requirements were met. If postponement were unavailable, the court would grant leave under section 212 and order consolidation and the necessary substitution or joinder.

First-instance decision. The judgment records no prior appellate decision in this litigation.