Philip Lanigan & Anor v Derek Hyslop & Ors

A creditor may challenge a liquidator’s decision under section 168(5) only where the challenge is brought in the creditor’s capacity as such and concerns an interest adversely affecting that capacity. Alignment with the general creditor class is usually relevant, but is not invariably required.

The court will interfere with a liquidator’s commercial decision to assign a claim only where, objectively and without hindsight, it was so unreasonable and absurd that no properly advised liquidator would have made it. There is no universal duty to market a claim to defendants or third parties, or to conduct extensive independent investigations. The decision depends on the circumstances, including available resources, limitation pressures, the claim’s apparent viability and the prospective assignee’s ability to pursue it.

The applicants, former directors and contingent creditors of Styles & Wood Group Limited, applied under sections 112 and 168(5) of the Insolvency Act 1986 to set aside an agreement by which the company’s liquidators assigned claims against them to Knaresborough Investments Ltd.

They alleged that the liquidators had failed properly to investigate or market the claims, had agreed inadequate consideration and had created a conflict by enabling related claims against the company. The respondents disputed standing and the substantive challenge. The central issues were whether the applicants were persons aggrieved acting in their capacity as creditors, and whether the assignment decision was perverse.

1. Standing. The application was brought principally to disrupt and defeat the claims against the applicants personally, rather than to protect their interests as creditors or the creditor class. Although they were accepted to be creditors, their interests in setting aside the assignment were collateral to, and inconsistent with, their interests in that capacity. The application therefore failed for want of standing.
2. The applicable approach under section 168(5) is that a creditor must show that the impugned act or decision affects the creditor adversely in its capacity as creditor. It is not invariably necessary to establish that the challenge is aligned with the interests of creditors generally. The refinement identified in Brake and another v The Chedington Court Estate Ltd [2023] 1 WLR 3035 qualified the broader formulation in Re Edengate Homes (Butley Hall) Ltd [2022] 2 BCLC 1.
3. Perversity. A liquidator’s decision to assign a cause of action is an exercise of discretion. Apart from fraud or bad faith, intervention is justified only where the decision was objectively so unreasonable and absurd that no properly advised liquidator would have made it. The assessment is made on the facts known at the time and without hindsight.
4. The liquidators acted within their discretion. The claims were not obviously hopeless or vexatious; the company lacked funds for extensive investigation or litigation; KIL had relevant knowledge, access to documents, financial resources and the willingness to pursue complex claims; and limitation pressures made delay material. There was no irreducible duty to offer the claims to the applicants or to conduct a wider marketing process.
5. The alleged conflict did not arise from the assignment. The company’s economic interest in the outbound claims was contingent on the inbound claims regardless of the assignment, and the creditors had no economic interest in defeating the inbound claims. The contingent consideration was not shown to be illusory, and the possibility of a better hypothetical bargain did not establish perversity. The application was dismissed.