CREDITORS’ CHALLENGES TO ADMINISTRATORS AND LIQUIDATORS – AN OVERVIEW
Insolvency practitioners occupy a powerful and responsible role in administrations and liquidations. They are often a major force for good, tackling those who have raided companies for their own personal benefit to the unlawful detriment of creditors and shareholders. Their decisions may be based on a misunderstanding of the law, and they could (rarely) be misfeasant or even in exceptional circumstances corrupt, and, as in any civilised society, they are subject to being challenged before the Court.
Where a creditor is unhappy about an office holder’s decision on a proof of debt or the value of any security, an appeal lies to the court pursuant to Rule 14.8 of the Insolvency Rules 2016. The test applied by the Court is whether the decision was simply wrong, with the Court also having a general ability to interfere where office holders have misapplied the law as Neuberger J, as he then was, made clear in CE King Ltd.
As well as being the arbiter of their decisions at law, the court also has an inherent jurisdiction to control administrators and liquidators’ conduct, as officers of the court. The court will be slow to exercise this jurisdiction.
The judiciary have no desire to regulate every question of office holders’ conduct particularly where they are making business choices which the Court generally considers they are best qualified to undertake. In this respect the Court will give them substantial latitude, expecting them to be proactive and expeditious. The bar to a challenge in respect of their conduct is high and an applicant will have to evidence unfair harm, bad faith, fraud or that the conduct was of a kind so absurd that no other reasonable liquidator would have taken it.
Oct-Dec 2018 issue