Insolvency


Assignment - compromise - creditors' voluntary winding-up - liquidators' powers and duties - misfeasance - public interest - power with court's sanction to compromise company's claims - commercial interests of company and public interest

Christopher Whitehouse v (1) David Frederick Wilson (liquidator of Vol-Mec Ltd) (2) Andrew Munro: CA (Civ Div) (Lords Justice Chadwick, Wilson, Mr Justice Lindsay): 7 December 2006

W appealed against the court's sanction of the decision of the first respondent liquidator (L) to compromise the claims of an insolvent company (V) against the second respondent (M).



M owned 73.75% of the shares in V, in which W had acquired a 25% holding under a subscription agreement. M wished to buy W's shares, and in that context W was sent the accounts for past years. W took the view that those accounts disclosed certain breaches by M of the subscription agreement.



The relationship between M and W broke down, V ceased to trade, and its business was transferred to a new company. M put V into members' voluntary winding-up, and the liquidator commissioned a report by accountants into the remuneration and benefits in kind drawn by M from V, and whether M had diverted any business from V. The accountants identified possible misfeasance claims against M.



V then went into creditors' voluntary winding-up and the new liquidator (L) invited offers from M and W for the assignment of V's claims. M offered an immediate cash payment of £160,000. A company controlled by W offered a smaller immediate payment but possible further payments.



L was minded to accept M's offer, and the court gave its sanction under section 165(2)(b) of the Insolvency Act 1986 as an exercise of L's power to compromise V's claims. W submitted that the judge had erred in concluding that M's offer, rather than W's offer, was in V's best commercial interests; and that the public interest in the pursuit of claims against an allegedly misfeasant director precluded sanction of the compromise.



Held, V was in an insolvent winding-up and its interests were those of its creditors. The whole of the cash offer made by M would be applied in paying L's fees and post-liquidation expenses. Therefore, that offer did not serve the interests of the general creditors at all. However, it did serve the interests of the post-liquidation creditors better than W's company's offer.



The judge and L were correct to hold the view that M's offer was to be preferred on grounds of certainty and finality, because the deferred element of the other offer appeared to be subject to uncertainty and conditionality. The offer from W's company would produce no benefit for pre-liquidation creditors, unless and until the litigation costs of pursuing M had been met and the post-liquidation expense creditors had been paid in full.



Whatever the strength of the claim against M, there was no material on which L or the judge could conclude that a judgment could be enforced against M in an amount sufficient to meet those requirements. Even if W was the only pre-liquidation creditor, which was disputed, and was prepared to take the risk that pursuit of M would produce no benefit for him, he was not entitled to do that at the risk and expense of the post-liquidation creditors, which was the effect of his company's offer.



The public interest in the recovery for the benefit of V's pre-liquidation creditors of funds or commercial opportunities said to have been misappropriated or misdirected by the actions of M did not lead to the conclusion that litigation to achieve that end should be pursued at the expense and risk of the post-liquidation creditors whose interests would be best served by a compromise with M.



Appeal dismissed.



Nigel Dougherty (instructed by Nicholsons) for the appellant; Eleanor Temple (instructed by Carrick Read Insolvency for the first respondent; Stephen Davies QC, Jeremy Bamford (instructed by hlwcommercial lawyers for the second respondent.