Termination
Cases
The Revenue Commissioners -v- Fitzpatrick
[2015] IEHC 676
Murphy J.
“56. Section 277 provides that “the court may, on cause shown, remove a liquidator and appoint another liquidator”. The applicant contends, either in addition or in the alternative, that the liquidator should be removed for cause shown on the basis that he has charged excessive remuneration and incurred excessive legal costs; that he has failed to call meetings of the Committee of Inspection when requested to do so by creditors; that he has failed to hold annual creditors’ meetings as required by law; that he has brought and maintained proceedings in circumstances where the creditors had advised and directed that this was not in the interests of the liquidation and that the applicants no longer have confidence in the respondent.
57. The equivalent section in England, section 108 of the Insolvency Act 1986 also provides that “the court may, on cause shown, remove a liquidator and appoint another.” In the case of Re Keypak Homecare Ltd [1987] BCLC 409, which concerned an application under s. 108 while Millett J. observed that “there is a burden on the applicant to show cause why the liquidator should be removed” he also stated that “the words of the statute are very wide and it would be dangerous and wrong for a court to seek to limit or define the kind of cause which is required. Circumstances vary widely, and it may be appropriate to remove a liquidator even though nothing can be said against him, either personally or in his conduct of the particular liquidation.”
58. The breadth of cause that may be shown is also outlined in Courtney, The Law of Private Companies, 3rd ed., (Dublin, 2008), at paragraph 24.015 where he cites the following passage from the Federal Court of Australia in City & Suburban Pty Ltd v. Smith Federal Court of Australia, 9 July 1998:
“It has long been accepted that the section and its predecessors were not confined to situations where it is established that there is personal unfitness, impropriety or breach of duty on the part of the liquidator. Cause is shown for removal whenever the court is satisfied that it is for the better conduct of the liquidation or, put another way, it is for the general advantage of those interested in the assets of the company that the liquidator be removed”.
59. Lynch-Fannon, Corporate Insolvency and Rescue, 2nd ed., (Dublin, 2012) usefully summarises the principles applying to removal for cause shown as laid out by Etherton J. in Buildlead (No. 2) [2006] 1 BCLC 9. These are as follows:
“(a) The burden is on the applicant to show a good cause for removal of a liquidator but it is well-established that the statutory provision confers a wide discretion on the court which is not dependent on the proof of particular breaches of duty by the liquidator.
(b) The power to remove a liquidator is not confined to cases of misconduct or personal unfitness.
(c) Due cause is to be measured by reference to the real, substantial, honest interests of the liquidation, and the purpose for which the liquidator is appointed. This may involve the Court carrying out a difficult balancing exercise.
(d) A creditor’s loss of confidence must be reasonable, and in the case of a compulsory liquidation the court will not lightly remove its own officer.
(e) The court will, among other considerations, pay due regard to the impact of removal on the liquidator’s professional standing and reputation. Where a liquidator has been generally effective and honest, the court will think carefully before deciding to remove him.
(f) The court has to bear in mind that in almost any case where it orders a liquidator to be removed there will be undesirable consequences in terms of costs and delays.”
62. In addition the applicant states that the respondent’s repeated breach of his obligation to send a copy of the account of his acts and dealings and of the conduct of the winding up to the Registrar of Companies pursuant to s. 272 of the 1963 Act is a ground for his removal as is his attempt to circumvent s. 269(1) of the same Act and to disobey the clear direction of the Committee of Inspection by attempting to have his remuneration unlawfully fixed by the creditors. It contends that a further ground arises from the respondent’s repeated attempts to claim remuneration for work done for the benefit of the secured creditor in breach of the decision in DR Developments (Youghal) Limited. The applicant maintains that yet another ground for his removal arises from his seeking to remunerate himself at a level of pay far in excess of what would be expected or reasonable in a winding up of this size, complexity and importance, thereby acting in breach of his duty to the Company and its creditors. The respondent’s engagement of a solicitor in a manner which opened the Company up to significant excessive costs and his sale of Company property to a Company officer without consultation with creditors are also proffered by the applicant as grounds for his removal.
63. The applicant therefore submits that the conduct of the respondent in this liquidation has been unreasonable, inappropriate and unsatisfactory and has resulted in a liquidation which should have been finalised in 2012 extending into 2015. As such, the applicants say that they have no confidence in the respondent and have a well-founded fear that he continues to act as liquidator their interests, the interests of other creditors and the interests of the liquidation generally will be significantly impaired.
64. The respondent cites paragraph 38.46 of Keane, Company Law, 4th ed., (Dublin, 2007) which states:
“The court has power under s. 277 to remove a liquidator on cause shown and appoint another in his stead. The most usual ground for such an application is the possibility of a conflict of interest but any misconduct on the liquidator’s part will also, of course, justify the making of such an order.”
65. The respondent submits that no conflict of interest has arisen here and there are no misconduct grounds on which his removal could be justified. He contends that the applicant has not only brought an inappropriate s. 277 application he has also done so without offering a substitute liquidator.
66. The respondent submits that Re Keypak Homecare involved an entirely different set of circumstances in which the liquidator had made no examination of the company sales and purchase ledgers and there was an apparent phoenix company operating from the same premises as the company in liquidation, employing the same staff and relying on assets of the company in liquidation. These matters were raised at a creditors’ meeting and the liquidator nevertheless failed to investigate them or proceed against the former directors. The respondent therefore submits that the facts of the Keypak case have nothing in common with this case in which the respondent took a proactive approach. The respondent also distinguishes Re Buildhead a case in which allegations of wrongful preferences were at issue. It submits that the more relevant case in this regard is AMP Enterprises Limited v. Hoffman [2002] EWHC 1989 (Ch) in which Neuberger J. remarked, at para 23 and 27:
“In an application such as this, the court may have to carry out a difficult balancing exercise. On the one hand a court expects any liquidator, whether in a compulsory winding up or a voluntary winding up, to be efficient and vigorous and unbiased in his conduct of the liquidation, and it should have no hesitation in removing a liquidator if satisfied that he has failed to live up to those standards at least unless it can be reasonably confident that he will live up to those requirements in the future. […]
On the other hand, if a liquidator has been generally effective and honest, the court must think carefully before deciding to remove and replace him. It should not be seen to be easy to remove a liquidator merely because it can be shown that in one, or possibly more than one, respect his conduct has fallen short of ideal. So to hold would encourage applications under s. 108(2) by creditors who have not had their preferred liquidator appointed, or who are for some other reason disgruntled. Once a liquidation has been conducted for a time, no doubt there can almost always be criticism of the conduct, in the sense that one can identify things that could have been done better, or things that could have been done earlier. It is all too easy for an insolvency practitioner, who has not been involved in a particular liquidation, to say, with the benefit of the wisdom of hindsight, how he could have done better. It would be plainly undesirable to encourage an application to remove a liquidator on such grounds. It would mean that any liquidator who was appointed, in circumstances where there was support for another possible liquidator, would spend much of his time looking over his shoulder and there would be a risk of the court being flooded with applications of this sort. Further, the court has to bear in mind that in almost any case where it orders a liquidator to stand down, and replaces him with another liquidator, there will be undesirable consequences in terms of costs and in terms of delay.”