What is the old adage about buses …?

Close on the heels of the decision in the Core VCT cases (now cited as Pagden -v- Fry) which I recently discussed, comes the decision in Cedar Securities Limited & another -v- Phillips & Swan.

In this most recent case, large swathes of the earlier decision are quoted with approval and, as I suggested in my discussion of the earlier case, the Judge states: “I do not agree that it [Pagden -v- Fry] broke new ground. The detailed reasoning in the judgment is based upon well-established principles …”.

Additionally, however, this case also discusses the release that a resigning liquidator obtains where there are two or more joint liquidators. This is important because that is the one resignation which does not require approval from the creditors (or the members). Many firms, these days, will take appointments in two or more names to ensure continuity, adequate resource and mentoring. If an IP leaves a firm, this also avoids the immediate need to seek the appointment of a replacement liquidator.

This specific case relates to a Members’ Voluntary Winding up, but the provisions relating to resignation and release are the same for a Creditors’ Voluntary Liquidation (I will come back to a court liquidation, later) and whether in England & Wales or in Scotland. All of the relevant provisions (I have redacted the sub-paragraph number of the last provision as it differs between rules) state:

(1) A liquidator may resign only —

…

(d) where 2 or more persons are acting as liquidator jointly and it is the opinion of both or all of them that it is no longer expedient that there should continue to be that number of joint liquidators.

…

[X] The resigning liquidator’s release is effective 21 days after the date on which the notice of resignation under [specific to the type of appointment] is delivered to [the registrar of companies (in England & Wales)/AiB (in Scotland)], unless the court orders otherwise.

There are a number of points that should be noted.

Firstly, the Judge expressed the view that the “opinion” on whether it is “no longer expedient” must be an active decision. Ideally, it should be minuted but, if not, there must be evidence that consideration was given to reaching the opinion; it wasn’t to simply be a matter of form. The Judge sets out a helpful “checklist”:

First, both of the liquidators, or all of them if more than two, must have considered the position that will result from the resignation. Secondly, they must both, or all, (reasonably) be of the opinion that continuing with the same number of liquidators is no longer expedient. Active consideration and forming of an opinion is needed rather than what might be termed mere form filling compliance by staff other than the liquidators themselves.

In this case the “reasonably” requirement in reaching the opinion was a particularly difficult issue, given the specific circumstances (the case is worth a read, for interest alone)!

Secondly, the Judge was clear that “unless the court orders otherwise” carries with it no restriction in time and that an application under section 212 can validly seek the “otherwise” order by the Court. That section specifically refers to proceedings after a liquidator has had their release.

In short, document the discussions surrounding the resignation by a joint appointee and don’t rely upon the passage of three weeks as releasing the outgoing liquidator.

With regard to court liquidations, the provisions are slightly different between England & Wales and Scotland. In England & Wales, the last sub-paragraph of the relevant rule (7.61) does not contain the “unless the court orders otherwise” provision. In Scotland (Rule 5.27) the provision is included. That said, in England & Wales, an earlier sub-paragraph in the Rule, relating to the notices that must be sent, is as follows:

(3) The notice must —

…

(b) state that under rule 5.27(8) of these Rules the liquidator will be released 21 days after the date of delivery of the notice of resignation to the court under section 172(6), unless the court orders otherwise.

Does the inclusion of “unless the court orders otherwise” in this earlier provision affect the clear terms of 7.61(7)? I suspect that the omission is a mistake but the terms of section 212 would provide an alternative line of attack and I wouldn’t want to suggest relying upon the omission if faced with an application under section 212.