Sanction of Liquidator’s Actions

This is part of a series of blogs on the Small Business, Enterprise & Employment Bill (“the Bill”) that is proposed to come into force in April 2015. As of writing, where a company is placed into liquidation, the Liquidator’s ability to bring certain proceedings or take specific steps is controlled by the insolvency legislation, some of which require the permission of either the Court or, more usually, creditors.

This permission is commonly referred to as “sanction” and the powers of appointed liquidators that are exercisable with or without creditors’ sanction is defined by Schedule 4 to the Insolvency Act 1986. These powers differ depending on whether the company has been wound-up by the Court or by its shareholders by way of a creditors voluntary liquidation.

The sanction of creditors is normally required when liquidators seek to compromise creditors’ claims, bring or defend legal proceedings and continue the business of the company (where the company has been wound-up by the court) or issue proceedings to recover assets as a result of disposals or payments which preceded the liquidation (often referred to as antecedent transactions).

The Bill seeks to remove the requirement for creditors’ (or indeed the Court’s) approval of such proposed steps and instead the various powers of an appointed liquidator (as set in Schedule 4 to the Insolvency Act 1986) are combined into a single list, free of any interference or need for authority from creditors.

Whilst liquidators actions will remain subject to the control of a creditors committee, the Court and the Secretary of State, the removal of this burden to seek creditors’ approval is perhaps welcome as this is very rarely contentious and will again assist the government in its objectives to reduce the cost of insolvency proceedings and maximise returns to unsecured creditors.