Liquidators must be efficient
The Court of Appeal recently considered inter alia the circumstances in which a court might order the removal of a liquidator.
The case concerned the liquidation of Ballyrider Limited which traded from the Hazel Hotel in Monasterevin, County Kildare. The hotel was the company’s only significant asset. Anthony Fitzpatrick was appointed a liquidator of the company at a creditors meeting in November 2010.
The hotel was initially sold by the liquidator at auction in May 2011 for €630,000 to Michael Phibbs but the sale fell through and the hotel was later sold in November 2011 to a different purchaser for the lesser sum of €479,000.
In January 2012 Fitzpatrick commenced proceedings against Phibbs to recover approximately €150,000 being the estimated loss arising from the failed sale.
In August 2014 the Revenue (as preferential creditors) applied to the High Court seeking an order to stop the liquidator bringing proceedings on behalf of the company and an order declaring that costs incurred by the liquidator were not properly incurred so could not be paid in priority to other claims or, in the alternative to the aforementioned orders sought, an order removing the liquidator.
In Revenue Commissioners v. Fitzpatrick  IEHC 477 the following three matters concerning the liquidator’s actions were of particular importance to the High Court:
- Fitzpatrick engaged a solicitor on a “time” basis, failing to request an outline of the anticipated fees regarding the sale of the hotel.
- Fitzpatrick delayed the liquidation by instituting proceedings against Phibbs for non-performance of the contract for sale and while not legally obliged to consult with the relevant creditors prior to issuing such proceedings, it would have been prudent for him to have done so. Also, Fitzpatrick had not obtained any written legal advice concerning the risks, if any, to the liquidation and made no assessment as to the likelihood of recovering any judgment that might be obtained.
- In his four and a half years as liquidator, he had not produced an itemised account of his fees.
On this basis, in July 2015 the High Court concluded that Fitzpatrick had not conducted the liquidation in an efficient and cost-effective and made an order removing him as liquidator.
Fitzpatrick appealed, among other things, the lawfulness of his removal and sought an order that he be re-instated.
On appeal, the Court of Appeal considered Irish company law and the UK jurisprudence finding that a number of principles applied to an application to remove a liquidator.
Included in these principles the Court stated that “whether good cause has been shown is to be measured by reference to the real and substantial interests of the liquidation and the purpose for which a liquidator is appointed.”
The Court also stated out that it has a “wide discretion as to the circumstances in which it may remove a liquidator and it is not dependant on proof by the applicant of misconduct, personal unfitness or any particular breach of their statutory obligations” and “what will amount to good cause will depend upon the particular circumstances of each individual case”.
The Court further pointed out that “failure on the part of a liquidator to conduct the liquidation in a vigorous, efficient and cost-effective manner may provide good cause, as may a conflict of interest or loss of confidence in the liquidator on the part of one or more creditors. However, in the latter case the creditor/creditors concerns must be real and reasonable”.
Having considered the numerous principles, including those set out above, the Court of Appeal approved the decision of the High Court to remove Fitzpatrick as liquidator based upon the conclusion that he had not conducted the liquidation in an efficient and cost-effective manner.
In doing so the Court of Appeal emphasised what it called the two “headline” issues which informed the High Court’s conclusion that Fitzpatrick had not conducted the liquidation in an efficient and cost-effective manner. The first of these was Fitzpatrick’s decision to commence proceedings against Phibbs and the manner in which those proceedings were conducted and secondly his agreement with a solicitor concerning his conveyancing fees in respect of the sale of the hotel.
This conclusion, it found, was strengthened by the additional concerns of the Court as to his conduct in respect of his own remuneration, that it could not confidently be concluded that if left in situ Fitzpatrick would live up to the requirement that he complete the liquidation in an efficient, vigorous and cost-effective manner.
- Court of Appeal 26th day of July 2016
- Revenue Commissioners -v- Fitzpatrick  IECA 228
- Judgment available on court.ie