What claims can a liquidator bring?

When a company enters liquidation, the liquidator assumes a central role in managing the company’s affairs, including pursuing claims on behalf of the company. The liquidator’s powers and responsibilities are primarily aimed at maximising the return to creditors and ensuring the proper winding up of the company. Below, we explore the types of claims a liquidator can bring.

1. Claims in the name of the company

A liquidator has the authority to bring or defend legal proceedings in the name and on behalf of the company. This includes pursuing claims that belong to the company itself. For example, if the company has a cause of action against a third party, the liquidator can initiate proceedings to recover assets or enforce rights. However, it is essential that such claims are properly constituted in the name of the company, as failure to do so may result in the claim being struck out.

2. Fraudulent trading claims

Liquidators can bring claims for fraudulent trading under the relevant provisions of the Insolvency Act. These claims are aimed at holding individuals accountable for knowingly carrying on the business of the company with the intent to defraud creditors. Such claims are typically pursued to recover losses caused by the fraudulent conduct.

3. Wrongful trading claims

Liquidators are also empowered to bring wrongful trading claims. These claims arise when directors continue to trade while knowing, or having reasonable grounds to believe, that the company was insolvent and that there was no reasonable prospect of avoiding insolvency. The purpose of such claims is to hold directors personally liable for the losses incurred during the period of wrongful trading.

4. Claims against shareholders

In certain circumstances, a liquidator may bring proceedings against shareholders to recover unpaid share capital. This ensures that shareholders fulfil their financial obligations to the company, which can then be used to satisfy creditor claims.

5. Derivative or minority shareholder claims

Once a company enters liquidation, the right to bring derivative or minority shareholder claims typically passes to the liquidator. If minority shareholders believe that a claim should be pursued but the liquidator is unwilling to do so, they may apply to the court for assistance. The court may order the liquidator to bring the claim or grant the minority shareholders permission to pursue the claim in the name of the company. However, such permission is usually conditional upon the minority shareholders indemnifying the liquidator and the company’s assets against any adverse outcomes.

6. Misfeasance claims

Liquidators can bring claims for misfeasance against directors or other parties who have breached their duties to the company. This includes situations where directors have misapplied company funds, acted negligently, or otherwise failed to act in the best interests of the company.

7. Other legal actions

In addition to the above, liquidators may bring or defend other legal proceedings as necessary for the beneficial winding up of the company. This could include contractual disputes, recovery of debts owed to the company, or other claims that arise in the course of liquidation.

Conclusion

The liquidator’s ability to bring claims is a critical tool in the liquidation process, enabling the recovery of assets and the enforcement of rights for the benefit of creditors. However, the liquidator must act within the scope of their powers and ensure that any claims are properly constituted and supported by evidence.