English Court clarifies when an insolvency officeholder's cross-undertaking in damages can be limited

Quick read

The applicants were appointed as liquidators of IAHP Group Holdings Limited (IAHP) by the court. IAHP was a holding company and its directors (the respondents) and sole shareholders were husband and wife.

Background

The liquidators' investigations revealed a shortfall of £11 million in the company, with approximately £4.1 million having been 'diverted' to the respondents.

The liquidators brought a claim of misfeasance against the respondents and sought a proprietary injunction, worldwide freezing order and provisions for disclosure of information against the directors.

In the absence of any available funds in IAHP (due to the conduct of the directors) the liquidators obtained cross undertaking in damages insurance. However, this was capped at £200,000.

Decision

In determining whether to grant the relief sought, the judge had regard to the principle that officeholders must generally provide an unlimited cross-undertaking in damages but that this is "intensely fact-sensitive", particularly where respondents are allegedly responsible for the lack of funds in the liquidation estate and have displayed evasive behaviour.

The court held that given that the liquidators had no personal interest and the respondents were responsible for the company's impecunious position, the relief should be granted and the cross-undertaking in damages capped at the insurance amount.

Key takeaway

This case will be welcome relief to insolvency officeholders who may be contemplating a combination of proprietary injunctions and worldwide freezing orders as part of their investigative powers, in particular regarding when the court is willing to limit cross-undertaking exposure through appropriate insurance arrangements.