Liquidators cannot limit their liability, English court rules

Quick read

The English High Court was asked to consider as a preliminary issue whether liquidators or their firms dealing with a members' voluntary liquidation can limit their liability.

Background

This case arose from a members' voluntary liquidation where the liquidators' firm included liability limitation clauses in their engagement letters, attempting to cap their liability at £1 million. After the companies were restored to the register with new liquidators, they brought legal action against the former liquidators and their firm. The court was asked to determine whether these limitation clauses could protect the defendants from claims of breach of duty.

Decision

The Court found that liquidators cannot limit their liability because:

Insolvency law does not allow liquidators to exclude or limit their liability.
A liquidator is a fiduciary with a duty to administer a statutory trust; the law creating this trust does not allow limiting liability.
Performance of a statutory trust cannot be waived or modified.

The limitation clauses may still protect the liquidators' firm and other staff members for certain types of claims, however, the Court noted that they might be invalidated under the Unfair Contract Terms Act 1977 in future proceedings.

Key takeaways

Liquidators cannot use contractual terms to limit their personal liability.
A liquidator's firm may be able to limit its liability for separate services it provides.
Liquidators are protected by professional indemnity insurance and, where appropriate, can guard against personal exposure by applying to the Court for directions.