UK High Court reluctant to interfere with liquidators' discretion to assign claims

In Re Edengate Homes (Butley Hall) Ltd (in liquidation) Lock v Stanley (in his capacity as liquidator) and another [2021] EWHC 2970 (Ch), the High Court has confirmed that to reverse a liquidator's assignment of claims to a third party, the claimant must satisfy a 'formidable' test.

Background

Edengate, a failed property development company, went into liquidation in 2015. The claimant, Mrs Lock, was a creditor, shareholder and director of Edengate. The liquidator's investigations revealed potential transactions at an undervalue and statutory preference claims against Mrs Lock and others. The liquidator assigned these claims to a litigation funder.

Decision

Mrs Lock sought an order to set aside the assignment on the basis that the liquidator did not take legal advice on the assignment or approach the wider market for potential assignees. Although the Judge held that Mrs Lock did not have standing to bring the claim, he still considered whether the assignment should be set aside.

The Judge followed the test in re Edennote Ltd [1996] 2 BCLC 389 : the liquidator's conduct must amount to something so utterly unreasonable and absurd that no reasonable person would have done it.

The Judge held that this test was not satisfied. The liquidator had approached another creditor and the litigation funder with a view to sell the claims. There was no evidence that better terms could have been achieved with another party. The liquidator had also considered options to fund the claims, such as a conditional fee arrangement. 

Key takeaways 

The decision reflects the Court's reluctance to interfere with commercial decisions made by an officeholder. It will give confidence to officeholders and litigation funders that there is a high threshold to successfully challenge the assignment of claims.

Find out more

To discuss the issues raised in this article in more detail, please reach out to a member of our Restructuring & Insolvency team.