We regularly hear clients complain that the Liquidator of the company is not doing his/her job, perhaps because there is a perception the Liquidator is failing to pursue financial claims or take appropriate asset recovery action against a Director or debtor of the company. So, what options does the aggrieved Creditor have? How to remove a Liquidator.
How to remove a Liquidator who is in office
There are three routes available if Creditors want to remove a Liquidator:
- By decision Procedure, involving a Meeting of Creditors or Creditor Vote; or
- Application to Court; or
- Request to the Liquidator to leave office.
What about Pre‑Liquidation – How Creditors Can Replace a Liquidator Before Appointment?
However, if a Liquidator has not yet been formally appointed but instead has been instructed to place a company into liquidation, then a Creditor can look to appoint another Liquidator in the place of the person nominated by the shareholders of the company. The creditor needs to act quickly.
This action can and should be taken as part of a deemed consent procedure, by objecting to the Shareholders’ chosen nomination of a Liquidator and actively voting at any meeting of Creditors that has been convened, for the appointment of some other person as a Liquidator.
Why remove a Liquidator?
There might be a number of reasons Creditors want to remove a Liquidator:
Examples
- A failure by the Liquidator to respond to Creditor communications and their wishes.
- Creditor concerns about the sale of assets for less than their value, often back to the Directors of the failed company.
- A failure to properly investigate the conduct and actions of Directors of the company that has gone into Liquidation.
- Creditors concerned the Liquidator is acting in the interests of the Directors (and not in the interests of the company’s Creditors).
- The Liquidator is unwilling to disclose information and documentation to the Creditors (creating suspicion and/or uncertainty and/or frustration).
Note of caution
However, a Liquidator might have a good reason for having conducted himself or herself in a way that might be at odds with what a given Creditor believes should be the case. Often, a well worded letter to the Liquidator from an experienced insolvency professional provoking a response may solve or narrow the issue(s) in dispute or may well reinforce the underlaying concerns of the Creditor(s).
Objective: aggrieved Creditors should pool their concerns (and financial votes) to seek to remove and replace the Liquidator
Much can be achieved when Creditors (and their votes) come together and their interests are furthered as a group, not individually. The greater the combined debt owed, the greater the prospect of an available remedy. Creditor interests are pursued by the Liquidator for their benefit as a whole. The assets of the insolvent company are then once realised, after costs and expenses of the Liquidation then distributed pursuant to a statutory order of payment set out in Rule 7.108 of the Insolvency (England and Wales) Rules 2016.
Maximising the available assets should almost inevitably be the objective of the appointed Liquidator. The days are long gone when a Liquidator can hide behind the mantra of ‘there is no money in the case’ to pursue recovery claims. Insurance products and claims funders are available to allow and enable a Liquidator to pursue many such claims in liquidations even where there is no money in the liquidation pot (but where it appears that the target Director and others do have assets to pay any claim pursued against them by the Liquidator/a claims funder).
Statutory Gateways for Removing a Liquidator
The Insolvency Act 1986 sets out the requirements for Liquidator removal in a Voluntary Liquidation in Section 171 of the Insolvency Act 1986. For Compulsory Liquidation the position is set out in Section 172 of the Insolvency Act 1986.
Requisitioning a decision procedure to remove the Liquidator
A Liquidator can be removed from office by a Decision Procedure when a company’s Creditors vote to remove and replace the Liquidator, perhaps nominated by the dissatisfied Creditors.
Replacement Liquidator – How to Appoint Someone Better
To requisition a Decision Procedure to remove a Liquidator requires compliance with Rule 15.18 of the Insolvency (England and Wales) Rules 2016. The key to success is having 25% of Creditors by value supporting a Liquidator’s removal so that Liquidator can be replaced with another person.
Our team is well placed to advise on the identity of the enthusiastic and savvy replacement Liquidator. We work with and for such Liquidators every day.
This procedure may well involve the need to pay a deposit as security for the costs of convening the procedure by virtue of Rule 15.19 of the Insolvency (England and Wales) Rules 2016. To require a Creditor deposit the Liquidator will need to ask for it within 14 days of the request for the voting procedure.
Requisition a decision procedure in a Creditors Voluntary Liquidation – how?
In a Creditors Voluntary Liquidation if you wish to remove a Liquidator, then according to Rule 15.18(4) of the Insolvency (England and Wales) Rules 2016 the Creditors seeking the voting procedure must amount to 25% of Creditors by value, not including those Creditors connected with the company. In practice, this requirement refers to unconnected Creditors with unsecured claims against the company.
Requisition a decision procedure in a Compulsory Liquidation – how?
In a Compulsory Liquidation (i.e. a winding-up by the company) if Creditor(s) wish to vote to remove a Liquidator, then Section 172(3) of the Insolvency Act 1986 requires Creditors to amount to 25% of Creditors by value.
In other words, if the total amount of Creditors is £100,000 spread across 10 different Creditors then all that is required is for £25,000 worth of Creditors to come together to support the request for a decision to remove the Liquidator. As in the case of a Creditors Voluntary Liquidation, only the unsecured Creditors will be permitted to vote.
Application to Court to remove the Liquidator
An application to the Court can be made for an order to remove the Liquidator.
A Court application seeking a Liquidator’s removal requires however a very good reason. Removal of the Liquidator by the Court is not intended to be a procedure that is invoked and used lightly. Any application to the Court must be founded in reasons related to the Liquidator’s relevant conduct in the administration of the insolvency estate (Liquidation, insolvency, bankruptcy etc).
Such an application to Court is expensive and unhelpful to the liquidation process. If Liquidators were easily replaced on a routine basis the liquidation process would be chaotic. The costs of such applications would be at the expense of all Creditors.
A Liquidator is a Licenced Insolvency Practitioner and Officer of the Court. The Court is not going to remove a Liquidator by Court Order without the Applicant having compelling reasons to do so. Consequently, if Creditors want the Court to remove the Liquidator they have to have good reason. But what is good reason?
Why do Court applications by creditors often fail?
Such Creditor applications often fail because the burden of proof is on the Creditor making the application to demonstrate that there is a real need and benefit for the Liquidator to be removed. Putting forward all the evidence in the most coherent way is vital. It is also likely to be an expensive and risky route for a Creditor to take because if the application is unsuccessful, then the Creditor may be made liable by the Court to pay not only their own legal costs but also the legal costs and expenses of the Liquidator, that they seek to remove from office. Those costs may be significant.
Comment
We are well placed to advise on such matters.
Conduct before a Liquidator’s appointment
It is the conduct of the Insolvency Practitioners themselves whilst holding office as Liquidator that is in question when a removal application is being considered by the Court, except where there is, for example, some evidence of inappropriate behaviour in the period leading up to appointment.
Requesting the Liquidator’s removal
Another way to remove a Liquidator is to invite them in writing to leave office voluntarily. When a Creditor is unhappy with an Insolvency Practitioner, they can simply ask them to accept being removed and in some cases, this solves the problem. This is the most cost effective way of achieving the desired outcome i.e. replacement of the Liquidator.
Comments
Often, a well worded letter from an experienced insolvency professional can persuade the incumbent Liquidator to resign or be amendable to the appointment of an additional Liquidator, chosen by the creditors.
There may be circumstances in which a Liquidator is actually happy to let someone else take over the conduct of the company in Liquidation, so it is always worth asking the question. You might be pleasantly surprised by the outcome.
Another course may be to seek the consent of the incumbent Liquidator to the appointment of a further, additional Liquidator, perhaps to deal with particular aspects of the liquidation, for example so that the further, additional Liquidator deals with Investigations and Claim issues (e.g. into the conduct of Directors).
Will the new/additional Liquidators do a better job?
Choosing the right Liquidator is of fundamental importance. We can assist here, working as we do with trusted Liquidator contacts, day in, day out.
Get in touch for help if you are looking to remove a Liquidator
For a free no obligation chat about any of the matters detailed above, please do contact us for help. One of our eopert insolvency solicitors will call you back or, if you prefer, exchange emails with you on the subject.
We can explore your situation and consider the best way to help you and your business needs. You can call us 0121 200 7040..
Below are precisely the Frequently Asked Questions that matter for creditors unhappy with their liquidator. They’re tight, relevant, and relate directly to this article’s content and creditor pain points.
FAQs: Remove a Liquidator or Replace one
1. Can creditors remove a liquidator?
Yes. Creditors can remove a liquidator through:
- a decision procedure,
- a court application, or
- a request for the liquidator to resign.
Each route has different cost, risk, and evidential requirements.
2. Do directors have any power to remove a liquidator?
No. Once a liquidator is appointed, only creditors can remove them. Directors have no statutory authority to do so.
3. What reasons justify removing a liquidator?
Common creditor concerns include:
- failure to investigate directors,
- poor communication,
- asset sales at undervalue,
- perceived bias towards directors,
- refusal to disclose information,
- lack of progress or inactivity.
4. How many creditors are needed to remove a liquidator?
Creditors representing 25% by value of the unsecured debt can requisition a decision procedure to remove the liquidator.
5. What is the difference between removing and replacing a liquidator?
- Removing refers to ending the current liquidator’s appointment.
- Replacing refers to appointing a new liquidator in their place
In practice, both usually happen together.
6. Is it expensive to remove a liquidator?
It can be.
- A decision procedure may require a deposit to cover costs.
- A court application is significantly more expensive and risky — creditors may be ordered to pay the liquidator’s legal costs if unsuccessful.
7. What evidence is needed for a court application to remove a liquidator?
Creditors must show serious concerns about the liquidator’s conduct, such as:
- failure to investigate,
- failure to act impartially,
- mismanagement of assets,
- unreasonable delays. The court will not remove a liquidator lightly.
8. Can a liquidator be asked to resign voluntarily?
Yes.
A well‑structured letter from an insolvency solicitor can sometimes persuade the liquidator to step aside or agree to the appointment of an additional liquidator.
9. Can creditors appoint a different liquidator before the liquidation starts?
Yes.
Before formal appointment, creditors can object to the shareholders’ nominee and vote to appoint their preferred liquidator instead.
10. What happens after a liquidator is removed?
A replacement liquidator is appointed immediately through the same decision procedure or court order. The new liquidator takes over all investigations, asset recovery, and statutory duties.
11. Will a new liquidator investigate the previous liquidator’s conduct?
Potentially.
If there are concerns about the outgoing liquidator’s actions, the replacement liquidator may review their conduct as part of their statutory duties.
12. Can creditors appoint an additional liquidator instead of removing the existing one?
Yes.
Creditors can request the appointment of an additional liquidator to handle specific aspects such as investigations or claims.
