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Misfeasance Claims – Liquidators must act reasonably and realistically

Misfeasance Claims Against Directors: Liquidator Gets a Bloody Nose at Trial. 

This case study, concerning misfeasance claims, looks at the  recent decision of the High Court following the hearing of the joint liquidators’ application in the case of Philip Anthony Brooks and Julie Elizabeth Willetts (Joint Liquidators of Robin Hood Centre PLC) v Keiron Armstrong and Ian Walker [2015] EWHC 2289 (Ch). This case, in which the applicant liquidators received less than 5% of the sum claimed, provides a salutary lesson – and is a sharp reminder – to liquidators who bring Misfeasance Claims against directors, to act reasonably, sensibly and realistically or face the serious consequences of not doing so.

Details of This Misfeasance Claims Case

  • The applicant liquidators claimed £701,000 in damages from the director.
  • They received just £35,000 at Trial (or just 4.99% of the sum claimed).
  • The losses claimed by the liquidators were found by the Court to be “wrong and wholly unrealistic”.
  • The liquidators had incurred an ‘After the Event’ insurance premium of £106,000 and third party funding of £20,000.
  • The liquidator’s solicitors claimed a 100% mark up on all fees.
  • The total costs claimed by the applicant liquidators were approximately £1.1 million.
  • The liquidators sought their costs on an indemnity basis against the director.
  • In fact no costs were awarded by the Court to either party at the end of the case.

 The Judgment

The Registrar made no order for costs against the director, even though the director was ordered to pay £35,000 to the liquidator. The Court declined to make an issue based costs order.  The judgment records:

“16. Based upon all the matters above, I do not think it right or indeed proportionate to order assessment based upon issues won and lost. I therefore reach my decision adopting an overview of the case as a whole taking into account and balancing all the specific points dealt with above. In my judgment there should be “no order” as to costs to reflect the outcome and approach of the parties and to achieve justice. That decision applies the overriding objective and reaches a proportionate result.”

Our View on this Misfeasance Claim Case

  1. Liquidators regularly bring such Misfeasance Claims against directors, using solicitors who often work on a ‘no recovery no fee’ basis and with the backing of an insurance policy that kicks in, to pick up any costs awarded against the liquidator were he to lose the case and be ordered to pay costs to the director.  Such weapons are often deployed by the liquidator as a sledge hammer to crack the nut that is the director.

Such arrangements, on the face of it, allow liquidators to sue without costs risk. They and the solicitors they employ are prepared to do so, knowing that a financial recovery is likely (e.g. because the defendant director cannot afford or risk a contested Trial) and thus they will be paid.  Here, if the solicitors were working on such a fee arrangement, they may well have caught a significant costs cold as there does not appear to be any funds in the liquidation to pay them.

  1. Unless there were other funds available in the liquidation, it is also likely that the liquidators (who would look to a financial recovery from the director(s) to get paid), also went unpaid for their own costs in pursuing the case to Trial.
  1. This judgment will hopefully cause liquidators and their solicitors to think more carefully before launching speculative and overblown Misfeasance claims against directors.

The outcome in this case will perhaps inevitably also cause Insurers and Funders to look with a more critical eye when asked by liquidators to underwrite and fund cases against directors.

We Can Help You if You are Facing a Misfeasance Claim

Here at NDP, we are well used to successfully opposing  Misfeasance claims brought by liquidators and to negotiating the most advantageous settlements with liquidators on behalf of directors.  We are well placed to do so because our experienced team of solicitors knows what liquidators want and how to defend their claims.

If you are facing a Misfeasance claim, contact us or call us on 0121 200 7040 for a free of charge, no obligation chat.