The Court held that a resolution of the creditors of Somerset Stainless Solutions Limited (the Company), approving the remuneration of the liquidator was valid. This was despite the resolution being passed at a meeting where the only creditor in attendance was the company’s sole director who was the chair, and who it later transpired was not a creditor but in fact a debtor.
The Company had been placed in creditors’ voluntary liquidation. The liquidator’s remuneration had been approved by a decision of the creditors at a creditors’ meeting. The only creditor to attend and vote was the sole director of the Company. He was also the chair of the meeting.
The liquidator subsequently challenged payments made to the sole director of the Company. As a result, it was found that the sole director was in fact not a creditor, but a debtor of the Company. In light of this, the liquidator applied to the court for a declaration that the resolution approving the liquidator’s remuneration had been validly passed.
The Court considered whether there was a valid decision of the creditors. This turned on whether the vote of the director was valid in circumstances where (as chair) he might have known or ought to have known that he was not actually a creditor.
To determine the issue, ICC Judge Mullen looked at the Insolvency (England and Wales) Rules 2016. He considered that under the rules the vote of a “creditor” would be valid if:
On this basis, as the director’s claim had been received on time, admitted by the chair and not appealed, the director’s vote was a valid vote by a creditor. Accordingly, the liquidator’s remuneration had been properly approved.
ICC Judge Mullen took the view that it would be “strange” if decisions could be challenged potentially a long time after they were made on the basis that there might be a claim against the “creditor” and that the chair might have known that. ICC Judge Mullen considered that the mechanism allowing for an appeal against the chair’s decision to admit the “creditor” provided a sufficient safeguard.
In light of this decision, liquidators need not worry about challenges to decisions of creditors approving their remuneration just because it has later turned out that a “creditor” voting on the proposals was not in fact a creditor but instead a debtor.
Conversely, if there are concerns that a “creditor” may not actually be a creditor (and it is desired to prevent them voting on decisions of the creditors) then this should be raised early on and at the latest the decision of the chair to admit that “creditor” should be appealed at that stage as the court appears unwilling to revisit this issue further down the line.