3VB team successfully resist liquidator removal application over private equity funds

Andrew Sutcliffe QC, Sophie Mallinckrodt and William Day, instructed by Ian Gatt QC, Sean Upson and Lorraine Lanceley of Stewarts acted for the successful liquidators, Laurence Pagden and Simon Underwood of Menzies LLP.

The liquidators hold office in respect of three former private equity funds that were restored to the Register of Companies last year. The funds held majority interests in a number of well-known UK businesses, including the restaurant chain Brasserie Blanc. They were put into members’ voluntary (i.e. solvent) liquidations (MVLs) in 2015 and dissolved in 2016.

The companies were restored, and the liquidators were appointed, following concerns by retail investors that the funds had been misused and their assets sold at an undervalue to parties related to the fund manager.

The fund manager and the former liquidator of the funds applied to remove the current liquidators from office under sections 108 and 171 of the Insolvency Act 1986. To further their investigations, the current liquidators applied under sections 234 to 236 of the Insolvency Act 1986 for documents and information from the fund manager and the former liquidator.

Jeremy Cousins QC (sitting as a Judge of the High Court) dismissed the removal application and granted the investigation application after a hearing lasting 3 days.

In his judgment on the removal application, the judge noted that the applications gave rise to important issues of principle. The judge rejected the argument, made against the current liquidators, that in MVLs majority decision-making is determinative. The judge held that the law accommodates wider concerns in MVLs including minority protection, ensuring a suitable liquidator holds office, and that liquidators are held to account.

The judge also accepted that an application to remove a liquidator can only be made by someone whose interests are aligned with the liquidation. Those subject to investigations and potential claims in the liquidation, like the former liquidator and the fund manager, cannot seek to remove the liquidators because the application “could be seen to be an attempt to thwart any investigation into the conduct of those who make it”. That principle, which is well developed in insolvent liquidations, also applied in solvent liquidations.

Following his decision on the removal application, the judge granted the liquidator’s application for documents and information from the fund manager and the former liquidator.

The judgment on the removal application can be found here.