Question:
How can a liquidator be removed from office?
Legislation:
The legislation which applies is the Companies Act 1993.
Introduction
Apart from the normal procedures, the office of liquidator also becomes vacant if the person holding office dies or becomes disqualified under Section 280 of the Companies Act 1993. This is the section which deals with qualifications of liquidators. For example, the office would become vacant if the liquidator were to be made bankrupt or were to become subject to a compulsory treatment order under the Mental Health Act. In normal circumstances however, a liquidator is removed from office in one of the four ways: -
1.Removed by Resignation
A person may resign from the office of liquidator by appointing another such person as his or her successor in sending or delivering notice in writing of the appointment of his or her successor to the Registrar for resignation.
Reference: Companies Act 1993, Section 283(2)
2.Removal by a Liquidation Committee
The Act provides that the liquidator must have regard to the views of any Liquidation Committee given in writing to the liquidator.
Reference: Companies Act 1993, Section 258(1)(d)
3.Removal by the Creditors
Creditors meeting convened by liquidator at request of creditors
The liquidator has a duty to summon a meeting of creditors forthwith when required to do so by notice in writing given by creditors to whom is owed not less than 10% of the total amount owed to all creditors of the company.
Creditors meeting convened by Liquidation Committee
The Liquidation Committee can also call a meeting of creditors.
General
The meeting must be called in accordance with the 5th Schedule of the Act, the 5th Schedule of the Act provides for postal votes. It therefore follows that the notice of meeting must stage the purpose for which the meeting is being called. Namely, to replace the liquidator by the appointment of some other person as liquidator. The creditors must also have the opportunity to vote on this matter by postal voting.
Reference: Companies Act 1993, Section 315(2)(c)
4.Removal of the Liquidator by the Court
A liquidator has an obligation to comply with his duties. The Act provides that a creditor may make application to a Court in relation to a failure to comply. Notice of the failure to comply must be served on the liquidator not less than five working days before the date of application. At the date of application there must be a continuing failure to comply.
The Court has power to remove a liquidator from office only if the Court has made a compliance order and the person against whom it is made has failed to comply with that order, however, if it is shown to the satisfaction of a Court that a person is unfit to act as liquidator by reason of persistent failures to comply, the Court must make in relation to that person, a prohibition order for a period not exceeding five years. The person to whom a prohibition order applies must not act as a liquidator in a current or other liquidation or act as a receiver in a current or other receivership.
Reference: Companies Act 1993, Section 286
The meaning of failure to comply is defined in Section 285. Failure to comply means a failure of a liquidator to comply with a relevant duty arising under the Companies Act or rule of Law or rules of Court, etc.
Reference: Companies Act 1993, Section 285
OVERVIEW
In practice where creditors wish to replace a liquidator they should discuss the matter with the liquidator. In theory, a liquidator should derive little satisfaction in remaining in office when he/she is not wanted. Hopefully, the liquidator will appreciate the position of a new liquidator. If the liquidator will not resign then one of the other options will have to be used. An application to the Court is difficult and should only be used as a last resort.
DISCLAIMER
This article is intended to provide general information and should not be construed as advice of any kind. Parties who require clarification on issues raised in this article should take their own advice.