High Court dismisses receivers' attempt to control litigation after liquidation

Who has control of litigation brought by a receiver in the name of a company, if a liquidator is later appointed? Does the receiver keep control, or does it pass to the liquidator?

The issue arose in a recent High Court decision concerning Industry Civil Ltd. The receivers of the company, Damien Grant and Adam Botterill, sued the director for repayment of a shareholder current account. Liquidators were later appointed.

Section 31 of the Receiverships Act says that, once a liquidator is appointed, a receiver may only act as agent of the company with the consent of the liquidator or approval of the Court. The receivers asked the liquidators for consent, which the liquidators were considering. The receivers then applied to the Court. However, rather than ask for approval to act as agent of the company, the receivers instead applied for an order removing the company as plaintiff and substituting the receivers as new plaintiffs.

That was an unusual way to address the issue, and the Court rejected it. The Court ruled that the claim against the director belongs to the company, not the receivers personally. The receivers’ real concern appeared to be their ability to control the litigation against the director. If so, they should have obtained the liquidators’ consent or sought a Court order granting them agency. As there was no such application before the Court, the receivers’ claim was dismissed, and they were ordered to pay costs personally.

What if the receivers now apply to the Court for agency? A curious feature of this case is that the receivers have already repaid the secured creditor in full. Normally, a receiver would retire. However, the receivers say they are incurring costs in defending a claim for breach of duty brought against them by the director. They say that they need to pursue their claim against the director, so that any recovery against the director can be used to meet their costs in defending the director’s claim against them.

It remains to be seen whether, if a proper application is brought, a Court would agree that giving the receivers agency is appropriate in these circumstances. However, as the Court observed in this case, “there may be difficulties with the receivers’ position in that regard”.