When “must” isn’t mandatory in CVL appointments

Insolvency Bitesize - November 2018

The High Court has held that failure to comply with the process for creditors to nominate a liquidator under s100 of the Insolvency Act 1986 did not invalidate the subsequent appointment of a liquidator. Although a binding statutory obligation had been created by s100, the expressed consequence of non-compliance was the commission of a criminal offence. There was no mention of invalidity.

In Re Cash Generator Ltd [2018] EWHC 674 (Ch), the liquidators were appointed under the deemed consent procedure under s100. Under that procedure, Rule 6.14 of the Insolvency Rules 2016 required that the companies' directors "must deliver" a notice to creditors seeking their nomination for who should be appointed as liquidator. But, in this case, no such notice was given to the applicant.

The High Court held that the use of the imperative ("must") did not make compliance an absolute condition for a valid nomination and appointment. There was no reference to invalidity in s100 and it could not have been Parliament's intention that non-compliance should lead to the outcome that the nomination by deemed consent was invalid.

That conclusion was consistent with policy and practicality, and with Rule 15.15, which established a presumption that the deemed consent procedure had been duly initiated and conducted even if not everyone to whom the notice was to be delivered had received it. There is always a risk that full compliance may not take place (e.g. creditor lists may be inaccurate). The High Court decided that the imperative is used to ensure compliance by the director but not to produce the result of an invalid appointment in the event of breach. It is a common legislative drafting technique. The provisions were intended to ensure that the creditors' nominee was (usually) appointed, and that should not be adversely impacted because of non-compliance by the directors.

Interestingly, this approach mirrors another recent case where the High Court held that the failure to notify a QFC holder was not fatal to a MVL liquidator's appointment despite the use of mandatory language: as covered in our April 2018 edition of Insolvency Bitesize.

Finally, it is worth noting the comments of the High Court about the new IR 2016:

"I end with a note of concern that the Rules to which I have had to refer are numerous, to be found in a variety of different places and feature so many requirements that they may be difficult to apply in practice…The Rules Committee may wish to reflect upon whether there is a need to consolidate them in a simplified form for the benefit of users in particular when they concern standard procedures."