The plaintiffs, the majority creditors of a company in liquidation, alleged that they had agreed with Grant Thornton, the defendants, to support the appointment of one of the firm’s partners or employees as liquidator of the company, with a view to investigating the conduct of the directors, and to pay Grant Thornton’s fees up to an initial limit of pounds 5,000. A Grant Thornton member was appointed. The plaintiffs claimed damages for breach of contract, and for negligence.
Held: Ordinarily, outside creditors cannot sue a liquidator in negligence. Claims have succeeded for either a direct contract with the liquidator or as a result of the negligence and the creditors have suffered some special damage over and above other creditors.
The submission that the plaintiffs should have sued the liquidators personally, on the footing that only they, and not the firm, possessed the powers which the plaintiffs alleged had been negligently exercised was misconceived.
Jacobs J said: ‘It is true that it is employees of the firm who were the liquidators, but they only took their position as such by virtue of the contract between the plaintiff[s] and Grant Thornton. Grant Thornton, in accepting the consideration of pounds 5,000, were contracting to put their man in as liquidator. Of course once in as liquidator he would owe his duties to the company. But there is nothing inconsistent between the pleaded contract and the employee having duties to the company. The pleaded contract is, in short, that the employee/liquidator undertakes to do a proper job as liquidator. That is what Grant Thornton contracted would happen.’
On the alternate claim in negligence, it was submitted that outside special circumstances, a liquidator owes no general duty of care to creditors. Jacob J said: ‘As a generality, that may well be true, but in two cases the courts have recognised that a liquidator is under a direct duty to creditors, or owes a direct duty to creditors.’
‘Given there is a duty on these liquidators to get the money in, there was a duty to investigate what money could be got in. The pleading says they failed in that duty; in particular, they failed to keep the plaintiffs informed of the state of their investigations, and did so for such a long time that any possibility of a claim became statute-barred. [Counsel for Grant Thornton] says, again, that the plaintiffs have got the wrong party. If there was a duty in tort it was a duty on the individual liquidators, and they should be the defendants. No doubt they could be, but it seems to me that once those defendants were put in as Grant Thornton men, Grant Thornton owed a duty coterminous and dependent upon the duties of the individual liquidators to these plaintiffs.’
As to a duty under section 212, there was no reason why that statutory remedy should exclude common law remedies in contract or tort: ‘Those who undertake the task of being liquidators should reasonably expect to have to do their job properly, and should reasonably expect that if they do not do so they are answerable to those ultimately for whom they are acting, namely the creditors.’
Times 05-Aug-1999, Gazette 11-Aug-1999,  2 BCLC 227
England and Wales
Cited – Pulsford v Devenish ChD 1903
The liquidator in a voluntary liquidation negligently failed to inform the company’s creditors of the liquidation, and distributed the company’s assets to its contributories without regard to the creditors’ claims. The company was later dissolved. . .
Cited – James Smith and Sons (Norwood) Ltd v Goodman CA 1936
Two leases had been granted by the plaintiff to a company. Subsequently the company determined the leases but it had previously assigned the leases to a third party. The company went into liquidation and the liquidator distributed its assets. He . .
Cited – Firbank’s Executors v Humphryes CA 1886
The plaintiff was induced to enter into a transaction by the someone pretending to be the principal. The defence was that he was the principal’s innocent agent.
Held: Lord Esher MR discussed the warranty of authority: ‘The rule to be deduced . .
Cited – West London Commercial Bank v Kitson 1883
Cited – Starkey v The Bank of England HL 1903
Frederick and Edgar Oliver jointly owned Consols and bank stock. Frederick instructed Starkey a stockbroker to sell them. Frederick signed the necessary powers of attorney in his own name and forged Edgar’s signature. Starkey presented the powers of . .
Cited – Penn v Bristol and West Building Society and Others CA 24-Apr-1997
The solicitor innocently accepted instructions to sell a property, but was misled as to the identity of the wife – one of the joint owners. Unknown to him, however, Mr Penn had forged his wife’s signature on the contract documents. He was sued by . .
Lists of cited by and citing cases may be incomplete.
Professional Negligence, Insolvency
Updated: 15 May 2022; Ref: scu.77565