The Court was asked as to the validity of the assignment by a liquidator to a litigation funder of the benefit of a wrongful trading claim against the directors of the company under section 214 of the IA 1986. The directors sought to stay the claim on the basis that the liquidator had no power to assign the statutory cause of action, and that the agreement was therefore champertous. A liquidator’s agreement with a third party to share damages in return for supporting an action against a company’s directors was champertous.
Looking at the statutory powers of a liquidator under the paragraph 6 of Schedule 4 to the 1986 Act to sell the company’s property: ‘the provisions relating to company insolvency do not define the property of a company which liquidators can sell (save to the extent, already noted, that ‘property’ is given an extended meaning in section 436). By section 143 the liquidator’s functions in a compulsory winding up are to secure that the assets of the company are got in, realised and distributed. He is required to take into his custody or under his control ‘all the property and things in action’ to which the company is or appears to be entitled (section 144(1)), but in addition and quite separately from that duty the liquidator is given certain powers to apply to the court, and if the application is successful there will be an increase in the distributable assets, even though the company as such was never entitled to make that application. The statutory provisions do not expressly state that such after-acquired assets are ‘the property of the company.’ . . [we] consider whether a distinction should not be drawn between assets which are the property of the company at the time of the commencement of the liquidation (and the property representing the same), including rights of action which arose and might have been pursued by the company itself prior to the liquidation, and assets which only arise after the liquidation of the company and are recoverable only by the liquidator pursuant to statutory powers conferred on him. The scheme of the Act of 1986 suggests that only the former falls within ‘the property of the company’ which an administrator or administrative receiver or liquidator can sell.’
The Court summarised that distinction: ‘between the property of the company at the commencement of the liquidation (and property representing the same) and property which is subsequently acquired by the liquidator through the exercise of rights conferred on him alone by statute and which is to be held on the statutory trust for distribution by the liquidator.’
Judges:
Peter Gibson LJ
Citations:
Times 14-Oct-1996, [1998] Ch 170, [1996] EWCA Civ 689, [1997] 1 All ER 1009, [1997] 1 BCLC 689, [1997] 2 WLR 764, [1997] BCC 282
Links:
Statutes:
Jurisdiction:
England and Wales
Citing:
Appeal from – Ward v Aitken and Others; In re Oasis Merchandising Services Ltd ChD 19-Jun-1995
An agreement to share the proceeds of litigation against Directors was champertous. . .
Lists of cited by and citing cases may be incomplete.
Litigation Practice
Updated: 06 August 2022; Ref: scu.140556
