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Liquidator acting within its power when accepting assignment of legal claims, rules High Court

Out-Law News | 18 Nov 2014 | 4:40 pm | 1 min. read

UK insolvency laws give liquidators the power to accept third parties' assignment of rights to pursue legal claims, the High Court has ruled.

His Honour Judge (HHJ) Mackie QC rejected arguments from operators of an investment fund that is in liquidation that the liquidator was seeking to act beyond its powers in taking on a legal claim against them after accepting an assignment of the right to do so from fund investors. 

The operators were accused of unlawfully promoting the fund to investors who became partners in the fund and of being responsible for misleading promotional material, according to the High Court judgment. 

The judge said that the Insolvency Act permits liquidators to bring third party claims assigned to them, even if that assignment happens after the liquidator has begun winding up a company. 

Under the Act, liquidators have certain powers when handling the winding up of businesses. One of the powers given to liquidators in those circumstances is "the power to do all such other things as may be necessary for winding up the company’s affairs and distributing its assets". 

"If a liquidator receives a gratuitous asset after the liquidation starts which may potentially benefit the creditors, most would think it very odd for him or her to refuse it or to decline to take legal steps to protect or realise it on the grounds that it had not been an asset of the partnership when it traded," HHJ Mackie QC said in the High Court's ruling. "The creditors would no doubt be incensed. Provisions dealing with the affairs of business need to be seen in the light of commercial realities." 

The judge said there was "unassailable justification" for the liquidators in accepting the assignment of the investors' rights and bringing a legal claim against the fund operators.