A few days ago the legal case ‘Cage Consultants Limited v Iqbal & Iqbal’ was reported, a quite interesting case in which the liquidator of the company sold his claims against the directors of a company, where the directors argued that the assignee should not be allowed to proceed with those claims against them.
The facts of this case, as far as I can gleam from the Bailii decision are:
- Totalbrand Limited (‘Totalbrand’ or ‘the Company’) went into creditors voluntary liquidation in July 2016, hopelessly insolvent with £8k of assets and £0.6m of debts.
- Its liquidator identified almost £0.4m of money received by the Company in the 8 weeks before going into liquidation which had not been paid into the Company’s account. The liquidator believed he had a claim against the directors for ‘breach of duty’, but for whatever reason did not pursue the claim himself, he assigned ie sold the right of action to a claims buyer (Cage Consultants), for just £3.6k.
- Totalbrand was dissolved in September 2019. Notwithstanding this Cage Consultants continued the action against the directors.
The court’s decision…
- It was ok for the liquidator to assign the action, and the assignee to continue with the action, notwithstanding the facts that the creditors of the Company would receive nothing if the claim is successful
- The Company’s creditors had received proper, valuable, consideration for the assignment – even though in this case the consideration was one hundredth the potential value of the claim and all that money went to pay the liquidator’s fees and was not distributed to the creditors. ‘Indirect benefit’ is ok.
- There is no need for the Company to remain ‘alive’ for such a claim to continue to be made
What does this mean?
We have all heard tales of directors who have ‘made a good job of it’, who leave no cash or assets in the Company to enable a liquidator to finance an action against them. I am unsure whether this was indeed the situation in this instance. However this legal case confirms that even if the liquidator finds himself in this position, with the creditors unable or unwilling to finance any action, he has the option of assigning the right of action, even for a nominal sum, to an organisation who can then pursue the claim notwithstanding the fact that he might then soon dissolve the Company, in an attempt to ensure justice is served even if the Company’s creditors do not benefit.