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Cite as: [2004] EWHC 2443 (Ch)

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Neutral Citation Number: [2004] EWHC 2443 (Ch)
Case No: 6336 of 2002 and 206 of 2003

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT

Royal Courts of Justice
Strand, London, WC2A 2LL
25/08/2004

B e f o r e :

The Honourable Mr Justice Etherton
____________________

Between:
In The Matter Of Buildlead Limited (Creditors' Voluntary Liquidation) And In The Matter Of The Insolvency Act 1986 Quickson (South and West) Limited
Claimant
-and -
 
Stephen Mark Katz
John Stephen Kelmanson (as joint liquidators of Buildlead Limited)
Respondent

____________________

Mr Stephen Davies QC and Mr Richard Ascroft (instructed by D J Murphy) for the Claimant
Miss Jane Giret QC (instructed by Moon Beever) for the Respondent
Hearing dates: 5-9 and 14-22 July 2004

____________________

HTML VERSION OF JUDGMENT
____________________

Crown Copyright ©

    INDEX
    Introduction 1 – 8
    Background facts 9 – 102
    The evidence 103 – 105
    Representation 106
    The Strike Out Applications 107
         The Substantive Strike Out 108 – 140
         The Procedural Strike Out 141 – 153
    Removal of Liquidators: legal principles 154 – 169
    Grounds for removal 170
         The challenge to Quickson's creditor status 171 – 197
         Pursuit of Preference Claim and duration of the Liquidation 198 – 233
    Postal ballot approval of fees 234 – 240
    Possible claims against the Liquidators 241 – 243
    Other matters raised by Quickson 244 – 246
    Further consideration of claims involving Quickson 247 – 248
    A new liquidator 249 – 250
    Decision 251- 252

    Mr Justice Etherton:

    Introduction

  1. There are before the court a number of applications relating to the liquidation of Buildlead Limited ("Buildlead"), which went into creditors' voluntary liquidation on 2 September 1997.
  2. The joint liquidators of Buildlead ("the Liquidators") are Mr Steven Katz, of H. W. Fisher & Co ("Fisher"), and Mr John Kelmanson, of The Kelmanson Partnership.
  3. By an undated application, initially returnable on 31 October 2002, Mr Kelmanson, as liquidator of Buildlead, applied for an order, pursuant to the Insolvency Act 1986 ("IA") s.236, that Lloyds TSB Bank plc ("Lloyds") and Quick, son (South and West) Limited ("Quickson") provide all information regarding the affairs of Buildlead in their possession including, but not limited to, information concerning the balance of the account between Quickson and Lloyds in August 1997 ("the s.236 Application").
  4. By an application dated 13 January 2003 Quickson applied for an order, pursuant to IA s.108(2), that the Liquidators be removed ("the Removal Application").
  5. By an application dated 29 July 2003 the Liquidators applied for an order that payments of £15,000 on 1 August 1997, £135,500 on 4 August 1997, £3,004 on 5 August 1997, and £2,350.53 on 6 August 1997 made by Buildlead to Quickson be declared voidable preferences pursuant to IA s.340 (sic), and that Quickson repay the same to the Liquidators ("the Preference Proceedings").
  6. By application notices dated 3 June 2004 ("the Procedural Strike Out") and 23 June 2004 ("the Substantive Strike Out") Quickson applied for an order that the Preference Proceedings be struck out, or alternatively, in the case of the Substantive Strike Out, that summary judgment be entered for Quickson in the Preference Proceedings.
  7. Lloyds indicated that it would abide by any order of the Court on the s.236 Application, and that it would not be represented at the hearing of that Application. During the course of the hearing before me, with the consent of the Liquidators and Quickson, I ordered that the s.236 Application be adjourned, with liberty to restore after I had given my judgment on the other Applications.
  8. This is my judgment on the Removal Application, the Procedural Strike Out and the Substantive Strike Out.
  9. Background facts

  10. The following is a brief summary of the background facts. It is not intended to be a comprehensive statement of all relevant facts, but should be sufficient to understand the broad factual context of the Applications before me.
  11. Buildlead was incorporated on 26 April 1996. It is, and has been at all relevant times, the wholly owned subsidiary of Quickson.
  12. At all relevant times the directors of Buildlead have been Mr Karl Quick, Mr Mark Quick and Mr Robert Quick ("the Quicks"). They have also been, at all relevant times, the directors of Quickson.
  13. On about 13 May 1996 Buildlead acquired the goodwill and certain other assets of Lynam Windows Limited ("Lynam"), a company then in administrative receivership. Lynam manufactured and installed PVC windows and doors, using the "Veka" system. Lynam operated in the South East of England. Quickson carried on a similar business in the South West of England, but using a different system.
  14. At all relevant times Lloyds provided banking facilities for Quickson, Buildlead and Buildlead's other subsidiary, Newguide Limited ("Newguide").
  15. On about 30 October 1996 Buildlead executed a written guarantee in favour of Lloyds guaranteeing payment, on demand by Lloyds, of all money and liabilities, whether actual or contingent then or thereafter due, owing or incurred from or by Quickson to Lloyds on any account and in any manner, as a continuing security ("the Guarantee").
  16. By a debenture dated 30 October 1996 between Buildlead and Lloyds, Buildlead created fixed and floating charges over its assets in favour of Lloyds, by way of continuing security for all sums due from Buildlead to Lloyds ("the Debenture").
  17. At the end of July 1997 Ernst & Young ("E&Y") were asked by the directors of Quickson and Buildlead to advise on the financial position of the Quickson group of companies ("the Quickson group"), particularly in view of the poor financial position of Buildlead. The evidence is that Mr Robert Dunkerley of E&Y gave advice about, among other things, the operation of Buildlead's account with Lloyds ("Buildlead's account").
  18. On 1,4,5, and 6 August 1997 £15,000, £135,500, £3,004, and £2,350.53 respectively ("the August Transfers") (amounting in the aggregate to £155,354.53) were transferred from the credit balance on Buildlead's account into Quickson's account with Lloyds ("Quickson's account"). Buildlead was not indebted to Lloyds at the time of, or immediately after, the August Transfers.
  19. Buildlead ceased to trade on 6 August 1997.
  20. On 1 September 1997 Mr Robert Quick swore a Statement of Affairs in relation to Buildlead ("the Statement of Affairs"). The Statement of Affairs had been prepared by, and was based upon the analysis of, Mr Barry Mitchell. Mr Mitchell is a chartered accountant and a licensed Insolvency Practitioner, and was formerly a partner in Peat Marwick Mitchell & Co and then KPMG. He had been approached by the directors of Quickson and Buildlead in August 1997 to advise them.
  21. The Statement of Affairs showed an estimated surplus, as regards preferential creditors, of £534; and an estimated deficiency, as regards other creditors, of £644,383. The preferential creditors were stated to be the Inland Revenue, HM Customs & Excise, and employees on account of arrears of pay and holiday pay. The non-preferential creditors were stated to include trade and expense creditors for £544,537, sub-contractors for £15,517, employees for £22,627, and associated company indebtedness of £62,236.
  22. On 2 September 1997 Quickson, as shareholder of Buildlead, resolved that Buildlead should be wound up voluntarily.
  23. At a meeting of Buildlead's creditors on 2 September 1997, Mr Kelmanson was appointed the sole liquidator of Buildlead.
  24. The chairman of the creditors' meeting on 2 September 1997 was Mr Robert Quick. Mr Mitchell attended the meeting. Buildlead was also represented at the meeting by Mr Daniel Murphy, a solicitor practising under the name and style D J Murphy, who had been retained to advise Buildlead, Quickson and their directors.
  25. It is Quickson's case that, at the creditors' meeting on 2 September 1997, a schedule was produced, on behalf of Quickson, showing inter-company indebtedness due from Buildlead to Quickson of £79,264.37 ("the Quickson Debt Schedule").
  26. Minutes of the creditors' meeting prepared by Mr Mitchell recorded that a liquidation committee ("the LC") was proposed comprising Mr Gordon Weir, representing Veka plc ("Veka"), Mr Alan Atkinson, representing Glass Systems Ltd ("Glass Systems"), Mr Jeremy Taylor, representing The Guarantee Guild Ltd ("GGL"), Mr Andrew Maxwell, representing Mila Hardware Ltd ("Mila"), and Mr Mitchell, representing Quickson.
  27. On 13 October 1997 Mr Katz was appointed joint liquidator of Buildlead at a further creditors' meeting.
  28. The first meeting of the LC also took place on 13 October 1997.
  29. In a report dated 10 October 1997, prepared by Mr Kelmanson for the meeting of the LC on 13 October 1997, it was said:
  30. "Mr Katz and his firm have been instrumental in assisting to date in various matters relating to the insolvency process. It should be noted by the committee that the joint Liquidators have and will concentrate their individual efforts on different aspects of the Insolvency process, and that no duplication of effort or cost will therefore be chargeable against liquidation funds. It is intended that we discuss the various areas in the liquidation requiring attention emanating from this report, and the division of these responsibilities between the joint liquidators.
    To date, as is normal in these matters, considerable time costs have been expended consequent to a necessary "front loading" of chargeable time from our respective firms. We would seek authorization from the committee for withdrawal of our time costs to date, a full breakdown of which is annexed to this memorandum."
  31. At its first meeting, the LC approved payment of remuneration of £6,685 to Mr Kelmanson and £2,378 to Mr Katz.
  32. It was agreed that a further meeting of the LC would be fixed for 10 December 1997 at a provisional venue.
  33. On 9 December 1997 Fisher produced a report on certain initial findings in relation to the liquidation of Buildlead ("the IFR"). Section 5 of the IFR concerned inter-company transactions between members of the Quickson group. That section contained a conclusion that "the position at the cessation of trade was that £14,642 was owed [by Quickson] to Buildlead"; and that the August Transfers "constitute[d] the creation of a preference."
  34. Only the liquidators attended the meeting of the LC on 10 December 1997. In a letter to members of the LC on that date they proposed that the second meeting of the LC should be adjourned to 18 December 1997. Mr Atkinson of Glass Systems wrote to Mr Kelmanson on 17 December 1997 saying that he would be unable to attend the meeting on 18 December 1997, and that he wished to resign from the LC. All the other members of the LC, apart from Mr Taylor, also informed the Liquidators they would not be attending.
  35. Mr Katz wrote to Mr Mitchell on 18 December 1997 saying that a further meeting of the LC would be convened for the new year, and that: "given the now difficult timings, it is required that the Committee Members give their consideration to the aspect of the Joint Liquidator's costs and return the attached resolution by return of fax."
  36. The attached resolution was a postal resolution for approval of the Liquidators' remuneration in the amount of £7,528.40 for Mr Katz and £6,970 for Mr Kelmanson.
  37. Between 19 December 1997 and 24 December 1997 Mr Taylor, Mr Maxwell and Mr Weir signed and returned the postal resolution for payment of the Liquidators' remuneration.
  38. The second meeting of the LC was held on 14 January 1998. In addition to the Liquidators, Mr Weir, Mr Taylor, Mr Maxwell and Mr Mitchell attended the meeting.
  39. The minutes of that meeting record that Mr Mitchell raised various issues, including the level of the Liquidators' remuneration. In this connection, the minutes record as follows:
  40. "In relation to the costs, these were discussed and it was brought to the attention of Mr Mitchell that the other members of the creditors committee had already approved the quantum of fees at an earlier date. Mr Mitchell remained unhappy that these fees had been agreed in advance of the meeting taking place, and requested that this point be minuted."
  41. At a certain point during the meeting, Mr Mitchell was asked by the Liquidators to leave the meeting. There is a dispute between the parties as to precisely what was said to Mr Mitchell at that point. Following Mr Mitchell's departure, the Liquidators presented the IFR. It is common ground that neither Mr Mitchell, nor Quickson, nor Quickson's directors knew anything at that stage about the IFR or its contents. There is no evidence that any other member of the LC knew anything about the IFR or its contents or conclusions prior to that moment.
  42. The minutes of the meeting on 14 January 1998 record, among other things, the following with regard to what was said at the meeting about the IFR (following the departure of Mr Mitchell):
  43. "The initial findings report indicated quite clearly substantial sums which appear to have been paid to Quicksons in the form of a preference. This was exemplified by the Quicksons inter-company account, which had been compiled from the company's books and records which had been obtained from Bob Quick after some substantial difficulty. It was indicated to the committee that the joint liquidators had no desire to bring about the failure of Quicksons, and that the best result for the creditors would be to achieve a recovery of these sums even if it meant doing so over a period of time. The tactics in relation to this matter were discussed, and it was agreed that Mr Katz would proceed on the following basis:-
    a. Land registry searches would be carried out on the directors' personal properties.
    b. The directors of the company would be requested to attend Mr Katz's office for detailed examination on matters relating to the inter-company entries.
    c. The debit balance shown on the Quickson's inter-company account was to be requested formally from Quicksons and any claim in the liquidation by them formally rejected. This would have the effect that Mr Mitchell would no longer be a valid member of the creditors' committee, and as such, the joint liquidators would deal with the filing of necessary papers for his removal. Mr Katz pointed out that Quicksons may seek to offset against debit balances owing, the amounts paid to Ernst & Young in respect of liquidation fees.
    d. Following the detailed interviews with the directors, formal demand was to be made from Quicksons for the amounts in question, and failing substantive favourable response from Quicksons within 14 days, solicitors were to be instructed to commence proceedings for recovery of these sums."
  44. On 15 January 1999 Mr Katz wrote a letter addressed to the directors of Quickson stating that a review of the accounting records indicated that Quickson owed Buildlead £14,642.01 at the date of liquidation. He stated that failure to pay that amount in cleared funds within 14 days would result in solicitors being instructed forthwith for the commencement of legal proceedings for collection of the debt. Mr Katz also stated that, on the basis that Quickson did not appear to be a creditor of the company, Quickson's membership of the LC, by way of its representative, Mr Mitchell, was formally at an end, and the Liquidators had dealt with the necessary formalities for the removal of Mr Mitchell as a member of the LC.
  45. On 15 January 1998 Mr Katz also wrote to each of the Quicks, stating that he required them to attend at Mr Katz's office on 26 January 1998 in order to assist Mr Katz with his enquiries as Liquidator of Buildlead.
  46. By a letter of the same date from Mr Katz to Mr Mitchell, Mr Katz advised Mr Mitchell that, following his departure from the second meeting of the LC on 14 January 1998, the IFR was presented to the remaining members of the LC and the matter of the inter-company account between Quickson and Buildlead was considered. He attached, for Mr Mitchell's information, the letter of the same date which was sent to Quickson. It appears that, in fact, the copy of the letter to Quickson was omitted as an attachment to the letter to Mr Mitchell.
  47. On 20 January 1998 £7,528.40 was paid to Mr Katz in respect of his fees.
  48. By letter dated 21 January 1998 the Quicks wrote to Mr Katz, in reply to his letter of 15 January 1998 addressed to Quickson's directors, expressing their astonishment that he should, without offering any explanation, allege that Quickson owed Buildlead any sum of money, and unilaterally have decided that Quickson was not a creditor of Buildlead and that Quickson's representative, Mr Mitchell, be removed from the LC. They suggested that Mr Mitchell be immediately reinstated, and that Mr Katz provide to them, by return, a detailed explanation for the proposition that Quickson was indebted to Buildlead and the proposition that Buildlead was not indebted to Quickson.
  49. Each of the Quicks also wrote separately to Mr Katz stating that, before they attended a meeting with him, they required an agenda:
  50. "- so that I may consider the matters which you wish to raise with me, and to ensure that I am adequately prepared in order to save us both time and expense. I therefore look forward to receiving from you an Agenda and a revised date and time for the meeting.
  51. By letters dated 27 January 1998 from Mr Katz to each of the Quicks, Mr Katz gave the following "general agenda for discussion at our forthcoming meeting":
  52. "1. Manner of inter-company trading.
    2. Executive responsibilities of various Directors.
    3. Individual contracts and work in progress at cessation of trade.
    4. Details of circumstances and events surrounding the cessation of trade and the convening of the first meeting of creditors and preparation of the Statement of Affairs.
    5. The provision of funding and working capital for the company."
  53. In those letters Mr Katz stated that the Quicks were formally required to attend at Mr Katz's office on 10 February 1998, and should allow approximately two hours for the meeting.
  54. On 29 January 1998 Mr Katz wrote a letter addressed to the directors of Quickson, with reference to their letter dated 21 January 1998, and stated, in relation to the claim that Quickson was indebted to Buildlead, that he would in due course be supplying them with full details of how the claim had been calculated. He also stated, in relation to the issue of Quickson's representative on the LC, that no proof of debt form had been received from Quickson, and, therefore, there being no compliance in that respect with the Insolvency Rules 1986 ("IR") r.4.152(3), on that basis alone Quickson was ineligible to stand as a member of the LC. He stated that he was aware that Mr Robert Quick had made the Statement of Affairs indicating Quickson was a creditor in the sum of £62,236.63, and enclosed a further proof of debt form in the event that Quickson wished to claim as a creditor. He stated that, in the event that a properly completed and supported proof of debt form was submitted by Quickson in the liquidation and accepted by the Liquidators, it would be possible to consider once again the eligibility of Quickson as a member of the LC.
  55. Mr Robert Quick, on behalf of Quickson, wrote to Mr Katz on 4 February 1998, replying to Mr Katz's letter of 29 January 1998. He stated that he looked forward to receiving details of the alleged claim that Quickson was indebted to Buildlead, but expressed surprise that the details were not readily available, and asked Mr Katz to indicate why he needed further time to explain how the figure of £14,642.01 was arrived at. Mr Quick further stated that his understanding was that the proof of Quickson's debt did not have to be in any particular form, and that, at the creditors' meeting on 2 September 1997, a statement setting out Quickson's claim was submitted and accepted as its proof of debt, and no question had been raised by Mr Katz on this subject until his letter of 29 January 1998.
  56. A meeting took place between Mr Katz and Mr Robert Quick and Mr Karl Quick at Mr Katz's offices on 10 February 1998. Mr Murphy also attended. There are disputes between the parties as to the manner in which Mr Katz conducted that meeting and precisely what was said during the meeting. For present purposes, it is sufficient to say that, during the course of the meeting, Mr Katz produced a schedule ("the IFR Schedule"), which had been attached to the IFR, showing transactions between Buildlead and Quickson, leading to a final balance of £14,642.01 owed by Quickson to Buildlead.
  57. It is also common ground that, during the course of the meeting, Mr Katz asked for an explanation of certain transfers that had been made by Buildlead to Quickson, and as to the operation of the Lloyds' banking facility.
  58. It is also common ground that Mr Katz claimed that wrongful preferences had been made in favour of Quickson, and that a payment of £250,000 would settle the Liquidators' claims against Quickson. The precise words used by Mr Katz, and his manner, in speaking of the £250,000 settlement is disputed between the parties.
  59. Mr Katz's handwritten notes of the meeting record, among many other things, that Mr Robert Quick was to fax the Debenture to him, and that the Quicks would take advice and consider matters, and would indicate within 7 days whether they wished to meet again with Mr Katz.
  60. It is not in dispute that, prior to the meeting on 10 February 1998, neither Quickson, nor any of the Quicks, nor Mr Mitchell, nor Mr Murphy was aware of any claim by the Liquidators that a wrongful preference had been made by Buildlead in favour of Quickson.
  61. By letter dated 16 February 1998 from Mr Murphy to Mr Katz, Mr Murphy stated that the IFR Schedule was incorrect, since it ignored some £76,000 of expenditure incurred by Quickson on behalf of Buildlead, as shown on the Quickson Debt Schedule, which was provided at the creditors' meeting on 2 September 1997. Mr Murphy enclosed a copy of the Quickson Debt Schedule. Mr Murphy expressed surprise in his letter that Mr Katz had made no effort to provide the IFR Schedule to Quickson prior to the meeting on 10 February 1998, and that, had Mr Katz done so, the error would have been immediately spotted, and could have been corrected, saving a considerable amount of time and expense. He asked Mr Katz to confirm in writing that, once Mr Katz had rectified his mistake, he would immediately reinstate Quickson's representative on the LC.
  62. Mr Murphy also made various observations in his letter to Mr Katz of 16 February 1998 concerning the operation of Buildlead's account with Lloyds. He stated that the existence of the Debenture appeared to make quite unnecessary Mr Katz's questions concerning the account "since the Bank was in a position to seize funds in the account in support of its charge. Alternatively the Bank could immediately appoint a receiver."
  63. By letter dated 20 February 1998 from Mr Katz to Mr Murphy, Mr Katz rejected Mr Murphy's claim that the figures in the IFR Schedule were wrong. He stated that the accounting records of Buildlead did not indicate the sum of £76,444.66 as having been paid by Quickson; but, in the event that it was established that Quickson was a creditor of Buildlead, the reinstatement of Quickson's representative on the LC would be reviewed "at the appropriate time." Mr Katz confirmed, in his letter, that he was aware of the Debenture, but that Mr Murphy's interpretation of the facts and the law was incorrect. He further stated that, at the meeting on 10 February 1998, it was agreed that certain documentation would be provided to Mr Katz, including the Debenture "and surrounding documentation." That had not been received. Mr Katz also stated that, at the meeting on 10 February 1998, he suggested that the most appropriate way to take the matter forward would be for all parties to meet to discuss the matter further, once the requested documentation had been supplied.
  64. Mr Murphy sent Mr Katz, under cover of a letter dated 27 February 1998, a copy of the Debenture, and various other documents, including a copy of a letter from Lloyds to Quickson dated 13 May 1997 relating to facilities for the Quickson group. As to Mr Katz's observation that he had suggested that the way forward was a further meeting, Mr Murphy responded that his recollection was that the suggestion of another meeting "was merely to discuss the terms of payment of the sums you were demanding!"
  65. By letter dated 2 March 1998 from Mr Katz to Mr Murphy, Mr Katz stated that he required a formal proof of debt form to be completed by Quickson and that Quickson's claim be verified by an affidavit in accordance with IR 1986 r. 4.77.
  66. Mr Katz, in that letter, acknowledged receipt of the Debenture, but stated that he would be grateful if Mr Murphy would arrange for Quickson to supply "all documentation between the bank and Quicksons relating to the Buildlead facility and/or account."
  67. In relation to the suggestion of a further meeting, he said:
  68. "The purpose of my suggestion of a further meeting was in order that many of the matters raised in your letter could be dealt with on a more informal basis and in order that further peripheral information could be supplied verbally by your client, which might help to deal with some of the issues on the table. Your understanding of my suggestion is therefore not correct, and whilst I understand your client's desire to respond formally to this matter, feel that a phone call to me by yourself to confirm your understanding would have been helpful. In any event, we are now corresponding formally on this matter and therefore a further meeting at this time would seem to be inappropriate."
  69. A formal proof of debt was returned, together with an affidavit of debt sworn by Mr Robert Quick, under cover of a letter from Mr Murphy to Mr Katz dated 11 March 1998. Those documents ran to over 200 pages. In his letter of 11 March 1998 Mr Murphy complained that it was unreasonable to require the further proof.
  70. In a letter dated 26 March 1998 from Mr Katz to Mr Murphy, Mr Katz stated, among other things:
  71. " In connection with the bank facility, it is the opinion of both Mr Kelmanson and myself that all of the documentation between your client and the bank relating to the "group" facility, should be provided to the Joint Liquidators for review. In a situation such as this where a facility is operation on a group basis, there can be no privilege over the correspondence relating to the facilities. I would therefore be grateful if you would supply to me by return, all bank/company correspondence relating to the group facility for review."
  72. By letter dated 26 May 1998 from Mr Katz to Mr Murphy, Mr Katz stated that, in order for Lloyds to release the necessary correspondence relating to Buildlead's account, he would be grateful if the directors of Quickson would sign an appropriate letter to Lloyds confirming that correspondence dealing both with Quickson and Buildlead together might be released. He said that, in the absence of such confirmation, he would be forced to commence proceedings under the provisions of IA for the production of the information under Court Order.
  73. By letter dated 10 June 1998, Mr Murphy, on behalf of Quickson, refused the request for a letter from the directors of Quickson to Lloyds authorising release to the Liquidators of correspondence dealing with Quickson and Buildlead. He explained the reasons as follows:
  74. "Given our repeated statements to you (both at our meeting on the 10 February, 1998, subsequently in correspondence and earlier at the Creditors Meeting and in the meeting with you on the 4th September, 1997) it seems to me quite unreasonable for you to make such a demand. It smacks to me of a fishing expedition in the hope it may justify the prolonged nature of this otherwise pointless enquiry. With respect I do not believe that you have either the grounds or authority for taking such a step. The factual evidence which you already hold, including details and copies of the Charge documentation, make it perfectly clear that your enquiry is wholly inappropriate and I would go so far as to say if you issue such legal proceedings it must be regarded as an abuse of your position.

    My clients have no wish to become embroiled in pointless and doubtful litigation where your costs are met out of the funds held by you on behalf of the preferential creditors and they are obliged to fund the exercise themselves. Please be aware that if you pursue legal action on this basis my clients will ask the Court to make appropriate costs orders. I have written to you under separate cover concerning certain aspects of the Joint Liquidators conduct of the liquidation which may also be appropriate to be raised in the course of such litigation as well as with your professional and regulatory bodies.

    In an effort to avoid what is entirely unnecessary and wasteful litigation for the sake of litigation I am instructed to provide you with the following information:

    i. (a) Copy letter dated 28th June, 1996 from Lloyds Bank Plc to the Secretary of Buildlead Limited concerning the formalities for giving a Debenture;
    (b) Letter of same date between the same parties in respect of formal requirements for the giving of Guarantee by Buildlead in favour of Quicksons to Lloyds Bank.
    ii. Extract from the Minutes of a Meeting of the Board of Directors of Buildlead on 27/9/96 on Lloyds Bank headed paper being an extract of the Resolution to grant a Debenture in favour of the Bank.
    iii. Without waiving privilege I enclose the following copy documents:
    a. Further copy of a letter of the 13th May, 1997 from Lloyds Bank to Quicksons (copy to you with our letter to you of the 27th February, 1998);
    b. Letter dated 22nd May, 1997 from Lloyds Bank to Quicksons.
    c. Letter 10th June, 1997 Lloyds Bank to Quicksons.

    It seems to me that this documentation makes the position abundantly clear and again confirms that your threatened legal action is wholly inappropriate and unnecessary. Perhaps when you have had a chance to consider these documents you would be good enough to confirm that that is also now your view.

    As far as I am aware the foregoing items are the only items in respect of which you have indicated you were considering taking legal action If that is not the case please let me know as soon as possible. Otherwise it would appear to me that we have complied with your requests fully and I take it you will now rescind the threat of legal action."

  75. By letters dated 15 June 1998 to the Institute of Chartered Accountants in England and Wales and to the Chartered Association of Certified Accountants, the professional bodies of Mr Kelmanson and Mr Katz, Mr Murphy, on behalf of Quickson, complained about the conduct of Mr Kelmanson and Mr Katz in relation to their handling of the liquidation of Buildlead. Prior to the commencement of the Preference Proceedings, Mr Kelmanson and Mr Katz were unaware of those letters of complaint.
  76. By letter dated 27 July 1998 from Mr Katz to Mr Murphy, Mr Katz confirmed that Quickson did indeed appear to be a creditor of Buildlead, and that he was prepared formally to accept Quickson's proof of debt in the sum of £82,236.63 in accordance with a schedule attached to his letter. He stated that, consequently, he was prepared to re-instate Quickson's representative to the LC, and confirmed that the appropriate forms would be lodged to re-instate Mr Mitchell in due course.
  77. Following further correspondence between Mr Katz and Mr Murphy, it was agreed by about 17 August 1998 that the correct figure for Buildlead's indebtedness to Quickson, and the amount of Quickson's proof, was £122,196.84.
  78. In a letter from Mr Murphy to Mr Katz dated 17 August 1998, Mr Murphy stated that, by virtue of VAT paid by Quickson, and credited to Buildlead, Mr Murphy believed that Quickson was a preferential creditor in the sum of £36,778.31. That claim to preferential creditor status was rejected by Mr Katz by a letter dated 21 August 1998. That remains the Liquidators' position: the Liquidators consider that Quickson is an unsecured creditor in respect of its entire proof.
  79. By letter dated 25 August 1998 from Mr Kelmanson to Mr Mitchell, Mr Kelmanson confirmed Mr Mitchell's formal re-instatement as a member of the LC.
  80. The Liquidators prepared a progress report on the liquidation dated 15 September 1998, expressed to be "for Presentation to Third Meeting of Liquidation Committee to be considered by way of Postal Ballot, prior to 30th September 1998". In that report, it was stated that detailed further work had been undertaken in various areas by the Liquidators, and that summaries of time costs incurred since the last date of billing were annexed. The progress report stated that the Liquidators sought authorisation from the LC for withdrawal of those sums from the liquidation funds. The report also stated that at that time, and pending various actions that the Liquidators were currently considering, only sums sufficient for distribution to preferential creditors would be available, and a dividend was envisaged within the next 3-6 months.
  81. A copy of that report was sent to Mr Mitchell under cover of a letter from Mr Kelmanson dated 15 September 1998. The letter stated:
  82. "It was previously agreed that this will be dealt with by way of circularisation and a postal resolution. In the circumstances, I enclose a suitable resolution document for your consideration and completion as relevant. I would be much obliged if this completed document could be returned to this office no later than 30th September 1998."
  83. There was attached to the letter a form of resolution for approval of the report and payment of Mr Kelmanson's fees in accordance with the costs schedules annexed to the report.
  84. Approvals to the proposed resolutions were given by GGL, Veka and Mila.
  85. In a letter dated 21 October 1998 to Mr Kelmanson, Mr Mitchell stated, among other things, that, so far as concerned sanctioning any further fees, there was clearly a need for committee meetings as opposed to postal arrangements so that proper informed discussion could take place before decisions were taken on important issues such as costs.
  86. In a letter dated 16 November 1998 to Mr Mitchell, Mr Kelmanson stated that Mr Katz's time costs and Mr Kelmanson's own time costs had been approved by all the other members of the LC, and all the other members of the LC had expressed a desire, in the first instance, to deal with general committee matters by way of a postal ballot. He said that, if and when appropriate, Mr Katz and he would convene a formal meeting of the LC.
  87. On 16 November 1998 £11,445.05 was paid to Mr Katz for fees, £5,088.75 was paid to Mr Kelmanson for fees, and £850 was paid to counsel. On 10 December 1998 £5,850 was paid to Paisner & Co ("Paisners"), solicitors who had been retained by the Liquidators. On 16 December 1998 £1,200 was paid to counsel.
  88. By this time, the vast majority of Buildlead's book debts had been realised for £58,644.37 by Leslie Keats, chartered quantity surveyors; and the vast majority of the physical assets of Buildlead had been sold for £70,230 by Edward Symmons, auctioneers.
  89. The remainder of the physical assets of Buildlead were realised by 2 March 1999.
  90. By letter dated 15 June 1999 Paisners, on behalf of the Liquidators, wrote to Lloyds requesting, among other things, a copy of any guarantee given to Lloyds in respect of the liabilities of Quickson to Lloyds. A copy of the Guarantee was given by Lloyds to Paisners under cover of a letter of 2 July 1999.
  91. On 27 August 1999 Mr Katz swore an affidavit in support of a proposed application by the Secretary of State for Trade and Industry ("the DTI") for the disqualification of the directors of Buildlead under the Company Directors Disqualification Act 1986 ("the CDDA"). The August Transfers were the only ground intended to be relied upon for a disqualification order.
  92. On 31 August 1999 the DTI commenced proceedings against the Quicks, as directors of Buildlead, seeking their disqualification under the CDDA ("the Disqualification Proceedings").
  93. By 30 September 1999 all but £1,179.39 of Buildlead's book debts had been realised.
  94. Mr Mark Quick having discussed with Mr Page, a senior manager of Lloyds, Mr Katz's affidavit in the Disqualification Proceedings, Mr Page wrote a letter to Mr Mark Quick dated 5 October 1999 describing as follows the banking and security arrangements between Buildlead and Lloyds in 1997 prior to the liquidation of Buildlead:
  95. "The Bank took a debenture from Buildlead Ltd when Quicksons acquired that company, together with a guarantee from Buildlead in favour of Quicksons Ltd. This was exactly the same arrangement that the Bank had put in place for Newguide Ltd previously when that company was acquired, as in both cases, all borrowing from the Bank was to be taken in the name of Quicksons and there were no arrangements for borrowing in the names of the subsidiaries. It was for this reason that guarantees from Quicksons in favour of the subsidiaries were considered unnecessary.
    In 1997 the Bank was concerned at the financial position of Quicksons and in particular at the financial losses of the group. Accordingly the company's overdraft limit was not renewed on expiry and my letter dated 27th May 1997 refers. I was not prepared to renew facilities until I was convinced that the company had taken the necessary action to halt the losses and return the group to profit. Effectively therefore during the period May to after August 1997, neither Quicksons nor its subsidiaries had any overdraft facilities agreed by the Bank, and the Bank wished to keep any exposure to a minimum during this time.
    If therefore Quicksons was overdrawn and the subsidiary companies were in credit, it was the Bank's position that it requested transfers of the credit balances in the subsidiaries' names into Quicksons account to keep the latter in credit or in minimum overdraft.
    The balance of Quicksons' account at the time of the transfers in August shows an overdrawn position and the transfers would have been made to follow the request of the bank that the overdraft should be cleared or kept as low as possible. In these circumstances, given that the Bank was making this requirement and given the nature of its security from the subsidiaries, I cannot see how the transfers referred to by Mr Katz could be construed as preferential. This was also the view taken by Ernst & Young.
    The transfers were made using Lloydslink, the Bank's electronic banking product. The transfers would therefore be physically made by the directors or their staff, but against a background of the Bank's insistence that its exposure on the account of Quicksons was kept at all times to a minimum. You and your fellow directors were well aware of the Bank's position and it was not unusual, as you well know, that my staff would regularly phone your staff to ask that transfers of funds be made to ensure this requirement of the Bank was met.
    It is pertinent to point out that the Bank's debenture security from Buildlead's Ltd gave the Bank a fixed charge over debtors and any cash balances on Buildlead's account with the Bank. If the transfers referred to had not been made and the balances had remained on the account of Buildlead Ltd, the Bank was entitled to make demand on Quicksons for any resultant overdraft followed by demand on Buildlead Ltd under its guarantee. In the event of the demand being unsatisfied, the Bank would have been entitled to appoint a receiver to Buildlead who would have accounted to the Bank for the credit balances on Buildlead's account together with any other realisations of Buildlead's assets."
  96. That letter was passed to the solicitors acting for the DTI in the Disqualification Proceedings.
  97. On 8 November 1999 the DTI was given permission to discontinue the Disqualification Proceedings, and was ordered to pay the Quicks' costs.
  98. By letters dated 16 November 1999 to Mr Mitchell and others, Mr Kelmanson gave notice of a meeting of the LC on 8 December 1999.
  99. On about 7 December 1999 the Liquidators sent the members of the LC an update report for presentation to the LC on 8 December 1999. In that report, the Liquidators stated that there remained the prospect of a substantial recovery from Quickson in respect of preferences. The Liquidators also stated that Paisners had advised that they were unable to continue to deal with the matter of the preferences on a contingency basis, and that they would assist in handing the file to an alternative solicitor. It was further reported that there appeared to be sufficient funds for a substantial payment to preferential creditors, but, without taking proceedings against Quickson in relation to preferences, it was unlikely there would be any funds available to distribute to unsecured creditors. The report also stated that the Liquidators would be grateful to receive the approval of the LC for the Liquidators' costs from 15 August 1998.
  100. The third meeting of the LC took place on 8 December 1999. In addition to the Liquidators, the meeting was attended by Mr Mitchell and Mr Taylor. Mr Mitchell and Mr Taylor approved the costs of the Liquidators, with the exception of the amounts referable to the investigatory work of Mr Katz. In relation to those costs. Mr Mitchell abstained, and Mr Taylor approved them.
  101. The minutes of the meeting record that, in relation to information required by the Liquidators from Lloyds, Mr Taylor suggested that Mr Mitchell should obtain consent from the Quicks for Lloyds to release the information, and Mr Mitchell indicated he would take instructions and report back. The minutes further record that Mr Mitchell suggested that "a seven day letter should be sent to the Quicks setting out the information required for their consideration."
  102. On 10 December 1999 Mr Kelmanson was paid £3,600.41 for his fees, and Mr Katz was paid £3,905.53 for his fees.
  103. By letter dated 21 December 1999 from Mr Katz to the directors of Quickson, Mr Katz said that he would be grateful if the directors would provide him with the following information within 7 days:
  104. "1.A copy of the Bank Facility letters for the Quickson/Buildlead Group covering the period 1 April 1997 through to 30 September 1997.
    2. Copies of all group company bank account statements for the same period.
    3. Details of all company and personal security held by the bank during the same period.
    4. Copies of the monthly banking covenant monitoring sheets which would have been submitted to your bank within the same period."
  105. In that letter Mr Katz stated that, as discussed with Mr Mitchell (at the meeting on 8 December 1999), provision of that information should allow the Liquidators to make an accurate determination of whether any further action in relation to possible preferences would be appropriate, or, alternatively, "allow for potential proceedings to be discontinued as quickly as possible."
  106. By a letter dated 11 January 2000 from Mr Murphy to Mr Katz, Mr Murphy stated that he would take instructions from his clients and ask Mr Mitchell for his comments, but he was not aware of any "outstanding" information previously requested by the Liquidators. He stated that it would take a little while to retrieve his old papers and take full instructions before he could respond fully. He stated that the only proceedings commenced against the Quicks were by the DTI, which were promptly discontinued, and he asked for an indication of what proceedings the Liquidators had in mind.
  107. By a letter dated 3 July 2001 to Quickson from Moon Beever, who had taken over from Paisners, on behalf of the Liquidators, Moon Beever asked for the information requested in the letter from Mr Katz of 21 December 1999 to be provided within 28 days, and stated that, failing which, they had instructions to issue an application against Quickson pursuant to IA ss.234-236.
  108. Mr Murphy wrote a long letter to Moon Beever dated 26 July 2001, in which he set out his perception of the history and background, and then turned to make observations on Mr Katz's letter of 21 December 1999. He stated that, from the history of the matter, Moon Beever should appreciate that Quickson was very reluctant to become embroiled, expensively, in another 2 or 3 years "of fruitless and pointless correspondence about matters which they believe have already been fully aired, in supplying information and documentation which has almost certainly already been supplied to your clients and where the purpose and relevance of your clients' 'enquiries' are not clear or understood." He stated that the conduct of the Liquidators appeared to be wholly unreasonable. He stated that, in the circumstances, Quickson declined to comply with the Liquidators' requests unless and until Moon Beever satisfied Quickson as to the following:
  109. "(1) That there is any possibility of success by your clients against our clients in pursuing the alleged preference claim. Please set out your case and provide your authorities. We suggest that this is essential in the light of the Bank's known response on this issue and the DTI's consideration of that evidence and its decision to drop the disqualification proceedings which were dependent on the acceptance of Mr Katz's wilfully wrong interpretation of the bank transfers.
    (2) Given also that Mr Katz and Mr Kelmanson were appointed in September, 1997, explain the delay in raising the matters referred to in Mr Katz's letter of 21st December, 1999 only in July, 2001, some 18 months later. Why did Mr Katz not send a single reminder letter in that time?
    (3) Confirm by one of your firm's partners that you have satisfied yourselves that the Joint Liquidators do not already have the information that Mr Katz has requested; and confirm that Mr Katz or Mr Kelmanson need this information; and as to its relevance."
  110. By letter dated 31 July 2001 from Moon Beever to Mr Murphy, Moon Beever stated that the piece of information which no-one seemed willing to provide was the figure for the level of the overdraft of Quickson at the time of the August Transfers. They said that it seemed that the answer to that question may provide a simple answer to the Liquidators' queries, and the reluctance for it to be provided caused some suspicion.
  111. Mr Murphy, on behalf of Quickson, refused to provide further information until the questions raised in his letter of 26 July 2001 had been answered.
  112. The s.236 Application was served under cover of a letter dated 1 October 2002.
  113. The Removal Application was commenced on 13 January 2003.
  114. The Preference Proceedings were commenced on 29 July 2003.
  115. The Procedural Strike Out was commenced on 3 June 2004, and the Substantive Strike Out was commenced on 23 June 2004.
  116. The evidence

  117. Witness statements were made, on behalf of Quickson, by Mr. Murphy, Mr. Mitchell and Mr. Robert Quick. They also gave oral evidence.
  118. Witness statements were made, on behalf of the Liquidators, by Mr. Kelmanson, Mr. Katz and Mr. David Birne, who is employed by Fisher. Mr. Birne's witness statement was admitted in evidence as unchallenged hearsay evidence.
  119. Mr. Kelmanson and Mr. Katz gave oral evidence.
  120. Representation

  121. At the hearing before me, Mr. Stephen Davies Q.C and Mr. Richard Ascroft appeared for Quickson; and Miss. Jane Giret Q.C appeared for the Liquidators.
  122. The Strike Out applications

  123. It is convenient to consider, at the outset, whether the Preference Proceedings should be struck out, or judgment entered summarily for Quickson, on the grounds that they lack any substantive merit, or, alternatively, are procedurally defective.
  124. The Substantive Strike Out

  125. IA s.239 sets out the basic requirements for a claim by a liquidator for an order in respect of a wrongful preference. So far as is relevant to the present case, the material provisions of s.239 are as follows:
  126. "(2) Where the company has at a relevant time (defined in the next section) given a preference to any person, the office-holder may apply to the court for an order under this section.
    (3) Subject as follows, the court shall, on such an application make such order as it thinks fit for restoring the position to what it would have been if the company had not given that preference.
    (4) For the purposes of this section and section 241, a company gives a preference to a person if -
    i. that person is one of the company's creditors or a surety or guarantor for any of the company's debts or other liabilities, and
    ii. the company does anything or suffers anything to be done which (in either case) has the effect of putting that person into a position which, in the event of the company going into insolvent liquidation, will be better than the position he would have been in if that thing had not been done.
    (5) The court shall not make an order under this section in respect of a preference given to any person unless the company which gave the preference was influenced in deciding to give it by a desire to produce in relation to that person the effect mentioned in subsection (4)(b).
    (6) A company which has given a preference to a person connected with the company (otherwise than by reason only of being its employee) at the time the preference was given is presumed, unless the contrary is shown, to have been influenced in deciding to give it by such a desire as is mentioned in subsection (5)."
  127. Mr Davies submitted, and I agree, that s.239 involves the following three stage analysis by the court in the case of the August Transfers, namely a determination: (1) whether the August Transfers had the effect of putting Quickson into a position which, in the event of the liquidation of Buildlead, would be better than if the August Transfers had not taken place (s.239(4)(b) – "preference in fact"); (2) whether, if there was a preference in fact, Buildlead, in deciding to give it, was influenced by a desire to confer that preference (s.239(5)); (3) whether Quickson can discharge the burden of proving the absence of such relevant influence (s.239(6)), it being common ground that Quickson was "connected" with Buildlead for the purposes of s.239(6) (IA ss.249 and 435): Re Ledingham-Smith [1993] BCLC 635 at p.639 g-i.
  128. In very broad, and simplified terms, the respective positions of Quickson and the Liquidators as to whether the August Transfers did, or may have, constituted wrongful preferences may be summarised as follows. Quickson's case is that the August Transfers were not preferences "in fact", and were, in any event, plainly not intended by Buildlead to confer a preference on Quickson over Buildlead's other creditors since Quickson had no authorised overdraft facility at the time of the August Transfers; the August Transfers were made consistently with advice given to Quickson and Buildlead by E&Y and were made pursuant to oral demands by Lloyds' employees to Buildlead so as to reduce the unauthorised overdraft of Quickson; Buildlead was liable for that overdraft under the Guarantee; that liability of Buildlead was secured by a fixed charge under the Debenture.
  129. The Liquidators' broad response, by the end of the hearing before me, was that such evidence as is currently available supports the conclusion, or at least a well arguable case, that, at the time of the August Transfers, Quickson had the benefit of a £300,000 overdraft facility with Lloyds, which facility was not fully utilised; the August Transfers could not have been made without, and were in fact initiated by, the decision and agreement of Buildlead; there was no formal demand by Lloyds under the Guarantee, and, indeed, no written demand of any kind by Lloyds in respect of the August Transfers; moreover, the Debenture only created a floating charge over Buildlead's credit bank balances; and, accordingly, there was no question, at the time of the August Transfers, of any immediately enforceable security in favour of Lloyds over Buildlead's credit bank balances; and, furthermore, it is possible that Newguide might have had assets which could have been transferred to meet any demands by Lloyds, rather than the August Transfers by Buildlead.
  130. As is apparent from that summary, various factual matters relating to the operation of the bank accounts of the companies within the Quickson group in 1997 are not agreed between the parties. Those matters include the manner in which the Lloydslink facility operated, and, in particular, whether the August Transfers were made pursuant to oral demands by Lloyds, and, if so, what were the nature and content of those demands. It is also not agreed whether, at the time of the August Transfers and thereafter, Quickson enjoyed an overdraft facility with Lloyds and, if so, the size of that facility. Further, there is no agreement as to the arrangements between Quickson/Buildlead/Newguide/ Lloyds for dealing with credit and debit balances. There is no agreement between the parties as to whether, if the August Transfers had not been made, payments could and would have been made by Newguide in favour of Quickson, so as to eliminate or reduce Quickson's overdraft at the relevant times.
  131. In view, doubtless, of the absence of agreement on those matters, Mr Davies restricted the Substantive Strike Out to the first stage of the analysis mentioned in paragraph 109 above, that is to say, whether there was a preference in fact.
  132. The analysis advanced by Mr Davies, on behalf of Quickson, rests essentially on two limbs. Firstly, Quickson claims that the credit balances of Buildlead's account were, at all relevant times, subject to a fixed charge in favour of Lloyds under the Debenture. Second, Quickson claims that the August Transfers could not have been a preference of Quickson over Buildlead's other creditors since, if the August Transfers had not been made, the overdraft of Quickson, at the date of the resolution to wind up Buildlead, would have been in excess of £226,000, and Lloyds would have been entitled to take, in satisfaction of that overdraft, the entire amount (approximately £155,000) which, hypothetically, would have been the credit balance of Buildlead's account (that being the value of the August Transfers).
  133. For the purpose of the Substantive Strike Out, Quickson must establish that the Debenture gave rise to a fixed charge in favour of Lloyds over credit balances on Buildlead's account, since Lloyds' rights under a mere floating charge would have been subject to the claims of preferential creditors: IA 1986 ss. 40 and 175; and see Buchler v Talbot [2004] UKHL 9, [2004] 2WLR 582 (HL).
  134. Whether or not the Debenture created a fixed charge or a floating charge over the credit balances in Buildlead's account is a matter of law. It involves the court in a two-stage process. First, the court must ascertain the nature of the rights and obligations which the parties intended to grant each other in respect of the assets charged by the Debenture. Once those have been ascertained the court will, as a matter of law, categorise those rights as giving rise either to a fixed charge or a floating charge. That depends upon an analysis of those rights rather than an automatic acceptance of the label - fixed charge or a floating charge - used by the parties in the Debenture. The court's approach was summarised as follows by Lord Millett in Agnew v Commissioner of Inland Revenue [2001] UKPC 28, [2001] 2 AC 710, at para [32]:
  135. "In deciding whether a charge is a fixed charge or a floating charge, the court is engaged in a two-stage process. At the first stage it must construe the instrument of charge and seek to gather the intentions of the parties from the language they have used. But the object at this stage of the process is not to discover whether the parties intended to create a fixed or floating charge. It is to ascertain the nature of the rights and obligations which the parties intended to grant each other in respect of the charged assets. Once these have been ascertained, the court can then embark on the second stage of the process, which is one of categorisation. This is a matter of law. It does not depend on the intention of the parties. If their intention, properly gathered from the language of the instrument, is to grant the company rights in respect of the charged assets which are inconsistent with the nature of a fixed charge, then the charge cannot be a fixed charge however they may have chosen to describe it. A similar process is involved in construing a document to see whether it creates a licence or tenancy. The court must construe the grant to ascertain the intention of the parties: but the only intention which is relevant is the intention to grant exclusive possession: see Street v Mountford [1985] AC 809, 826 per Lord Templeman. So here: in construing a debenture to see whether it creates a fixed or a floating charge, the only intention which is relevant is the intention that the company should be free to deal with the charged assets and withdraw them from the security without the consent of the holder of the charge; or, to put the question another way, whether the charged assets were intended to be under the control of the company or of the charge holder."
  136. The relevant provisions in the Debenture are as follows:
  137. "3. Charges

    The Company - hereby charges with the payment of all money and liabilities and other sums hereby agreed to be paid or intended to be hereby secured - and so that the charges hereby created shall be a continuing security:
    First: -
    Secondly: All book debts both present and future due or owing to the Company or in which the Company is legally, beneficially or otherwise interested (and the proceeds thereof) and the benefit of all rights relating thereto -
    Thirdly: All other debts, claims, rights and choses in action both present and future of the Company or in which the Company is legally, beneficially or otherwise interested (and the proceeds thereof) including (without prejudice to the generality of the foregoing):
    i. deposits and credit balances held by the Company with the Bank or any third party from time to time both present and future (including things in action which give rise or may give rise to a debt or debts) owing to the Company (and the proceeds thereof):
    -
    Fourthly: -
    Fifthly: -
    Sixthly: -
    Seventhly: -
    Eighthly: -
    Ninthly: -
    Tenthly: The undertaking and all property and assets of the Company both present and future including (without prejudice to the generality of the foregoing) - the Charged Property First, Secondly, Thirdly, Fourthly, Fifthly, Sixthly, Seventhly, Eighthly and Ninthly described (if and in so far as the charges thereon or on any part or parts thereof herein contained shall for any reason be ineffective as fixed charges).
    In this Debenture, the expression "Charged Property" means the undertaking, assets, properties, revenues, rights and benefits First, Secondly, Thirdly, Fourthly, Fifthly, Sixthly, Seventhly, Eighthly, Ninthly and Tenthly described in Sub-clause 3a hereof and references to the Charged Property include references to any part of it.
    (b) The security hereby created shall as regards the Charged Property First, Secondly, Thirdly, Fourthly, Fifthly, Sixthly, Seventhly, Eighthly and Ninthly described be first fixed charges - and as regards the Charged Property tenthly described shall be a first floating charge.
    4. Restrictions and warranty
    (a) The Company shall not without the consent in writing of the Bank:
    (i) sell, assign license, sub-license, discount, factor or otherwise dispose of, or deal in any other way with, the Charged Property (other than the Charged Property tenthly described) provided that for the avoidance of doubt this Sub-clause 4(a)(i) shall not prevent the Company without such consent collecting proceeds of the book and other debts, monetary claims and choses in action forming part of the Charged Property in the ordinary course of the Company's business and paying the same into the Company's account(s) with the Bank in accordance with Sub-clause 4(f) and provided further that where the Bank makes a payment at the request of the Company which is debited to any account with the Bank which is for the time being ain credit, the Bank shall be taken to have given any necessary consent for the purposes of this clause to such payment unless such payment was made as a result of some mistake of fact on the part of the Bank;
    (ii) create or permit to subsist or arise any mortgage, debenture, hypothecation, charge, assignment by way of security, pledge or lien or any other encumbrance or security whatsoever (save a lien arising by operation of law in the ordinary course of business) upon the Charged Property;
    (iii) enter into any contractual or other agreement or arrangement which has or may have an economic effect similar or analogous to any such encumbrance or security as would be prohibited by Sub-clause 4(a)(ii);
    -
    (f) During the continuance of this security the Company shall pay into its account or accounts with the Bank the proceeds of the book and other debts, monetary claims and choses in action forming part of the Charged Property provided that the bank shall be deemed to receive the amounts owing to the Company referred to in paragraph (ii) of the premises Thirdly described in Sub-clause 3(a) pursuant to the fixed charge contained therein and not pursuant to the fixed charge on freehold and leasehold property First described in that Sub-clause or as mortgagee in possession. "
  138. Mr Davies submitted that the amounts transferred by the August Transfers fell within both the second category (book debts) and paragraph (i) of the third category (deposits and credit balances held by Buildlead with Lloyds) specified in clause 3(a) of the Debenture.
  139. In my judgment, on the proper interpretation of the Debenture, the credit balance of Buildlead's account, out of which the August Transfers were made, did not constitute a book debt within the second category in clause 3(a) of the Debenture, but fell within the category of "deposits and credit balances" in paragraph (i) of the third category. As Hoffmann J said in Re Brightlife Limited [1987] 1Ch 200, at pp. 208H-209A:
  140. "I do not think that the bank balance falls within the term "book debts or other debts" as it is used in the debenture. It is true that the relationship between banker and customer is one of debtor and creditor. It would not therefore be legally inaccurate to describe a credit balance with a banker as a debt. But this would not be a natural usage for a businessman or accountant. He would ordinarily describe it as "cash at bank": compare the balance sheet formats in Part I, section B of Schedule 4 to the Companies Act 1985."
  141. That conclusion is reinforced by the express provision for dealing with credit balances in Buildlead's account in clause 4(a)(i) of the Debenture.
  142. Whether the credit balance in Buildlead's account, out of which the August Transfers were made, is properly categorised as an asset within the second category of clause 3(a) of the Debenture or as an asset within paragraph (i) of the third category, I agree with Mr Davies' submission that the Debenture created a fixed charge over that credit balance. On the present state of the authorities, the restrictions in clause 4(a) of the Debenture, and particularly clause 4(a)(i), are such as are consistent, or more consistent, with a fixed charge than a floating charge: see the analysis and decisions in Siebe Gorman & Co Ltd v Barclays Bank Ltd [1979] 2 LL. Rep 142 (Slade J), and National Westminster Bank plc v Spectrum Plus Ltd [2004] EWCA Civ 670 (CA).
  143. Miss Giret submitted that Re Brightlife is authority that the Debenture did not give rise to a fixed charge of the credit balances in Buildlead's account, but only a floating charge. Attractively as Miss Giret put this, as her other points, the submission seems to me to be an impossible one. The debenture in Brightlife did not contain anything equivalent to the express restrictions in clause 4(a)(i) of the Debenture. It was a critical feature of the debenture in Brightlife that, once the proceeds of the book debts were paid into the bank account, they would be outside the charge over debts and at the free disposal of the company. As Hoffmann J said, at p.209 H:
  144. "In this debenture, the significant feature is that Brightlife was free to collect its debts and pay the proceeds into its bank account. Once in the account, they would be outside the charge over debts and at the free disposal of the company. In my judgment a right to deal in this way with the charged assets for its own account is a badge of a floating charge and is inconsistent with a fixed charge."
  145. In that respect, Hoffmann J expressly distinguished the facts and decision in Siebe Gorman. He said, at p.210 A-E:
  146. "I was referred to Siebe Gorman & Co. Ltd. v Barclays Bank Ltd. [1979] 2 Lloyds Rep.142 and a recent decision of the Irish Supreme Court in In re Keenan Bros. Ltd. [1986] B.C.L.C. 242, in both of which charges over book debts were held to be fixed and not floating. In the former case, the debenture was in favour of a bank and not only prohibited the company from selling or charging its book debts but required that they be paid into the company's account with that bank. Slade J. decided that as a matter of construction the bank would not have been obliged to allow the company to draw upon the account at a time when it still owed the bank money under the debenture. The company was not free to deal with the debts or their proceeds in the ordinary course of its business. Each debt as it accrued to the company could therefore properly be said to become subject to an equitable fixed charge. On the other hand, Slade J. said, at p. 158:
    "if I had accepted the premise that [the company] would have had the unrestricted right to deal with the proceeds of any of the relevant book debts paid into its account, so long as that account remained in credit, I would have been inclined to accept the conclusion that the charge on such book debts could be no more than a floating charge."
    In re Keenan Bros. Ltd. [1986] B.C.L.C. 242 was an even stronger case than Siebe Gorman & Co. Ltd. v Barclays Bank Ltd. [1979] 2 Lloyds Rep.142. Again the debenture was in favour of a bank and this time the company was obliged to pay the proceeds of all debts into a designated account with the bank and "not without the prior consent of the bank in writing make any withdrawals or direct any payment from the said account": see p. 245. Neither case is therefore of assistance to Norandex."
  147. Further, the Guarantee was expressed to be a continuing security, which would continue notwithstanding that the liabilities of Quickson to Lloyds might from time to time be reduced to nil (see clause 6). The charges created by the Debenture were similarly expressed to be by way of a continuing security (see the opening words of clause 3(a)).
  148. Accordingly, Mr Davies has established the first of the two limbs of his analysis, for the purposes of the Substantive Strike Out.
  149. I turn to his second limb.
  150. By virtue of clause 13(b) of the Guarantee, on the winding up of Buildlead the liability of Buildlead to Lloyds under the Guarantee was deemed to have become presently due and payable, without demand, immediately before the resolution for winding up.
  151. At that point of time, at the latest, Lloyds was entitled, pursuant to its first fixed charge, to claim the entire balance on Buildlead's account in satisfaction of the indebtedness of Quickson to Lloyds.
  152. On 2 September 1997, the date of the resolution for the winding up of Buildlead, the overdraft on Quickson's account stood at £71,650.02. The second limb of Mr Davies' analysis proceeds on the basis that, if the August Transfers had not taken place, that overdraft would have risen by the amount of the August Transfers, namely approximately £155,000, so that there would have been, on 2 September 1997, an overdraft on Quickson's account of some £226,000. If that is correct, and Buildlead's account had held the £155,000 represented by the amount of the August Transfers, the entirety of that credit balance could and would have been taken by Lloyds in satisfaction of Buildlead's liability under the Guarantee and pursuant to its first fixed charge under the Debenture.
  153. Quickson claims that, in those circumstances, the August Transfers could not have constituted a preference in fact. The point is expressed as follows, in paragraph 13.13 of Quickson's written skeleton argument in opening:
  154. "To put the matter another way, the August Transfers were not effected at the expense of other creditors of the Company and will not be adjusted by the court. The reason for this is that the payments were made out of third party moneys – ie out of the Bank's moneys. The Court of Appeal in IRC v Wimbledon FC Ltd [2004] EWCA Civ 655, has confirmed that the following passage in Professor Goode (Principles of Corporate Insolvency Law (2nd Edn) (1997) (at p.391) represents the law in this respect :
    "Section 239 is aimed at transactions which disturb the statutory order of distribution, it follows that to be a preference within section 239 the payment or transfer must be one by which the creditor is put in a better position at the expense of other creditors. Accordingly, it is not a preference for the company to cause a payment or transfer to be made to the creditor by a third party except to the extent to which the ultimate burden falls on the company's assets that would otherwise be available to its creditors, as where the third party is entitled to recoupment from the company""
  155. At the very end of the hearing, Miss Giret submitted that this analysis was flawed because there was no evidence that Quickson's other subsidiary, Newguide, would have been unable or unwilling to transfer money to Quickson, at the dates of the August Transfers, or at any event prior to the resolution to wind up Buildlead on 2 September 1997, and so reducing Quickson's overdraft even if the August Transfers had not been made. I assume that Miss Giret's submission is directed to transfers that Newguide could and would have made without constituting potential wrongful preferences or otherwise being unlawful or in breach of any statutory or other duty by Newguide or its directors.
  156. Mr Davies robustly complained that such a point had never previously been taken by the Liquidators, whether in correspondence over a period of nearly 7 years since the resolution to wind up Buildlead or in the written skeleton arguments of the Liquidators for the purpose of the hearing before me. Mr Davies said, on instructions, that in fact Newguide had no money or, at any event, insufficient money to make transfers of the same value as the August Transfers. Miss Giret riposted by pointing to an entry on one of Quickson's bank statements showing a transfer from Newguide to Quickson of £62,376 on 5 August 1997.
  157. This is, undoubtedly, a regrettable and unsatisfactory situation. On the one hand, it would have been quite wrong to permit additional evidence to be adduced at the very end of a hearing which had already more than doubled its time estimate. On the other hand, there is considerable force in Mr Davies' criticism that the Liquidators have never before stated, or never clearly stated, that there is any reason to believe that, if the August Transfers had not been made, Newguide could and would have made payments to Quickson to reduce or eliminate the overdraft on Quickson's account as at the date of the resolution to wind up Buildlead, or even that this specific possibility needed to be investigated. Those transfers would, of course, have had to be in addition to the £62,376 transferred from Newguide to Quickson on 5 August 1997. Indeed, information about Newguide relevant to such an allegation or possibility does not even appear, or at any event does not clearly appear, to be within the scope of the outstanding s.236 Application.
  158. The burden of proving a preference in fact, within IA s.239(4)(b), lies on the Liquidators. On the present state of the evidence, it appears to be no more than a matter of pure speculation whether Newguide had assets which it could and would have applied in reduction of Quickson's overdraft to the same extent as was achieved by the August Transfers. In the circumstances, it would be possible to adopt a robust approach and hold that, on the present state of the evidence, there is no real prospect of the Liquidators succeeding in the Preference Proceedings.
  159. I do not consider, however, that would be a proper way for the court to exercise its discretion. Mr Davies said in his opening submissions that the Substantive Strike Out is based on the proper meaning and effect of the Guarantee and the Debenture, and not upon relevant facts which are in dispute, or, at any event, not agreed. It was on this basis that I directed that the Strike Out Applications be listed for hearing at the same time as the Removal Application. While, as I have said, it is a matter for comment and regret that the Liquidators' position in relation to Newguide was not clearly articulated until this late stage, the point having now been taken, it would be wrong to ignore it. Bearing in mind the way in which transfers took place between the members of the Quickson group, I consider that it is right that other creditors should be able to see that there is a proper investigation of relevant matters relating to inter-company transfers. The fact that the present speculation about Newguide's assets, and, in particular, its relevance to an analysis of a preference in fact by Buildlead, has not previously been articulated, or clearly articulated, by the Liquidators is not a matter which, in all the circumstances, should operate to the detriment of the general body of creditors.
  160. I should also record that, with regard to the first limb of Mr Davies' analysis, Miss Giret emphasised that permission to appeal to the House of Lords has been given in Spectrum Plus. She submitted that it is not appropriate to strike out a claim in an area of developing jurisprudence. In that connection, she mentioned Farah v British Airways plc (The Times, January 26 2000 (CA)). She submitted that there would be particular injustice in the present case, as the Liquidators would be prevented by expiry of the limitation period from issuing a fresh claim in the event that the legal issue in Spectrum Plus is decided in a way that supports the argument of the Liquidators that the Debenture created a floating charge, and not a fixed legal charge, over the credit balances in Buildlead's account.
  161. Miss Giret's submission has force. In a "Postscript" to his judgment (with which the other two members of the Court of Appeal agreed), Lord Phillips MR said in Spectrum Plus, at para [99], that this is an unsatisfactory area of the law. Furthermore, in the course of his judgment (at para. [79]), he referred to the following statement of Lord Millett at para. [48] of Agnew :
  162. "To constitute a charge on book debts a fixed charge, it is sufficient to prohibit a company from realising the debts itself, whether by assignment or collection. If the company seeks permission to do so in respect of a particular debt, the charge holder can refuse permission or grant permission on terms, and can thus direct the application of the proceeds. But it is not necessary to go this far. As their Lordships have already noted, it is not inconsistent with the fixed nature of a charge on book debts for the holder of the charge to appoint a company its agent to collect the debts for its account and on its behalf. The Siebe Gorman case [1979] 2 Lloyd's Rep 142 and In re Keenan Bros Ltd [1986] BCLC 242 merely introduced an alternative mechanism for appropriating the proceeds to the security. The proceeds of the debts collected by the company were no longer to be trust monies but they were required to be paid into a blocked account with the charge holder. The commercial effect was the same: the proceeds were not at the company's disposal. Such an arrangement is inconsistent with the charge being a floating charge, since the debts are not available to the company as a source of its cash flow. But their Lordships would wish to make it clear that it is not enough to provide in the debenture that the account is a blocked account if it is not operated as one in fact." [my emphasis]
  163. The last sentence of that passage would appear to be an observation by Lord Millett that if an account is not, in fact, operated as a blocked account, restrictions specified in the debenture on the operation of the account may be irrelevant in determining whether the debenture gives rise to a fixed charge rather than a floating charge. That observation does not appear to have been taken into account as a material consideration in the analysis of the Court of Appeal in Spectrum Plus.
  164. Notwithstanding Miss Giret's submissions, if the outcome of the Substantive Strike Out depended merely on the possibility that the House of Lords might analyse the law in Spectrum Plus in a way which would undermine Siebe Gorman and the Court of Appeal's decision in Spectrum Plus in such a way as to throw real doubt on whether the charge created by the Debenture over the credit balances on Buildlead's account was a fixed charge rather than a floating charge, or indeed lead to the conclusion that it cannot have been a fixed charge, I might well have concluded that, in all the circumstances, on the particular facts of the present case, I should nevertheless accede to the Substantive Strike Out. On behalf of Quickson, Mr Davies offered an undertaking that, if the Preference Proceedings are struck out, but the House of Lords' analysis and decision in Spectrum Plus subsequently undermine the conclusion that the Debenture gave rise to a fixed charge over the credit balances on Buildlead's account, Quickson would not oppose an application for permission to appeal out of time by the Liquidators and would not take any point on limitation. In the light of the offer of that undertaking, and the already considerable duration of Buildlead's liquidation, and the need for further time and expense to be devoted to the Preference Proceedings in the absence of either a dismissal of the Preference Proceedings or a stay of uncertain duration pending the outcome of the appeal to the House of Lords in Spectrum Plus, I consider that the preferable course would have been to accede to the Strike Out Application.
  165. In the light, however, of the matters I have mentioned with regard to the absence of evidence as to Newguide's asset position, so far as relevant to the possibility of a preference in fact, the Substantive Strike Out must be dismissed.
  166. The Procedural Strike Out

  167. I can deal with the Procedural Strike Out relatively briefly.
  168. The Preference Proceedings were commenced by ordinary application in the s.236 Application.
  169. Quickson claims that the Preference Proceedings should have been commenced by an originating application, and, accordingly, the Preference Proceedings should be struck out as procedurally incompetent.
  170. Quickson relies upon the provisions of IR r. 7.2, which are as follows:
  171. "(1) In this chapter, except in so far as the context otherwise requires –
    "originating application" means an application to the court which is not an application in pending proceedings before the court; and
    "ordinary application" means any other application to the court.
    (2) Every application shall be in the form appropriate to the application concerned"
  172. In Re Continental Assurance Co of London plc (No.2) [1988] 1 BCLC 583, Evans-Lombe J considered an application by the directors of a company which had been placed in creditors' voluntary liquidation to strike out an application by the liquidators seeking relief against the directors (for wrongful trading and breach of fiduciary duty). The ground of the directors' application to strike out was that the liquidators' application was procedurally irregular since it had been made by way of ordinary application, rather than by an originating application.
  173. Evans-Lombe J held that the proceedings should have been started by originating application. He said, at pp. 586h-587c:
  174. "The practice of the court, as I understand it, is this. Where there has been a compulsory winding up, insolvency proceedings have started pursuant to which applications can be made by way of ordinary application. It is the practice to use ordinary applications where the relief being sought is relief particular to the liquidator or to the general body of creditors as represented by him. Thus, applications to set aside transactions for preference are normally brought where there is a compulsory liquidation by ordinary application.
    The position is different where, as here, the winding up is a creditors' voluntary winding up. That, notwithstanding the submissions of Mr Atherton, is not, in my judgment, a proceeding so as to constitute an insolvency proceeding within r7. It does not seem to me that it is possible to say that where, in a creditors' voluntary liquidation, an application in another matter has been made by way of originating application, all subsequent court proceedings can be commenced by ordinary application using the number which the first originating application has taken. It seems to me that in a creditors' winding up, where it is intended to bring proceedings in a particular matter against particular respondents or defendants, an originating application should be issued. It is not without significance that the fee payable on a originating application is considerably greater than that on an ordinary application.
    These proceedings should have been commenced by originating application."
  175. Miss Giret submitted that the analysis of Evans-Lombe J in Re Continental Assurance Co was wrong, and should not be followed by me. Her analysis is conveniently set out in the following paragraphs of the Liquidators' skeleton argument on the Strike Out Applications:
  176. "17. However it is not accepted that the Liquidators' use of an ordinary application is erroneous. It is certainly more economical (£60 as opposed to £135), and if permissible, should be adopted.
    18. What is needed in order for there to be pending proceedings is a court file: see Re Bullard & Taplin Ltd [1996]BCC 973 at 978E-F. Once there is a court file with a court number, then all proceedings by the liquidator thereafter will be made under that number, and necessarily by ordinary application, because it has become insolvency proceedings. If a new number is sought, then a new file will be opened. It was expressly accepted by Evans Lombe J that such applications in a compulsory liquidation would be brought by way of ordinary and not originating application: page 596
    19. This is supported by looking at the EU Regulation, Articles 1,2, Annex A and B. It brings CVLs into proceedings when confirmed by the Court. This is achieved under IR 7.62. When confirmed by the Court, there is a court file referable to that particular CVL. The status is then the same as a winding up by the Court.
    20. This makes absolute sense. If the Court has become seised of liquidation proceedings it is important that all elements are under one file, so that if, for example the liquidation be stayed, all pending matters would be known because they would be in one file. Court files are filed by number and not by name. Equally, if in one application, an order for costs was ordered to be "costs in the liquidation" then at the end of the liquidation, that order would be recorded in the court file.
    21. It is to be noted that it is also consistent with bankruptcy when every application (such as preference) is bought by ordinary application in the bankruptcy, as with a compulsory winding up. CVLs with a court file must be in the same category."
  177. It is not necessary, for the following reasons, for me to resolve that issue between the parties.
  178. IR r. 7.55 provides:
  179. "No insolvency proceedings shall be invalidated by any formal defect or by any irregularity, unless the court before which objection is made considers that substantial injustice has been caused by the defect or irregularity, and that the injustice cannot be remedied by any order of the court."
  180. In my judgment, no injustice has been caused to Quickson by reason of any procedural defect in the commencement of the Preference Proceedings by ordinary application rather than by originating application. Quickson claims that there has been substantial injustice by virtue of the delay in bringing the Preference Proceedings, the absence of any statement of the Liquidators' case in the Preference Proceedings, and the absence of any statement of grounds explaining how and why, in the light of the terms of the Debenture and the Guarantee, it is alleged that Quickson was preferred by the August Transfers at the expense of Buildlead's creditors.
  181. The Preference Proceedings were commenced within the limitation period. There has been no inordinate and inexcusable delay in the prosecution of the Preference Proceedings since their inception. In the circumstances, I do not consider that the absence of a formal statement of the Liquidators' case for the preference claim has give rise to "substantial injustice" within r. 7.55.
  182. In any event, Mr Davies did not, in view of the very limited time available at the end of the hearing to deal with the Procedural Strike Out, press for a determination of that Application in favour of Quickson.
  183. For those reasons, I dismiss the Procedural Strike Out.
  184. Removal of Liquidators: legal principles

  185. The Removal Application is made pursuant to IA s.108(2) which provides:
  186. "The court may, on cause shown, remove a liquidator and appoint another."
  187. The words in s.108(2) have appeared in substantially the same form in company legislation for over 140 years.
  188. The burden is on the applicant to show a good cause for removal of a liquidator, but it is well established that the statutory provision confers a wide discretion on the court which is not dependent on the proof of particular breaches of duty by the liquidator. The court's approach is well illustrated by the following judicial statements from a small selection of the authorities.
  189. In Re Marseilles Extension Railway and Land Company (1867) LR 4 Eq 692, which concerned the Court's power under the Companies Act 1862 ("CA 1862") s.141 to remove a liquidator in a voluntary liquidation "on due cause shown", Sir R Malins V-C said at p.694:
  190. "I am of opinion that under the 141st section of the Act I have a discretionary power to remove the liquidators appointed by the company. The question is, what is meant by the words "On due cause shewn"? On one side it is contended that "due cause" must be something amounting to misconduct or personal unfitness; on the other side it is contended, and I think that the contention is borne out by the case of Ex parte Pullbrook, that the Court may take all the circumstances into consideration and if it finds that it is, upon the whole, desirable that a liquidator should be removed, it may remove him."
  191. In Re Adam Eyton Limited (1887) 36 Ch D 299, which concerned the Court's power under CA 1862 s.93 to remove a liquidator in a compulsory liquidation "on due cause shown", Bowen LJ said at p.306:
  192. "In many cases, no doubt, and very likely, for anything I know in most cases, unfitness of the liquidator will be the general form which the cause will take upon which the Court in this class of case acts, but that is not the definition of due cause shewn. In order to define "due cause shewn" you must look wider afield, and see what is the purpose for which the liquidator is appointed. To my mind the Lord Justice has correctly intimated that the due cause is to be measured by reference to the real, substantial, honest interests of the liquidation, and to the purpose for which the liquidator is appointed. Of course, fair play to the liquidator himself is not to be left out of sight, but the measure of due cause is the substantial and real interest of the liquidation."
  193. In Keypak Homecare Limited [1987] BCLC 409, which concerned an application under IA s.108, Millett J said, at pp.415-416:
  194. "I have heard argument on the proper principles which should be applied when the court is invited to exercise the jurisdiction conferred by s 108(2). The section authorises the court to remove the liquidator 'on cause shown'. That is not the same as saying 'if the court shall think fit'. There is a burden on the applicant to show why the liquidator should be removed. Three authorities are relevant. In Re Marseilles Extension Rly and Land Co (1867) LR 4 Eq 692 Malins V-C made it clear that he did not regard the words 'due cause' as requiring anything amounting to misconduct or personal unfitness. He thought that it was sufficient if it could be shown that it was on the whole desirable that a liquidator should be removed. He took into account the fact that it was a serious and valid objection to the liquidator's efficiency that a considerable number of the creditors were opposed to his continuance in office.
    In Re Sir John Moore Gold Mining Co (1879) 12 Ch D 325, the Court of Appeal dismissed an appeal from Bacon V-C who had removed the liquidator. In the course of their judgments, Jessel MR said (at 331):
    'I should say that, as a general rule, [the words 'on cause shown'] point to some unfitness of the person – it may be from personal character, or from his connection with other parties, or from circumstances in which he is mixed up – some unfitness in a wide sense of the term.'
    In fact, the court went on to find that there was such unfitness in the wide sense of the term and removed the liquidator, so that the words are, strictly speaking, obiter.
    In Re Adam Eyton Ltd (1887) 36 Ch D 299 the Court of Appeal considered the language of Jessel MR and made it clear that it is not necessary in order to justify the court under the section in removing the liquidator that there should be anything against the individual. Cotton LJ said (at 303):
    'In my opinion, although of course unfitness discovered in a particular person would be a ground for removing him, yet the power of removal is not confined to that, and I do not think that the late Master of the Rolls in the case of In re Sir John Moore Gold Mining Company ((1879) 12 ChD 325 at 331), which has been cited, intended to give an exhaustive definition.
    Bowen LJ agreed that the liquidator should be removed although he said that in the particular case the liquidator whose removal was effected –
    'may consider that the judgment of this Court is not based in any way on the possibility of any reflection upon himself, either in his conduct in this matter or in his general fitness to be a liquidator of any honourable company in the kingdom - his character is clear.'
    (See (1887) 36 Ch D 299 at 305.)
    It was submitted to me that the rule laid down in that case, that in order to effect the removal of the liquidator the court needs only to be satisfied that it is for the general advantage of those interested in the assets of the company that the liquidator be removed, must be read in the context of the facts of the case and that very special circumstances must exist before the power can be exercised in a case in which no personal misconduct or unfitness can be shown on the part of the liquidator.
    There were special circumstances in that case, but I do not read the general principle laid down by the Court of Appeal as being limited to cases in which special circumstances can be shown. On the contrary, the words of the statute are very wide and it would be dangerous and wrong for a court to seek to limit or define the kind of cause which is required. Circumstances vary widely, and it may be appropriate to remove a liquidator even though nothing can be said against him, either personally or in his conduct of the particular liquidation."
  195. In Shepheard v Lamey [2001] BPIR 939, at p.940, Jacob J said, on an application for the removal of a liquidator:
  196. "After all, all that one has to find is some good cause why a person should not continue as a liquidator. You do not have to prove everything in sight; you do not have to prove, for example, misfeasance as such: you do not have to show more than there may well be a case of misfeasance or, indeed, incompetence."
  197. In Re Edennote Ltd [1996] 2BCLC 389, the Court of Appeal considered an application, in a compulsory winding up, for the removal of the liquidator pursuant to IA s.172. Nourse LJ, with whom Millett LJ, the only other member of the Court of Appeal, agreed, said that, although the words "on cause shown" in IA s.108(2) do not appear in IA s.172(2), the difference in the language of the two provisions was immaterial for the purposes of the case. He approved (at p.398c) the statement of Millett J in Re Keypak Homecare that the words of the statute are very wide, and it would be dangerous and wrong for a court to seek to limit or define the kind of cause required; and it may be appropriate to remove a liquidator even though nothing can be said against him, either personally or in his conduct of the particular liquidation. Nourse LJ proceeded to observe (at p.398f), however, that the creditors' loss of confidence in the liquidator must be reasonable; and that, in the case of a compulsory liquidation, the court will not lightly remove its own officer; and the court will, among other considerations, pay a due regard to the impact of removal on the liquidator's professional standing and reputation. On the facts of that case, Nourse LJ concluded that, although the liquidator had made a serious mistake, it was honest, and his integrity and good faith were accepted, and, in all the circumstances, the liquidator ought not to be removed.
  198. Finally, in A M P Enterprises Limited v Hoffman [2002] EWHC 1989 (Ch), [2003] 1 BCLC 319, Neuberger J refused to remove joint liquidators pursuant to IA s.108(2) in a creditors' voluntary liquidation, notwithstanding that the creditor applicant had reasonable grounds to criticise the conduct of the liquidators. Miss Giret, in her opening skeleton argument for the Liquidators, drew my attention to the following two passages in his judgment:
  199. "[23] In an application such as this, the court may have to carry out a difficult balancing exercise. On the one hand the court expects any liquidator, whether in a compulsory winding up or a voluntary winding up, to be efficient and vigorous and unbiased in his conduct of the liquidation, and it should have no hesitation in removing a liquidator if satisfied that he has failed to live up to those standards at least unless it can be reasonably confident that he will live up to those requirements in the future."
    "[27] On the other hand, if a liquidator has been generally effective and honest, the court must think carefully before deciding to remove him and replace him. It should not be seen to be easy to remove a liquidator merely because it can be shown that in one, or possibly more than one, respect his conduct has fallen short of ideal. Otherwise, it would encourage applications under s108 (2) by creditors who have not had their preferred liquidator appointed, or who are for some other reason disgruntled. Once a liquidation has been conducted for a time, no doubt there can almost always be criticism of the conduct, in the sense that one can identify things that could have been done better, or things that could have been done earlier. It is all too easy for an insolvency practitioner, who has not been involved in a particular liquidation, to say, with the benefit of the wisdom of hindsight, how he could have done better. It would plainly be undesirable to encourage an application to remove a liquidator on such grounds. It would mean that any liquidator who was appointed, in circumstances where there was support for another possible liquidator, would spend much of his time looking over his shoulder, and there would be a risk of the court being flooded with applications of this sort. Further, the court has to bear in mind that in almost any case where it orders a liquidator to stand down, and replaces him with another liquidator, there will be undesirable consequences in terms of costs and in terms of delay. "
  200. Neuberger J, having concluded that it was not a case in which the liquidators had done nothing, or virtually nothing, and was not a case where it could fairly be suggested that the liquidators had been biased or lacking in independence, or where there could be a reasonable perception to that effect, considered that it was not appropriate to remove the liquidators since his ultimate concern was not with the past but with the future, and it would be unfair on the liquidators, and unnecessary for the creditors' and the company's interests, as well as unnecessarily expensive and disruptive, if he was to remove the liquidators.
  201. In her opening skeleton argument for the Liquidators, Miss Giret summarised the application of the relevant legal principles to the facts of the present case as follows:
  202. "7. It is then for the applicant to prove to the court's satisfaction that the Liquidator has failed to conduct the liquidation in an efficient, vigorous and unbiased manner, and will continue to fail to do so in the future. The grounds to be established by Quickson must be good ones and, it is submitted, it must be shown that a replacement liquidator would be likely to perform so much more effectively that the cost and delay caused by a new appointment is justified."
  203. In my judgment, that summary of the application of the legal principles to the present case is too narrow and too rigid, and does not properly reflect the broad discretion of the court under IA s.108(2). It appears to be an analysis which has transformed the observation of Neuberger J in AMP Enterprises that the court expects any liquidator to be efficient and vigorous and unbiased in his conduct of the liquidation (at para [23]) into a pre-condition of removal under s.108(2) that, in order to succeed, the applicant must show that the liquidator has failed to act in an efficient, vigorous and unbiased manner, and will continue to fail to do so in the future.
  204. Neuberger J himself emphasised (at para [21]) that it is inappropriate to lay down what facts will and what facts will not constitute sufficient grounds for removal under s.108(2). In that case, he made helpful and practical comments that it should not be seen to be easy to remove a liquidator merely because it can be shown that in one or more respects his conduct has fallen short of the ideal, and it is necessary to bear in mind the expense and disruption of a substitute appointment. Similarly, as I have already said, Nourse LJ in Edennote (at p.398) observed that the creditors' lack of confidence in the liquidator must be reasonable, and the court will pay due regard to the impact of removal on the liquidator's professional standing and reputation. Factors such as those might, taking into account all the circumstances, warrant a refusal to remove a liquidator even where there are reasonable criticisms that can be made of the liquidator's conduct of the liquidation.
  205. On the other hand, it is quite clear from the entire line of authority stretching back to 1867 that, in appropriate circumstances, there may be good cause to remove a liquidator, notwithstanding the failure of the applicant to prove misfeasance as such, and even though no reasonable criticism can be made of his conduct: see Millett J in Re Keypak Homecare at p.416, approved by the Court of Appeal in Re Edennote at p.398.
  206. In my judgment, the touchstone for an appraisal of whether good cause has been shown for the removal of a liquidator is the principle stated by Bowen LJ in Re Adam Eyton (at p.306) :
  207. "The due cause is to be measured by reference to the real, substantial, honest interests of the liquidation, and to the purpose for which the liquidator is appointed."
  208. As Neuberger J observed in AMP Enterprises (at para[23]) that appraisal may involve the court carrying out a difficult balancing exercise.
  209. Grounds for removal

  210. The conduct of Buildlead's liquidation by the Liquidators has been unsatisfactory and inappropriate in the respects which I describe in the following paragraphs of this section of my judgment. By reason of that conduct, the understandable consequent loss of confidence of Quickson in the professional judgment of the Liquidators, and for the other reasons which I mention below, I consider that the best interests of Buildlead's liquidation are served by the removal of the Liquidators, and that they should therefore be removed.
  211. The challenge to Quickson's creditor status

  212. I accept the evidence of Quickson that, at the meeting of Buildlead's creditors on 2 September 1997, the Quickson Debt Schedule, showing indebtedness of Buildlead to Quickson of £79,264.37, was presented as proof of that indebtedness. The Statement of Affairs showed the lesser sum of £62,236, by way of inter-company indebtedness, but, as appears from Quickson Debt Schedule, that sum did not include certain management charges.
  213. It is not in dispute that it was the right and duty of the Liquidators to inquire into the inter-company indebtedness, since the common control of Quickson and Buildlead was potentially open to abuse and manipulation to the detriment of Buildlead's creditors generally.
  214. The Liquidators do not dispute that they were aware, when they were appointed, that Mr Mitchell was a licensed Insolvency Practitioner and had prepared the Statement of Affairs. There appears to be a dispute of evidence as to whether the Quickson Debt Schedule was ever received by, or on behalf of, the Liquidators prior to February 1998. What is clear, however, is that they knew from the Statement of Affairs that the directors of Buildlead considered that there was a substantial debt owed by Buildlead to Quickson. Knowledge of that alleged indebtedness is the only explanation for Quickson's membership of the LC, through Mr Mitchell as Quickson's representative, which was certified by Mr Kelmanson in his notice to the registrar of companies of the constitution of the LC on 17 September 1997: see IR r. 4.152, which specifies that the liquidation committee shall consist of at least 3, and not more than 5, creditors of the company.
  215. The Liquidators, notwithstanding their case that they did not have a copy of the Quickson Debt Schedule or any formal proof from Quickson, began an investigation which led to the completion of the IFR on 9 December 1997, and, in particular, the IFR Schedule. Those documents showed that Quickson, far from being a creditor of Buildlead, was indebted to Buildlead in the sum of £14,642.01.
  216. The Liquidators' evidence is that the IFR Schedule was the product of an analysis of the books which Buildlead had delivered to the Liquidators, and that those books did not contain details of the account ("Z BANK (1)"), which is shown on the Quickson's Debt Schedule as £76,444.66 due from Buildlead to Quickson. The omission of Z BANK (1) from the IFR Schedule is the principal reason for the discrepancy between the IFR Schedule, on the one hand, and the amount of Buildlead's indebtedness to Quickson shown in the Statement of Affairs and the Quickson Debt Schedule, on the other hand. The Liquidators' evidence is that the analysis of the books was carried out by Mr David Coffman, an employee of Fisher. Quickson disputes the contention of the Liquidators that the Liquidators were not in possession of all the relevant financial books and statements of Buildlead, including those dealing with Z BANK(1). Mr Coffman was not called as a witness.
  217. Whether or not the Liquidators received a copy of the Quickson Debt Schedule following the creditors' meeting on 2 September 1997, and whether or not the Liquidators were provided with Buildlead's books showing Z BANK (1), the manner in which they conducted their investigation into the issue of the inter-company balances and the actions they took in consequence of those inquiries were, in my judgment, inappropriate and likely to give rise to a reasonable loss of confidence of Quickson in the Liquidators.
  218. The conclusion stated in the IFR, based on the IFR Schedule, was that "all amounts owed to Quicksons were repaid and the position at the cessation of trade was that £14,642 was owed to Buildlead." That conclusion was reached without any request having been made by the Liquidators to Quickson to provide a formal proof of the amount it claimed as due from Buildlead, and without any invitation to Quickson or its directors or advisers to explain the discrepancy between Quickson's claim to be a creditor, at least in the amount stated in the Statement of Affairs, and the analysis in the IFR Schedule. I am satisfied that, if any such request or invitation had been made, Quickson or its directors or its advisers would have been able to show, simply and very quickly, the principal reason for the discrepancy between the Quickson Debt Schedule and the IFR Schedule, namely the absence from the IFR Schedule of Z BANK(1).
  219. Prior to the meeting of the LC on 14 January 1998, Quickson was entirely unaware that there was any issue as to its status as a creditor of Buildlead. It was unaware of the existence of the IFR and, in particular, of the IFR Schedule. Neither Quickson, nor its directors, nor its advisers had been asked to explain, or been given any opportunity to explain, the reason for the discrepancy between those documents and Quickson's claimed status as a major creditor of Buildlead, whether as set out in the Statement of Affairs or the Quickson Debt Schedule.
  220. Insofar as the minutes of the meeting of 14 January 1998 and the evidence of the Liquidators indicate that the Liquidators encountered obstruction from Quickson or its directors in obtaining Quickson's books and records, I find that no case has been established to support such an allegation. It appears from the oral evidence of Mr Katz, in cross-examination, that the assertion refers to difficulties which Mr Coffman is said to have encountered. Quickson's witnesses were not cross-examined on the allegation, and Mr Coffman gave no evidence. The allegation is not foreshadowed in any of the witness statements served on behalf of the Liquidators.
  221. Notwithstanding the absence of any knowledge on the part of Buildlead or its directors or advisers that there was an issue as to the creditor status of Quickson, and the absence of any invitation to any of them to explain the discrepancy between Quickson's claim to be a creditor and the analysis in the IFR Schedule, the Liquidators suggested to the LC the tactical course of action summarised at the end of the minutes of the meeting of 14 January 1998 and which is quoted in para 39 above.
  222. On the face of it, that course of action appears to have envisaged a formal request for the £14,642.01 specified in the IFR Schedule, the rejection of any claim by Quickson in the liquidation as a creditor, and the removal of Mr Mitchell from the LC, without any prior delivery to Quickson of the IFR or, in particular, the IFR Schedule, and without any invitation to Quickson or its directors or its advisers to explain why the IFR Schedule was incorrect and Quickson claimed to be a creditor rather than a debtor of Buildlead.
  223. That interpretation of the minutes of the meeting of the LC on 14 January 1998 is borne out by what actually took place after the meeting of the LC. On the following day, 15 January 1998, Mr Katz wrote to the directors of Quickson requesting payment of £14,642.01 within 14 days, in default of which, he said, solicitors would be instructed forthwith for the commencement of legal proceedings for collection of the debt. The letter also stated that, on the basis that Quickson did not appear to be a creditor of Buildlead, Quickson's membership of the LC, by its representative Mr Mitchell, was formally at an end.
  224. The directors of Quickson replied by letter dated 21 January 1998, in which they expressed astonishment at the claim that Quickson was a debtor of Buildlead and that Mr Mitchell should be removed from the LC, without any explanation as to how the Liquidators had arrived at their conclusion as to the alleged indebtedness of Quickson to Buildlead. The directors further suggested that Mr Mitchell be immediately reinstated, and that the Liquidators give a detailed explanation, by return, for their conclusion that Quickson was a debtor, and not a creditor, of Buildlead.
  225. As Mr Kelmanson accepted in cross-examination, that astonishment of Quickson's directors was not surprising, and the request for a detailed explanation was entirely reasonable.
  226. On any footing, the peremptory removal of Quickson as a member of the LC was, in the circumstances, plainly inappropriate. I accept the evidence of Mr Mitchell that, at most, a temporary suspension, pending further enquiries, might have been a course which could possibly have been justified.
  227. The response of Mr Katz, in his letter of 29 January 1998, was to say that he would "in due course be supplying - full details of how this claim has been calculated", and to require Quickson to submit a formal proof of debt form. In fact, remarkably, neither the IFR nor the IFR Schedule, nor any explanation of the analysis or calculations of the Liquidators in relation to the alleged indebtedness of Quickson to Buildlead, was supplied prior to the meeting between Mr Katz and two of the Quicks on 10 February 1998, notwithstanding a further letter from Mr Robert Quick to Mr Katz of 4 February 1998 stating that he was looking forward to receiving details to support the Liquidators' claim.
  228. It is clear from the evidence as a whole, including the oral evidence of Mr Katz in cross-examination, that a deliberate decision was taken by the Liquidators not to provide the explanation and details requested by the directors of Quickson prior to the meeting on 10 February 1998, and only to produce the IFR Schedule at that meeting.
  229. Mr Katz said, in cross-examination, that the presumption was that the directors of Buildlead would have had full knowledge of the August Transfers; the implication of his comment being that there was no need to give notice of concerns in relation to them prior to the 10 February 1998 meeting. That observation, however, does not to explain why the Liquidators had any reasonable ground to believe that, when faced in the meeting on 10 February 1998 for the first time with the IFR Schedule, Quickson's directors would be able to explain the discrepancy between that document and the Statement of Affairs and the Quickson Debtor Schedule. Unsurprisingly, Mr Katz's recollection is that, in order to answer his questions at the meeting on 10 February 1998, the directors wished to see the relevant documents. He accepted, in cross-examination, that their reaction was not surprising since they had had no prior notice of the details of the matters in issue.
  230. As I said earlier in this judgment, when summarising the background facts, there is a dispute between the parties as to the manner in which Mr Katz suggested in the meeting on 10 February 1998 that a payment by Quickson of £250,000 would settle the Liquidators' claims. The evidence of Mr Murphy and Mr Robert Quick was that Mr Katz's tone and manner were threatening, menacing and bullying. Their evidence was that Mr Katz appeared, throughout the meeting, to be uncompromising and unwilling to listen to explanations. Those descriptions of his manner and conduct during the meeting are firmly denied by Mr Katz. His intention, he said in cross-examination, was to see the reaction of the Quicks to the matters in the IFR Schedule and to the Liquidators' concerns as to the August Transfers, and "to test the water" in relation to the concerns of the LC.
  231. Whatever the language and manner of Mr. Katz in suggesting, at the meeting on 10 February 1998, a payment of £250,000 to settle the Liquidators' claims, it is clear that the Quicks and Mr Mitchell were shocked by what had occurred at that meeting and the way in which Quickson and they had been treated. In my judgment, their reaction was neither surprising nor unreasonable in the light of the deliberate tactics of the Liquidators not, at any time prior to the meeting on 10 February 1998, to send a copy of the IFR or the IFR Schedule to Quickson or its directors or advisers or to invite them to explain the discrepancy between those documents and the Statement of Affairs and (if the Liquidators had it or had seen it) the Quickson Debt Schedule, and to suggest a settlement payment of £250,000 without first giving the directors an opportunity to study the relevant documents and to take advice.
  232. Even if the Liquidators were motivated solely by the best interests of the general body of Buildlead's creditors, the Liquidators had proceeded, in my judgment, in a surprising and inappropriate way.
  233. It is clear that what had taken place, by that stage, undermined the confidence of Quickson, its directors and advisers in the Liquidators' motives and professional judgment, leading to a serious breakdown in the relationship between them and the Liquidators.
  234. The adverse perception formed at that time about the Liquidators by Quickson, its directors and advisers was reinforced when, notwithstanding the letter of 16 February 1998 from Mr Murphy to Mr Katz enclosing the Quickson Debt Schedule, and pointing to the omission of the £76,000 Z BANK(1) entry from the IFR Schedule, Mr Katz insisted that a formal proof of debt form be completed by Quickson and that Quickson's claim be verified by an affidavit. In fact, Mr Katz was not prepared to accept that Quickson was a substantial creditor until the end of July 1998, and, even then, he sought to question the precise amount and extent of that indebtedness. By about the middle of August 1998 he was prepared to accept that Buildlead was indebted to Quickson for over £122,000, which was, in the event, substantially in excess of the amount of Buildlead's indebtedness to Quickson in both the Statement of Affairs and the Quickson Debt Schedule.
  235. It is fair to say that, in his letter of 20 February 1998 to Mr Murphy, Mr Katz raised the suggestion, which he said had been made at the meeting on 10 February 1998, that the most appropriate way to take the matter forward would be to meet to discuss the matter further, and that suggestion was rebuffed by Mr Murphy in his letter to Mr Katz of 27 February 1998. On the other hand, in his reply on 2 March 1998 Mr Katz himself accepted that, in view of the formal correspondence between the parties at that time, a further meeting seemed inappropriate at that time.
  236. Although the question of Quickson's status as a substantial creditor of Buildlead was resolved by August 1998, the disparity between the Liquidators' approach to Quickson, in this respect, and their approach to the other creditors is not entirely a matter of the past. GGL has lodged a proof dated 2 November 1997 of substantial indebtedness of "APPROX £250k TBA". Quickson has put in issue, in the Removal Proceedings, the status of GGL as a creditor of Buildlead, and hence the validity of decisions of the LC. The issue of the indebtedness of Buildlead to GGL was, accordingly, investigated by Mr Kelmanson, who made a second witness statement on 1 July 2004 in respect of that issue. Without seeking any legal advice, he concluded that GGL was not a substantial creditor for some £250,000 as specified in its formal proof, but only for the very modest sum of £107.88. That amount is the figure stated in an invoice dated 23 June 2004, that is to say long after the commencement of the Removal Proceedings and very shortly before the hearing before me. The invoice was apparently sent by GGL following a conversation between Mr Kelmanson and a member of Mr Taylor's staff. Mr Kelmanson's evidence was that the member of staff said that the amount was for processing contracts in 1997 during the period of Buildlead's trading. The invoice, the circumstances in which it was produced so near to the trial, and the explanation for it are unsatisfactory and give rise to a reasonable suspicion as to the reality of the debt to which it is said to relate. Mr Kelmanson gave evidence that, notwithstanding those suspicious circumstances, he has not taken any steps to investigate the books of Buildlead to see whether there is any reference in them to any such indebtedness in 1997 or whether any invoice was sent at that time.
  237. There is, of course, as I have already indicated, a significant difference between Quickson and the other creditors or alleged creditors of Buildlead, since the common control of Quickson and Buildlead could potentially have provided the opportunity for inter-company transactions intended to disadvantage creditors; and, for that reason, the Liquidators were fully justified in pursuing a robust enquiry into those inter-company transactions. For the reasons I have given, I do not consider that the actual manner of the investigation of those inter-company transactions, and the action taken by the Liquidators following that examination, were proper or appropriate. The significance of Mr Kelmanson's treatment of GGL is that the Liquidators were put on notice of a specific complaint, made in the Removal Proceedings and the evidence in support of them, that GGL was never a creditor. At that point, the requirement of a robust enquiry into the status of GGL as a creditor was not substantially different from the earlier requirement of an enquiry into Quickson's creditor position. The actual manner and robustness of the enquiry in fact carried out into GGL's status was, however, quite different. That fact is to be set against the background, and to be judged in the context, of Quickson's claim that (notwithstanding and subject to IR r.4.172A), by virtue of the fact that GGL was not a creditor, and should not have been appointed to the LC, the decisions of all or some of the meetings of the LC, pursuant to which the Liquidators acted, including the payment of their fees, were invalid.
  238. While the nature of the enquiry made in June 2004 into the status of GGL as a creditor does not feature in the Amended Points of Claim in the Removal Proceedings, it is a useful point of reference for contrasting and highlighting the unusual and, in my judgment, inappropriate way in which the Liquidators conducted their enquiry into the creditor status of Quickson, leading to an understandable loss of confidence in the Liquidators by Quickson and its directors.
  239. Pursuit of the Preference Claim and duration of the liquidation

  240. The IFR stated that the August Transfers constituted the creation of a preference.
  241. That statement was made without the Liquidators having received any legal advice on the point, or having any sight of the Debenture or the Guarantee, and without the directors of either Buildlead or Quickson having been invited to explain the circumstances in which the August Transfers had been made, including an explanation of the operation of the Lloydslink arrangements.
  242. Mr Katz's oral evidence, in cross-examination, was that, so far as he is concerned, the critical issue has always been whether the August Transfers were made pursuant to a demand by Lloyds. The Liquidators made no enquiries of Lloyds, prior to the IFR, about that issue.
  243. Nor were any of those omissions remedied by the Liquidators prior to the meeting of the LC on 14 January 1998. Mr Mitchell was unaware of there being any issue over preferences prior to his departure from that meeting, at the request of the Liquidators.
  244. The minutes of the meeting of the LC on 14 January 1998 record that, after Mr Mitchell left the meeting, the remaining members of the meeting were informed that: "The initial findings report indicated quite clearly substantial sums which appeared to have been paid to Quicksons in the form of a preference - and that the best result for the creditors would be to achieve a recovery of these sums even if it meant doing so over a period of time." I have set out earlier in this judgment the tactics that were approved by the LC in relation to the preference claim. The tactics were that the directors of Buildlead would be required to attend Mr Katz's office for detailed examination of matters relating to the inter-company entries; and, thereafter, formal demand was to be made from Quickson for the amounts in question, and "failing substantive favourable response of Quicksons within 14 days", solicitors would be instructed to commence proceedings for recovery of the sums in question.
  245. Mr Katz's oral evidence, in cross-examination, was that the possible preferences amounted to just short of £400,000, being £95,000 in respect of the initial purchase price for the goodwill and assets acquired from Lynam, £145,000 in respect of management charges and approximately £155,000 in respect of the August Transfers.
  246. Following the meeting on 14 January 1998, Mr Katz sent the directors of Quickson the letter of 15 January 1998 demanding payment of £14,642.01, to which I have referred earlier in this judgment. That letter gave no indication of any claim in relation to alleged preferences.
  247. The Quicks, as I have said earlier in this judgment, requested an agenda, prior to their meeting with Mr Katz on 10 February 1998, so that they could consider the matters which he wished to raise, and to ensure that they were adequately prepared in order to save time and expense. I have set out earlier in this judgment the agenda contained in the letter from Mr Katz dated 27 January 1998. There is no indication in that agenda, or elsewhere in the letter of 27 January 1998, that the Liquidators thought there was a claim or an arguable claim in respect of wrongful preferences, including the August Transfers.
  248. The first time that the directors were aware of any issue as to wrongful preferences was when the issue was raised at the meeting with Mr Katz on 10 February 1998. That was the first opportunity that the Quicks and Mr Murphy had to explain the way in which the Lloydslink facility operated. Their case is, as I have said, that they received the impression that Mr Katz was unwilling to listen to any explanation at the meeting on 10 February 1998; although that is denied by Mr Katz. There is no evidence that, at the meeting, Mr Katz explained that, in his mind, the critical issue, so far as concerned the August Transfers, was whether those Transfers had been made pursuant to a demand by Lloyds. Mr Katz himself accepted, in cross-examination, that he was not in a position, at the meeting on 10 February 1998, to assess whether or not there was a preference. Notwithstanding that, and notwithstanding the desire of the directors to look at the documentation further, Mr Katz made his suggestion during the meeting of a payment of £250,000 to settle the Liquidators' claims. Mr Katz explained, in his oral evidence, that the £250,000 was in the context of a claim for preferences amounting to just under £400,000.
  249. That approach by the Liquidators was, in my judgment, inappropriate. Mr Katz's evidence, as I have already said, was that he was "testing the water" by suggesting £250,000 as an appropriate figure to settle the Liquidators' claims. Bearing in mind, however, that the Liquidators had not seen the Debenture or the Guarantee, and the fact that the directors had no prior notice of the claim that there were preferences and had not had time to consider the point further with advisers and by reference to documentation, and there is nothing to suggest that they were aware that, in Mr Katz's mind, the critical issue was whether or not Lloyds had made a demand prior to the August Transfers, Quickson and its directors and advisers formed what was, in my judgment, a not unreasonable view that the Liquidators were not adopting an open-minded approach to the possible preference claim.
  250. As I have said, in the context of the dispute over Quickson's creditor status, the meeting with Mr Katz on 10 February 1998 marked an important shift in the way in which Quickson and its directors and advisers viewed the Liquidators and the point at which they ceased to have confidence in the Liquidators' professional judgement. For the reasons I have mentioned, that was not a surprising result. It set the scene for lengthy correspondence between the Liquidators and Quickson and its advisers, which provides the backdrop for the failure of the Liquidators to bring the liquidation to a conclusion within a reasonable period of time.
  251. On 11 February 1998 the Liquidators made their first formal written request for a copy of the Debenture. A copy was supplied under cover of a letter from Mr Murphy dated 27 February 1998.
  252. There was an exchange of correspondence between Mr Murphy and Mr Katz during the first part of 1998 relating to the operation of Buildlead's account and Quickson's account, culminating in a letter from Mr Murphy of 10 June 1998, under cover of which various items of correspondence with Lloyds were sent to Mr Katz.
  253. It was not until June 1999 that Paisners, on behalf of the Liquidators, wrote to Lloyds for information regarding the Guarantee. Lloyds supplied a copy of the Guarantee on about 2 July 1999.
  254. Mr Katz swore his affidavit in support of the Disqualification Proceedings on 27 August 1999. Quickson's case is that Mr Katz's affidavit in support of the Disqualification Proceedings was unbalanced and that, in breach of paragraph 24 of the Statement of Insolvency Practice ("SIP") 4 issued by the Society of Practitioners of Insolvency, Mr Katz did not include in his affidavit evidence which might have favoured the Quicks. Mr Katz's explanation of any deficiencies in his affidavit, including the absence of any relevant documents from the exhibits, is that the affidavit was, as is usual, prepared by solicitors for the DTI.
  255. I do not consider that Mr Katz's affidavit was a full and balanced account of factual matters relevant to the alleged preference claim. I do not consider that it is sufficient for a professional accountant and licensed Insolvency Practitioner to explain manifest deficiencies in his sworn evidence by reference merely to the fact that it was prepared by others. Mr Katz could and should have examined its contents and ensured that he was able to make the affidavit in compliance with his professional obligation to place before the court relevant evidence in favour of the directors. The affidavit did not exhibit all the relevant correspondence explaining and supporting the directors' case as to the manner in which Buildlead's account was operated. In particular, Mr Murphy's letter to Mr Katz of 10 June 1998 and its enclosures relating to Lloyds' facilities were not exhibited. Only brief references to that correspondence were made in the body of Mr Katz's affidavit. Further, paragraph 26 of the affidavit, which referred to the meeting on 10 February 1998 and stated that "Neither of the Defendants was able to provide an explanation as to why the transfers had taken place at a time when they knew that Buildlead was insolvent and would be unable to continue trading", was misleading. It made no reference to the fact that, prior to that meeting, the Quicks had no knowledge that there was any issue as to preferences and that, at the meeting, they reasonably sought further time to look at the relevant documentation. Moreover, while the affidavit made a passing reference to three separate debentures over the three group companies and supporting guarantees, neither the Debenture nor the Guarantee was exhibited.
  256. On 8 November 1999, some 2 months after the claim form was issued, the DTI discontinued the Disqualification Proceedings. It is a reasonable inference that the proceedings were discontinued following, and in consequence of, the letter dated 5 October 1999 from Mr Page of Lloyds to Mr Mark Quick describing the banking and security arrangements between Buildlead and Lloyds.
  257. Notwithstanding the discontinuance of the Disqualification Proceedings, which had been based solely on the alleged wrongful preferences, the Liquidators determined to continue with their investigation of the potential preferences in favour of Quickson.
  258. The preference claim was raised at the meeting of the LC on 8 December 1999. There is, again, disagreement between the parties as to the atmosphere in which that meeting took place. Mr Mitchell gave evidence that he was subject, in the presence of the Liquidators, to a fierce verbal attack by Mr Taylor alleging skulduggery on the part of the directors of Quickson and Buildlead and, indeed, Mr Mitchell himself. Mr Mitchell's evidence was that, having suffered a heart attack earlier in the year, he was cowed by the verbal attack and considered it quite wrong of the Liquidators not to have stepped in to stop it. As I have said, Mr Taylor has not given evidence before me. Mr Kelmanson and Mr Katz gave oral evidence contradicting any suggestion that Mr Taylor had acted in an inappropriate or unduly threatening manner. What is clear is that, at the meeting, Mr Katz explained the need for information relating to the operation of Quickson's account, and that it was agreed, at Mr Mitchell's suggestion, that a letter should be sent to the Quicks setting out the further information required, for them to consider.
  259. Accordingly, on 21 December 1999 a letter was sent by Mr Katz to the directors of Quickson seeking the further information I have mentioned earlier in this judgment in the summary of background facts.
  260. In my judgment, once the Disqualification Proceedings had been discontinued by the DTI, the Liquidators ought to have considered very carefully the merits of proceeding further with the preference claim. At that stage, they should have sought legal advice as to the information necessary for them to appraise the merits of a preference claim, and as to the legal analysis which made such further information necessary. No such instruction of legal advisers or legal analysis was undertaken at that stage by the Liquidators.
  261. Unsurprisingly, on 11 January 2000 Mr Murphy replied to Mr Katz's letter of 21 December 1999 asking, in view of the discontinuance of the Disqualification Proceedings, precisely what Mr Katz had in mind in relation to potential proceedings. Mr Katz did not respond to that specific enquiry; but, in a letter dated 1 February 2000, he pressed for the information requested in his letter of 21 December 1999.
  262. There then ensued a remarkable period of delay until Moon Beever's letter to Quickson of 3 July 2001 asking for the information requested by Mr Katz's letter of 21 December 1999, and stating that, if it was not provided within the next 28 days, an application would be issued under IA s.236.
  263. The Liquidators' explanation for that period of inactivity in the pursuit by them of the preference claim is that their solicitors, Paisners, merged with Berwin Leighton and, following the merger, the Liquidators were informed that the new firm would not be willing to pursue the preference claim on a no win/no fee basis; and accordingly, the Liquidators looked for another firm which might be willing to do so. The Liquidators then retained Moon Beever in March 2001. According to the Liquidators, a further period of delay was caused when a partner in Moon Beever left that firm.
  264. According to Mr Katz, it was only when Moon Beever were instructed in about March 2001 that lawyers for the Liquidators considered the legal merits of the preference claim.
  265. I do not consider that the remarkable delay in pursuing the preference claim between the date of Mr Katz's letter of 1 February 2000 and Moon Beever's letter of 3 July 2001 is properly excused or, indeed, explained by reference to Paisners' merger. At the end of 1999 and the beginning of 2000, what the Liquidators were seeking from Quickson was further information. In the absence of the voluntary disclosure of that information, the Liquidators, if so advised, could have pursued an application to the Court under IA s.236, and indeed that course had previously been threatened by the Liquidators. Miss Giret did not dissent from Mr Davies' submission that an application under IA s.236 is not appropriate, in any event, for a conditional fee agreement ("CFA"). Indeed, when the s.238 Application was ultimately made in October 2002, there was no CFA in place. Furthermore, the last meeting of the LC was in December 1999, and there was no further report to the members of the LC thereafter, in contravention of the requirement in IR 4.168(2) that the liquidator send a written report to every member of a liquidation committee not less than once in every six months. There is no evidence that the members of the LC, let alone the other creditors, including the preferential creditors, were consulted on, or approved, the suspension of the pursuit of the preference claim for over a year or the way in which the Liquidators handled their relationship with Paisners, their search for other solicitors, and their relationship with Moon Beever, in the 17 months between 1 February 2000 and 3 July 2001.
  266. Unsurprisingly, after the lengthy delay since February 2000, Mr Murphy wrote on 26 July 2001 to Moon Beever setting out the history and background at length, and stating firmly that there would be no compliance with the Liquidators' request for further information unless and until, among other things, Moon Beever set out the Liquidators' case, and provided authorities, to support the alleged preference claim. Mr Murphy said that that was essential in the light of Lloyd's known response to the issue, and the DTI's consideration of the evidence and its decision to drop the Disqualification Proceedings. In my judgment, that condition and request were appropriate and reasonable, in the light of the history.
  267. Prior to the commencement of the various proceedings and applications by and between the Liquidators and Quicksons, the Liquidators never complied with that request, either directly or through Moon Beever.
  268. As I have previously stated, the s.236 Application was not launched until 1 October 2002, and the Preference Proceedings themselves were not commenced until 29 July 2003 - some five and a half years after the meeting with Mr Katz on 10 February 1998.
  269. Notwithstanding Miss Giret's eloquent and forceful submissions in support and exoneration of the Liquidators' conduct, I find that the manner in which the Liquidators pursued their enquiries and their claim in relation to possible preferences by Buildlead in favour of Quickson was in breach of the Liquidators' duty to conduct the liquidation in an efficient manner within a reasonable period of time. They wrongly failed: to obtain promptly copies of the Guarantee and the Debenture; to obtain legal advice at an early stage as to the legal basis of, and the evidence necessary to support, a preference claim in view of the explanations given by Quickson and Lloyds as to the operation of Buildlead's account and Quickson's account and in view of the terms of the Debenture and the Guarantee; to explain to Quickson, its directors and advisers the legal basis for the preference claim or possible preference claim, and the relevance and necessity for the information requested; to correspond (either directly or through solicitors) with Quickson and its advisers in a way that was not desultory, intermittent and subject to very lengthy gaps; to make the s.236 Application and to institute the Preference Proceedings (if so advised) in a timely manner; to keep the creditors, including, in particular, the preferential creditors, informed of the delays that were being incurred and the reasons for the delays and to seek their sanction for continued pursuit of the enquiries and possible claim as regards preferences.
  270. Those criticisms are made against the background that the DTI discontinued the Disqualification Proceedings in November 1999, all the physical assets of Buildlead were sold by March 1999, and all the book debts were realised by September 2000. From that time, the only outstanding matter was the preference claim.
  271. As appears from my judgment on the Strike Out Applications earlier in this judgment, the question whether there has been a "preference in fact" appears finally to rest upon the wholly speculative issue whether, assuming the August Transfers had not been made, Newguide had sufficient assets, at the time of those Transfers or the resolution to wind up Buildlead, which could and would properly been have been used to eliminate or reduce Quickson's overdraft by the same amount as the August Transfers. As I have previously said, that was a point which was raised for the very first time at the end of the hearing before me. It had never been raised expressly in correspondence with Quickson or those acting on its behalf, or in the Liquidators' Defence or in the skeleton arguments. Nor, as I have said earlier in this judgment, does the information relevant to that issue even appear to fall within the express scope of the s.236 Application. Mr Katz's explanation, in his oral evidence, was that the reason the point has not been taken earlier is that the Liquidators only appreciated that there was money coming in from Newguide when Quickson's bank statements were received in June of this year in relation to the Substantive Strike Out Application. I do not consider that to be a satisfactory or adequate response. Whether or not the Liquidators knew that money was actually transferred by Newguide to Quickson, the potentiality for money or other assets to be transferred by Newguide to Quickson was always a feature of the common control of the two companies.
  272. Rather, the late emergence of the point reflects the absence of a clear legal analysis of the basis for any preference claim, and the failure to communicate that analysis to Quickson and its advisors in support of requests for particular information so as to demonstrate that such information was relevant and necessary to the appraisal of the merits of the preference claim. It will also be noted that, by the time of the hearing before me, the only part of the preference claim being pursued was that element relating to the August Transfers, which is less than half of the Liquidators' original claim. An early legal appraisal would doubtless have clarified the lack of merit in the remainder of the claim which has now been abandoned.
  273. The criticisms I have made of the manner in which the Liquidators have pursued their enquiries and their claim in relation to possible preferences by Buildlead in favour of Quickson apply even if I am not correct in my conclusion that the Debenture gave rise to a fixed charge, rather than a floating charge, over Quickson's bank credit balances. Whatever the proper legal analysis of the Debenture, the Liquidators have not, for the reasons I have given, conducted their enquiries into preferences and any possible claim in an efficient and timely manner.
  274. The Liquidators respond to criticism of the way in which the liquidation has been drawn out, effectively purely for making enquiries concerning, and pursuing, the speculative preference claim, by saying that the fault is entirely that of Quickson and its directors and advisors, who should have provided the information requested by the Liquidators, bearing in mind that the level of Quickson's overdraft was only disclosed in the course of the Strike Out Applications, and also that Quickson has formally accepted (in a Supplemental Response to a Request For Further Information pursuant to CPR Part 18 dated 17 June 2003) that the information in the s.236 Application is of a kind that a new liquidator might properly request. In my judgment, that is not a satisfactory or adequate answer. It ignores: firstly, the conduct of the Liquidators in 1997 and 1998, which unsurprisingly led Quickson and its advisors to be very sceptical of the motives and professional judgment of the Liquidators and the willingness of the Liquidators to view the potential claims against Quickson with an open mind; secondly, the Liquidators failure to obtain legal advice at an early stage on the merits of the preference claim, leading to a haphazard and intermittent series of requests for information and documents, and the omission of an explanation of the critical issues on which, as a matter of law or in the minds of the Liquidators, the question of preference turned, namely whether or not there was a prior demand from Lloyds and what resources of Newguide were available for transfer to Quickson; thirdly, the failure to comply with the express pre-condition in Mr Murphy's letter of 26 July 2001 that the Liquidators set out their legal case, supported by authorities; and fourthly, the failure of the Liquidators to bring the issue of further information to a head by issuing the s.236 Application at a much earlier stage.
  275. I have already observed that the last meeting of the LC was in December 1999, and that, since that time, there have not been regular reports by the Liquidators to the members of the LC in accordance with IR r.4.168(2). Further, according to the Liquidators' own reports to creditors, there was never any reasonable prospect of a successful dividend for the non-preferential unsecured creditors save in the event that the preference claim results in a substantial recovery. In effect, the cost risk of the Preference Proceedings, and the costs and expenses consequent upon the prolongation of the liquidation, are being borne by the preferential creditors. None of those creditors are represented on the LC. It appears that the Liquidators have written no letters to them keeping them informed of the delays, costs and expenses which have resulted from the pursuit of the Liquidators' enquiries and claim as to possible preferences, and there is no evidence that any preferential creditor supports the time and cost applied by the Liquidators in pursuing the preference claim. Quickson itself is, of course, a substantial creditor of Buildlead, and claims to be a preferential creditor in respect of part of that indebtedness.
  276. Postal ballot approval of fees

  277. All the payments of the Liquidators' fees, after the meetings on 13 October 1997, were made pursuant to postal ballots of the members of the LC. Mr Mitchell made clear to the Liquidators, prior to the meeting of the LC on 14 January 1998, that he considered that the issue of fees should be dealt with at properly convened meetings of the LC rather than by way of postal ballot. He wished to discuss the question of the Liquidators' fees at that meeting. I accept his evidence that, at the meeting, the Liquidators said there was no point in discussing costs because their fees had already been approved.
  278. In his letter to Mr Kelmanson of 21 October 1998 Mr Mitchell said:
  279. "So far as sanctioning any further fees is concerned - I cannot see how further sums "to be discussed" can be sanctioned by post when clearly there has been no discussion. This demonstrates clearly the need for committee meetings as opposed to postal arrangements so that proper informed discussion can take place before decisions are taken on important issues such as costs."
  280. The Liquidators' evidence was that Mr Mitchell, at the meeting on 14 January 1998, accepted that the question of the Liquidators' fees, which had been the subject of the postal ballot, was a "fait accompli" and he did not press for a discussion. That is consistent with Mr Mitchell's own evidence that he was not supported by Mr Weir at the meeting.
  281. Further, Mr Kelmanson observed, in cross-examination, that in considering what weight to attach to Mr Mitchell's concerns over costs and expenses, the Liquidators had to bear in mind that Mr Mitchell represented a party which was a potential target for recoveries.
  282. Notwithstanding those pertinent points made by the Liquidators, and the provisions of IR r.4.167 permitting resolutions of the LC by post, I consider that it would have been more in keeping with the spirit of the professional guidance to liquidators in relation to the charging of fees (in SIP 9), and the duty of liquidators to account fully and frankly for the application of the assets of the liquidation in payment of their fees, for the Liquidators to have supported Mr Mitchell's attempts, particularly at the outset of the liquidation, to have a full and frank discussion about the level of the Liquidators' fees at a meeting of the LC and prior to their payment. That is particularly so in view of Mr Mitchell's own standing as a licensed Insolvency Practitioner, of which the Liquidators were aware.
  283. Bearing in mind all the other matters to which I have referred earlier in this judgment about the conduct of the Liquidators, and the consequent loss of confidence in them by Quickson, the persistence of the Liquidators in recovering their fees following postal ballots, rather than following approvals at meetings of the LC, has given rise to an understandable scepticism by Quickson as to the reasons for the Liquidators seeking approval by way of postal ballot and as to the propriety of the level of the Liquidators' fees.
  284. In this connection, it is to be observed that some 7 years after the resolution to wind up Buildlead, and some 5 years after the realisation of all of the physical assets and the overwhelming majority of the book debts, the remaining assets are likely to be consumed entirely by the unbilled work-in-progress of the Liquidators, amounting to some £45,000, leaving nothing whatever to be distributed to the creditors.
  285. Possible claims against the Liquidators

  286. The conduct of the Liquidators, which I have described in this judgment, gives rise to the reasonable possibility that there may be a claim against the Liquidators under IA s.212 because of cost and expense that have been unnecessarily incurred by virtue of the manner in which the liquidation has been conducted. That is not to say that any such claim would succeed. It is sufficient, in order to be a relevant matter to take into account for the purposes of IA s.108(2), that there are reasonable grounds for an independent enquiry: comp. Jacob J's observation in Shepheard v Lamey.
  287. This is of particular practical significance in the case of Buildlead's liquidation since, as I have said, if the Liquidators are entitled to the full amount that they claim by way of unbilled work-in-progress, there will be no assets for distribution to any of the creditors: a disturbing situation in a liquidation which has already run for some 7 years and is not yet at an end.
  288. Miss Giret submitted that there already exists a means by which Quickson can challenge excessive remuneration of the Liquidators, namely by an application under IR r.4.131. Under that rule, any creditor may, with the concurrence of at least 25 per cent in value of the creditors (including himself), apply to the court for an order that the liquidator's remuneration be reduced, on the grounds that it is, in all the circumstances, excessive. Obvious practical disadvantages of that course, as compared with the appointment of a replacement liquidator in the present case, are that a new liquidator would be able to exercise an independent professional judgment about the Liquidators' conduct, having investigated all the circumstances, and to decide not only whether past fees have been excessive and whether the charges for unpaid work are excessive, but also whether other expenses and payments to third parties have been incurred, in whole or in part, or other loss (such as non-payment or late payment of a dividend) has been suffered by any of the creditors, due to culpable conduct on the part of the Liquidators.
  289. Other matters raised by Quickson

  290. There are a number of other matters that have been raised, on behalf of Quickson, in the APOC, Quickson's skeleton arguments, and in its evidence. Without giving a comprehensive list, these include alleged breaches by the Liquidators of a duty to plan a strategy for a quick and efficient administration (including the absence of an estimated outcome statement, notwithstanding agreement by the Liquidators at the meeting on 14 January 1998 that one would be provided); the absence of notices of annual meetings of creditors pursuant to IA s.105 in three years of the liquidation; the failure to pay any dividend to any creditor; the failure to check the creditor status of GGL; the failure to adhere to an alleged £15,000 cost estimate said to have been given at the meeting on 2 September 1997 or the meetings on 13 October 1997; the allegation that the joint appointment of the Liquidators was for a collateral and improper purpose and was unjustifiable; the allegation that the purpose of removing Mr Mitchell from the LC was to stifle his opposition to approval of the Liquidators' fees; and the allegation that the LC was improperly or ineffectively constituted because, contrary to IR r.4.152(1) and (3), the Liquidators treated the representatives of the creditors as the members of the LC rather than the creditors themselves in formal returns to the Registrar of Companies.
  291. I do not propose to extend this judgment further by a detailed analysis of each of those claims and the evidence in support of them. It is sufficient for me to say that I am influenced by those allegations, in reaching my decision that the Liquidators should be removed, only to the extent that they are covered directly or indirectly by the matters I have previously set out: for example, the extended duration of the liquidation due to the manner in which the Liquidators have conducted themselves.
  292. For the sake of completeness, I should record that I am not satisfied that Quickson has discharged the burden of proving that the Liquidators ever announced to the creditors a cost estimate of £15,000 for the liquidation, or at any event, ever announced a cost estimate of that amount which was of sufficient certainty and communicated in such a manner as would warrant the creditors relying upon it; or that the purpose of the Liquidators removing Mr Mitchell from the LC was to stifle opposition to approval of the Liquidators' fees; or that the joint appointment of the Liquidators was procured for some improper or collateral purpose. I also record my finding that Mr Kelmanson signed notices of s.105 meetings for each of the years of the liquidation and that, if such notices were not received by the creditors, that was a failure of the administration systems within his office, and is not a factor that I consider is appropriate to weigh against the Liquidators on the Removal Application. Similarly, even if the Liquidators were mistaken in the way in which they regarded the composition of the membership of the LC (ie, the creditors' representatives rather than the creditors themselves) – a point which I do not decide – I would not consider that to be an appropriate factor to weigh against the Liquidators on the Removal Application. Nor do I consider that the Liquidators were culpable, in a sense relevant to the Removal Application, by failing to check whether GGL was a creditor, prior to that point being put in issue in the course of the Removal Application.
  293. Further consideration of claims involving Quickson

  294. Finally, I consider a relevant factor, and a significant one, supporting the case for the removal of the Liquidators is that there remain at least three matters outstanding relating to Quickson which need to be resolved in the course of the liquidation. The first is whether the preference claim should, in all the circumstances, be pursued and, if so, in what manner and over what period and at what cost. The second, which is related, is the extent to which further information should be sought from Quickson or any other person, for the purpose of the preference claim, and whether by way of the s.236 Application or otherwise. The third matter concerns the determination of Quickson's claim that it is, in part, a preferential creditor by virtue of having discharged certain VAT liabilities.
  295. In all the circumstances I have mentioned in this judgment, I consider that Quickson has reasonable grounds to lack confidence that the Liquidators will approach the resolution of those matters in a fair and balanced way, and in the best interest of the liquidation.
  296. A new liquidator

  297. I do not consider that it would be appropriate to remove only one of the Liquidators rather than both of them. Indeed, no case has been advanced to me that would justify such a distinction. Although Mr Katz was responsible for much of the work in relation to the enquiries into Quickson's creditor status and possible preferences, it is clear that the strategy of the liquidation generally, including in relation to those matters, has been one which both Liquidators have endorsed and for which they share a joint responsibility. The possible claim against them for wasted cost and expense, which I have mentioned earlier, is a claim which would require to be considered in relation to both of them, as would the question of the appropriateness of the fees they have charged or seek to claim by way of unbilled work-in-progress.
  298. Quickson has identified a licensed Insolvency Practitioner who is willing to act, and against whom nothing has been said in relation to his competence.
  299. Decision

  300. Accordingly, for the reasons set out in this judgment, I find in favour of Quickson on the Removal Application.
  301. I shall hear counsel as to the form of any order.


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