Can Directors Vote On Who Is Liquidator? — Oliver Elliot

Can A Director Vote On A Liquidator?

Can Directors vote on who is Liquidator? It is permitted for a Director to vote on the appointment of a Liquidator or an Insolvency Practitioner.

A Director cannot vote on the appointment of a Liquidator however if they are not a creditor of the company that is going into Liquidation.

What Is A Creditor Who Can Vote To Decide Who Is Liquidator?

Although not defined in the company section of the Insolvency Act 1986 it is defined in the context of personal insolvency in Section 383 Of the Insolvency Act 1986 as follows:

in relation to a bankrupt, means a person to whom any of the bankruptcy debts is owed

Anyone who is a creditor of a company is permitted to vote on the appointment of the Liquidator and therefore that includes Directors and connected parties with a company, including associates.

What Is A Connected Party To a Company

For the purposes of any provision in this Group of Parts, a person is connected with a company if-
(a) he is a director or shadow director of the company or an associate of such a director or shadow director, or
(b) he is an associate of the company,

and “associate” has the meaning given by section 435 in Part XVIII of this Act.

What Is An Associates?

(1) For the purposes of this Act any question whether a person is an associate of another person is to be determined in accordance with the following provisions of this section (any provision that a person is an associate of another person being taken to mean that they are associates of each other).
(2) A person is an associate of an individual if that person is-
(a) the individual’s husband or wife or civil partner,
(b) a relative of-
(i) the individual, or
(ii) the individual’s husband or wife or civil partner, or
© the husband or wife or civil partner of a relative of-
(i) the individual, or
(ii) the individual’s husband or wife or civil partner.
(3) A person is an associate of any person with whom he is in partnership, and of the husband or wife or civil partner or a relative of any individual with whom he is in partnership; and a Scottish firm is an associate of any person who is a member of the firm.
(4) A person is an associate of any person whom he employs or by whom he is employed.
(5) A person in his capacity as trustee of a trust other than-
(a)a trust arising under any of the second Group of Parts or the Bankruptcy (Scotland) Act 2016, or
(b) a pension scheme or an employees’ share scheme . . ,is an associate of another person if the beneficiaries of the trust include, or the terms of the trust confer a power that may be exercised for the benefit of, that other person or an associate of that other person.
(6) A company is an associate of another company-
(a) if the same person has control of both, or a person has control of one and persons who are his associates, or he and persons who are his associates, have control of the other, or
(b) if a group of two or more persons has control of each company, and the groups either consist of the same persons or could be regarded as consisting of the same persons by treating (in one or more cases) a member of either group as replaced by a person of whom he is an associate.
(7) A company is an associate of another person if that person has control of it or if that person and persons who are his associates together have control of it.
(8) For the purposes of this section a person is a relative of an individual if he is that individual’s brother, sister, uncle, aunt, nephew, niece, lineal ancestor or lineal descendant, treating-
(a) any relationship of the half blood as a relationship of the whole blood and the stepchild or adopted child of any person as his child, and
(b) an illegitimate child as the legitimate child of his mother and reputed father;and references in this section to a husband or wife include a former husband or wife and a reputed husband or wife and references to a civil partner include a former civil partner and a reputed civil partner.
(9) For the purposes of this section any director or other officer of a company is to be treated as employed by that company.
(10) For the purposes of this section a person is to be taken as having control of a company if-
(a) the directors of the company or of another company which has control of it (or any of them) are accustomed to act in accordance with his directions or instructions, or
(b) he is entitled to exercise, or control the exercise of, one third or more of the voting power at any general meeting of the company of or another company which has control of it;and where two or more persons together satisfy either of the above conditions, they are to be taken as having control of the company.
(11) In this section “company” includes any body corporate (whether incorporated in Great Britain or elsewhere); and references to directors and other officers of a company and to voting power at any general meeting of a company have effect with any necessary modifications.

What If A Director Has A Conflict Of Interest?

  1. A Liquidator should not be a person nor be the choice of a person who has a duty or purpose which conflicts with the duties of the Liquidator.
  2. The Liquidator should not be the nominee of a person: (a) against whom the company has hostile or conflicting claims.
  3. It is not an objection to a Liquidator that he is allied to or the choice of a person who is concerned to pursue the claims of the company through the Liquidator.

For those reasons, a Director should not be permitted to vote on the appointment of the Liquidator if points 1 or 2 above apply.

Originally published at https://www.oliverelliot.co.uk.

Insolvency Practitioner putting creditors at the heart of insolvency. Dynamic Recoveries. Insolvency Forensics Litigation. Identify Discover Recover.