One of the key duties of a liquidator is to investigate the affairs of the insolvent company to determine whether its demise resulted from the acts (or omissions) of its directors or third parties against whom claims may be brought to obtain redress for losses suffered by the company. This article focuses on claims initiated by the liquidator themselves, whether on their own behalf or on behalf of the company, and considers the weight that will be given to the liquidator’s evidence.
Introduction
The starting point is that like solicitors, liquidators are officers of the Court. Unless the contrary can be shown; the natural inference will be that their evidence is an honest and truthful account of events. A certain level of judicial weight will therefore automatically be given to their evidence from the outset. However, the matters a liquidator is able to give evidence on will usually be limited by the fact that they were not involved in the events which occurred before their appointment.
Evidence on the factual background
For the vast majority of insolvency claims (except those brought under section 423 Insolvency Act 1986) the claim will commence by the liquidator issuing an insolvency application notice. That application is usually supported by a witness statement (often in the name of the liquidator) setting out the factual background and legal basis for the application. Whilst it is not uncommon at the first case management conference for the Court to make directions as to service of formal pleadings, that first witness statement will still carry significant weight. It sets out the basis of the claim that the respondents are required to meet at trial and the trajectory of the litigation.
Retrospective nature of the evidence
A liquidator’s evidence can only ever be retrospective, and is often given without the benefit of the full suite of original books and records. Compared to defendant directors who had day to day conduct of the business and who should know what documents exist or existed, the liquidator does not have contemporaneous experience of events. The claim is more likely to turn on the reliability of the defendants’ evidence and the disclosed documents than the oral evidence of the liquidator. The liquidator does not have first hand personal knowledge and is limited to what they have gleaned post facto from his/her investigations and analysis of books and records after coming to office (sometimes many years after the events complained of).
This was exactly the problem identified by His Honour Judge Davis-White QC in the case of Re Flexi Containers Ltd [2018], which was a preference and transaction at an undervalue claim brought by a liquidator against former directors. The liquidator had given 3 witness statements in support of the application and oral evidence at trial. Despite being held to be a truthful and credible witness, the judge’s conclusion was that “the value of her evidence was necessarily limited because she had not been involved in any of the relevant events at the time that they took place”.
Context is key and there will be a higher evidential burden to meet for certain claims such as wrongful or fraudulent trading, where a liquidator’s evidence will be more heavily scrutinised. The value and weight of a liquidator’s evidence will accordingly be given different treatment by different judges in these contexts. The value may depend on the nature and extent of prior investigations, the documentary evidence that the liquidator has already gathered in support of the claims and level of detail to which they can plead their claim.
Oral evidence
A liquidator is in all material respects like any other witness and can be expected to give oral evidence and be cross examined on their evidence. The issue, as discussed above, is that their evidence is only ever retrospective. However, they can give oral evidence on their investigations since taking office and the documents and disclosure that came into their possession later on.
It is good practice for the parties to seek to agree at the Pre-Trial Review whether or not the liquidator should be required to give oral evidence. If it is not required, that can free up time in the trial timetable for other evidence.
Conclusion
Ultimately, while the liquidator’s role as a witness is an important one, it is necessarily constrained by the retrospective nature of their evidence. Their credibility as an officer of the Court gives weight to their evidence and their interpretation of documents but on the other hand the Court will be mindful that they are not first-hand witnesses to the events in question. The strength of a liquidator’s evidence lies in what they can say about their post-appointment investigations and the contemporaneous documents they have been able to gather.
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