Removal of Liquidator in Creditors’ Voluntary Liquidation

Possibility to remove current liquidator and possibility to appoint an additional liquidator in the procedure of creditor’s voluntary liquidation.

Based on Section 277 of the Cyprus Companies Law, Cap.113, the creditors and the company at their respective meetings may nominate a person to be liquidator for the purpose of winding up the affairs and distributing the assets of the company, and if the creditors and the company nominate different persons, the person nominated by the creditors shall be liquidator, and if no person is nominated by the creditors the person, if any, nominated by the company shall be liquidator provided that in the case of different persons being nominated, any director, member or creditor of the company may, within seven days after the date on which the nomination was made by the creditors, apply to the Court for an order either directing that the person nominated as liquidator by the company shall be liquidator instead of or jointly with the person nominated by the creditors or appointing some other person to be liquidator instead of the person appointed by the creditors.

Based on Section 287 of the Cyprus Companies Law, Cap. 113, if for any reason there is no liquidator acting, the Court may appoint a liquidator and the Court may, on cause shown, remove a liquidator and appoint another liquidator.

According to the above, the liquidator shall be removed either through an application to the Court within seven days of his appointment, provided that any director, member or creditor of the Company apply to the court for an order directing that the person nominated by the Company shall be liquidator instead of the liquidator nominated by the creditors or that the liquidator nominated by the company shall be an additional liquidator together with the one that was nominated by the creditors.

Alternatively, the liquidator shall be removed “on cause shown”. Case law indicates that this arises in cases of unfitness of the person, which relate to personal character or to the liquidator’s connection to other parties or to the circumstances the liquidator is implicated in. These factors illustrate some unfitness in a wide sense, which is accepted by the Court as a cause for removal. If the Court is satisfied on the evidence that it is desirable in the interests of all those interested in the assets that a particular person shall not manage the assets, then the Court has the power to remove him without there being shown any personal misconduct or unfitness (Re Adam Eyton, Ltd., Ex parte Charlesworth (1887), 36 Ch. D. 299; Re Baron Cigarette Machine Co. (1912), 28 T.L.R. 394; cf. Re Sunlight Incandescent Gas Lamp Co., (1900) 2 Ch. 728.)

Some other instances, where orders have been made for removal of the liquidator are the following:

1. The liquidator was unwilling to take proceedings against the directors with whom he was intimate (Re Sir John Moore Gold Mining Co. (1879));
2. The liquidator had intimate business connections with directors of the company who were directors of other companies between which and the company there had been dealings requiring investigations (Re Charterland Goldfields (1909));
3. The debts more than absorbed all the assets, and the creditors desired the removal of the liquidator appointed by the shareholders (Re Oxford Building and Investment Co. (1883));
4. Creditors to a very large amount offered to pay into Court enough to satisfy in full the claims of all other creditors and wished the assets to be administered by their nominee (Re Adam Eyton, Ltd., Ex Parte Charlesworth (1887));
5. The sole liquidator became of unsound mind (Re North Molton Mining Co., (1886) W. N. 78.);
6. In considering whether a liquidator should be removed, importance is attached to such factors as, for instance, that the majority of the company’s creditors will be paid off by a large creditor if his nominee is appointed (Re Adam Eyton, Ltd., Ex Parte Charlesworth) or that the majority is dissatisfied with the existing liquidator, especially if some of them are willing to act without remuneration. Re oxford Building and Investment Co. (1883).

An additional liquidator can be appointed under section 296 of the Law which conveys to the court the power to issue an order for supervision by the court. The additional liquidator stands in the same position and has the same powers as if he had been duly appointed in a voluntary winding up.

Therefore, in cases where an application for an order of supervision is made, the Court has the power to appoint a joint liquidator either by the same application or a subsequent one based on section 296. The Court in making a supervision order may appoint an additional liquidator or liquidators to act with the existing liquidator. The Court has a wide discretion when making the supervision order to impose such terms as it considers just and therefore this discretion is also applicable in cases for appointing a joint liquidator in these cases (Palmer’s Company Law, Vol. 1 p. 1308).

Summing up the above, there are two ways in which a second (joint) liquidator can be appointed.  The first one is through an application based on section 277 of the Law, which takes effect in cases where the creditors and the company nominate different persons as liquidators. This way, however, has a limitation since the person seeking to apply to the court for an order to appoint a joint liquidator must do so within seven days after the date on which the nomination was made by the creditors, in the first creditors meeting.

The second way is via an application based on either section 287 or 296 of the Law. Section 287 of the law allows for a replacement of the liquidator and the appointment of a new one if the Court is satisfied that there is sufficient cause, as explained above. On the other hand, section 296 gives to the Court a wide variety of powers, which include the removal of a liquidator or the appointment of a joint liquidator of the same standing as the first, in cases where an application for supervision is made.  Since an application for a supervision order is only made if there is a claim that the winding up is being unfairly conducted, it is likely if successful, to be accompanied by an order appointing a joint liquidator.