Conflicted shareholders/directors remove liquidators

A dissolved corporate group was restored and put into insolvent liquidation in 2018. This was with a view to the liquidators pursuing the former directors of the group for breach of fiduciary duties.

These former directors were also shareholders in the corporate group. Certain of these former directors applied to remove the liquidators. This application was dismissed on appeal with the court holding that the corporate group’s shareholders should vote on whether (i) they wanted the group to remain restored to the companies register; and (ii) the new liquidators should remain in office.

The former directors, in their capacity as shareholders of certain of the corporate group companies, voted to remove the liquidators. The court had to determine whether the former directors’ votes (as shareholders) could be counted despite the former directors having a clear personal interest in the liquidators being removed. 

The court held that a shareholder may exercise their vote in accordance with their own interests and the vote would stand unless no reasonable person would consider the shareholder’s voting decision as benefitting the company. It would need to involve some “element of abuse or unfair subjugation of the minority [shareholder(s)]’s will”.

The court recognised that it looked “morally unattractive” that the former directors voted to remove the liquidators that were pursuing fiduciary claims against them. However, it was balanced out because the former directors were willing for different liquidators to be appointed and would finance their review of the alleged fiduciary claims. The court therefore upheld the former directors’ votes.

Pagden v Soho Square Capital LLP [2022] EWHC 944 (Ch)

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