Can you limit your liability as liquidator?

The High Court has held that a limitation of liability clause in an engagement letter was not effective to limit the liability of a liquidator for breaches of duty by them during an MVL.

This case concerned claims being pursued against former liquidators and their firms for acts arising during the course of an MVL.  

Prior to the appointment of liquidators, Begbies Traynor sent engagement letters to the Company and directors which included a term limiting the liability of that firm and “Begbies Traynor Persons” which extended to its members, partners, directors and other staff, to £1m, including claims arising in negligence. Those terms were accepted. The Court was asked to consider this relatively straightforward question on a preliminary issue - can liquidators or their firms dealing with a members' voluntary liquidation limit their liability?  Somewhat surprisingly, there was no authority on this point. 

The answer is no, principally because a liquidator’s role is one of fiduciary, holding assets on trust to be administered according to statute. This gives rise to a statutory trust and the company (acting through its directors or shareholders) cannot modify the duties the liquidator owes because those duties are not owed purely to the company itself.  

What remains unresolved is whether on the facts of this case, the exclusion might limit the liability of Begbies Traynor itself. The preliminary issue proceeded on the basis of an assumption that the firm itself would be vicariously liable for the acts of the liquidator. The liability cap might apply to limit their exposure to vicarious liability (assuming they were found to be at trial), and it might also attach to liabilities arising for acts or advice provided outside of the MVL. Given both a firm and the office holder itself would likely carry professional indemnity insurance, and the firm may have also provided an indemnity to the office holder to address that he or she takes a personal office as part of their role, it may not make much practical difference. 

Nevertheless, it demonstrates some of the issues the court was having to grapple with. The Insolvency Act pins the duties and the liabilities on the individual office holder, but the commercial reality is somewhat different - particularly in large firms where collective expertise of the firm attracts the appointment, and the day to day administration carried out by the firm, rather than the office holder personally.

Pagden & Ors v Fry & Anor [2025] EWHC 2316