Would-be creditor’s challenge liquidator decision on proofs of debt

In the recent decision of Sanrose Investment Ltd v Foley and others [2025], the court explored the circumstances in which they would overturn office holder decisions. 

The case related to two applications challenging the decision of the office holder in considering two proofs of debt submitted against an insolvent limited liability partnership (LLP).

The first application related to a claim for the return of monies invested by a former member of the LLP (which had previously been accepted by the office holder). The second related to a claim brought by the assignee of a current member of the LLP which had been refused by the office holder on the basis that the terms of the assignment were not effective in the context of a compulsory liquidation. 

Applying caselaw on the each of the applications, the court held that:

• In relation to the first application, the liquidator’s decision to admit the proof of debt ought to be reversed on the basis that the former member had no direct right or interest in the LLP at the point of liquidation.
  
  On the facts, the former member had been substituted in the LLP by a replacement member that was wholly controlled by the former member. As such, while the former members had no basis to assert a debt owed by the LLP, the replacement member, having an interest in the LLP at the point of liquidation was entitled to share in any surplus that might remain following the payment of the LLP’s other debts and the expenses of the liquidation.

• In relation to the second application, the court held that the liquidator’s interpretation of the Deed of Assignment (which had recorded in its recitals that the parties intended a “member’s voluntary liquidation” was ineffective in the context of a compulsory liquidation) was incorrect.
  
  In reaching this decision, notwithstanding the reference to a member’s voluntary liquidation in the recitals, the court noted that the effective clauses of the assignment referred simply to “the liquidation” which was not a defined term, and noted that as a matter of practice one variety of liquidation might be converted into another.
  
  As such, the court held that the assignment should be treated as effective in the circumstances of the LLP’s compulsory liquidation and that as such the decision to reject the assignee’s proof of debt ought to be reversed.