A liquidator is appointed to collect in a company’s assets, deal with creditor claims and bring the liquidation to a proper conclusion.
In many cases, a liquidator in England and Wales can now take steps without first obtaining formal sanction from the court, a liquidation committee or creditors. That does not mean the liquidator has unlimited freedom. A liquidator must still act for a proper insolvency purpose, exercise independent judgement and take decisions that are consistent with the statutory framework.
This page explains what sanction means, why the rules changed, and what options may be available if you are a director, creditor or other interested party concerned about a liquidator’s actions.
What does sanction of a liquidator’s actions mean?
Sanction means formal approval for a liquidator to take a particular step.
Historically, certain liquidator powers required approval before they could be exercised. This included steps such as bringing or defending proceedings, compromising claims, paying certain classes of creditors in full or carrying on the company’s business where that was necessary for the beneficial winding up of the company.
The requirement for sanction was intended to provide oversight, particularly where a liquidator was taking important or potentially costly decisions on behalf of the insolvent estate.
The position changed in 2015. Liquidators can now generally exercise the powers set out in Schedule 4 to the Insolvency Act 1986 without needing sanction in the way that was previously required.
That change was designed to make liquidations more efficient. It also placed greater practical importance on the liquidator’s own judgement and the ability of affected parties to challenge decisions where there are proper grounds to do so.
Can a liquidator bring or defend legal proceedings without approval?
In many cases, yes.
A liquidator will often need to consider whether legal proceedings should be brought, defended or settled. This may include claims to recover company assets, claims against former directors, claims involving transactions before liquidation, or disputes with creditors and third parties.
Since the 2015 reforms, the liquidator will not usually need prior sanction simply to bring or defend proceedings in the name of the company. The liquidator must still consider whether the proposed action is in the interests of the liquidation estate and whether it is a proper use of the company’s resources.
For directors, this means that a liquidator’s claim should not be dismissed simply because no prior creditor or court approval appears to have been obtained. The more important questions are usually whether the claim has legal and evidential merit, whether the liquidator has properly assessed the position, and whether the director has a substantive defence.
If you have received a letter before action, claim form or demand from a liquidator, our guide to defending liquidator claims explains the practical steps directors should consider.
What powers does a liquidator have in a winding up?
A liquidator’s powers are set out in the Insolvency Act 1986 and include a range of steps needed to realise assets, deal with claims and distribute funds.
Those powers can include compromising claims, bringing or defending legal proceedings, selling company property, executing documents, carrying on business where needed for the beneficial winding up, and taking other steps required to complete the liquidation.
The existence of those powers does not mean that every decision is beyond challenge. A liquidator must act within the scope of the appointment and for a proper purpose. The liquidator must also exercise judgement in a way that is consistent with the interests of the estate as a whole, rather than favouring one party without proper justification.
Where a director is being pursued personally, the liquidator’s powers are only part of the picture. The underlying claim still needs to be assessed on its facts. That may involve considering the company’s financial position at the relevant time, what the director knew or ought to have known, whether professional advice was taken, and whether the claim is properly evidenced.
For more detail on the types of claims commonly brought after liquidation, see our page on claims by liquidators or administrators.
Can a director, creditor or shareholder challenge a liquidator’s decision?
Yes, but the court will not usually interfere simply because another person disagrees with the liquidator’s commercial judgement.
Under the Insolvency Act 1986, a person aggrieved by an act or decision of a liquidator may apply to the court. The court can confirm, reverse or modify the act or decision complained of and make such order as it considers just.
In practice, a challenge needs careful assessment. The court will usually be concerned with whether the liquidator has acted within their powers, taken account of relevant matters, avoided irrelevant matters, and reached a decision that falls within the proper scope of their role.
Common concerns may include whether a liquidator is pursuing a weak claim, refusing to deal properly with information, selling assets at an apparent undervalue, favouring one creditor over another, or failing to explain the basis for a decision.
A challenge should not be made lightly. It can carry cost risk, and the court will expect a clear legal basis for intervention. In many cases, the first step is to request information, understand the liquidator’s reasoning and assess whether there is a practical route to resolve the issue without contested court proceedings.
What should you do if you are concerned about a liquidator’s actions?
If you are concerned about a liquidator’s actions, the first step is to identify exactly what decision or conduct is causing concern.
That may be a proposed claim against a director, a demand for repayment of a director’s loan account, a proposed settlement, the sale of an asset, the rejection of a proof of debt, or the way the liquidation is being managed.
You should keep a clear record of correspondence and gather the documents that explain the background. This may include board minutes, management accounts, emails, creditor correspondence, advice received at the time, transaction documents and any communications from the liquidator.
The next step is to assess whether the concern is legal, commercial or both. Not every unwelcome decision will justify a challenge. However, where the liquidator appears to be acting outside their powers, ignoring relevant evidence, pursuing a claim without proper basis or taking a decision that may prejudice the estate, legal advice may be needed quickly.
Directors should also consider the wider risk. A dispute with a liquidator may connect with claims for breach of duty, wrongful trading, transactions at an undervalue, preferences, overdrawn loan accounts or director disqualification issues. Early advice can help protect your position and avoid steps that may make matters harder to resolve later.
If you are dealing with a company in liquidation, our company liquidation guide explains the wider liquidation process and the issues directors commonly face.
How FWJ can help
Francis Wilks & Jones advises directors, creditors, shareholders and other affected parties on disputes involving liquidators and insolvency office holders.
We can help you understand whether the liquidator’s action is within their powers, whether a proposed claim has merit, whether a response should be made, and whether there are grounds to challenge the liquidator’s conduct.
Where possible, we aim to resolve issues through focused correspondence and practical negotiation. Where court action is necessary, we can advise on the risks, evidence and likely commercial outcome before steps are taken.
If you have received correspondence from a liquidator, or you are concerned about a decision made in a liquidation, speak to our team for clear advice on your options.
