How to Challenge a Liquidator’s Decisions or Fees

Facing liquidation can be a daunting experience for company directors, often accompanied by stress and uncertainty. However, it is important to know that there are established legal routes for questioning a liquidator’s decisions or fees where appropriate. Whether your concern relates to costs, asset sales, or conduct, the insolvency framework in England and Wales provides mechanisms to raise and, in some cases, resolve these issues. 

This guide explains the key steps and considerations involved in challenging a liquidator’s actions, so you can take informed and proportionate action.

The Short Answer

• You can challenge a liquidator’s decisions or fees, but only through specific legal routes set out in the Insolvency Act 1986 and Insolvency Rules.
• Creditors and shareholders have defined statutory rights, and in some cases any person aggrieved by a liquidator’s act or decision may apply to court.
• Liquidator fees and expenses can be challenged, but strict deadlines apply, typically 8 weeks from receiving the relevant progress report.
• Before going to court, you can request detailed fee information and raise concerns through creditor decision procedures or meetings.
• Courts can confirm, reverse, or modify a liquidator’s actions and may reduce fees or order repayment if charges are unreasonable.
• Removing a liquidator is possible, but the process depends on the type of liquidation and usually requires either a creditor decision or a court order.
• Regulatory complaints can address professional misconduct but cannot change fees or liquidation outcomes, those require court action.

Understanding Your Rights to Challenge a Liquidator

Liquidators are required to act in accordance with the Insolvency Act 1986 and the Insolvency (England and Wales) Rules 2016. If you are affected by a liquidator’s actions, the law allows challenges in defined circumstances.

Who Can Challenge:

• Creditors (secured and unsecured) have specific statutory rights to question fees and expenses.
• Shareholders (contributories) may also have standing in certain types of liquidation.
• Under section 168(5) of the Insolvency Act 1986, any person aggrieved by an act or decision of a liquidator may apply to the court for review.

What Can Be Challenged:

• Acts or decisions that are alleged to be improper or unfairly prejudicial.
• The level of remuneration and expenses charged by the liquidator.
• Conduct that may fall outside the liquidator’s statutory or professional duties.

Legal Routes:

• Court Applications (s.168(5)): An aggrieved person may ask the court to confirm, reverse, or modify a liquidator’s act or decision.
• Fee Challenges: Creditors may apply to court under Insolvency Rule 18.34 to challenge remuneration or expenses, subject to strict time limits.

Pre-Court Steps:

• Requesting further information about fees and expenses.
• Engaging collectively with other creditors before considering litigation.

Understanding these routes helps ensure that any challenge is properly grounded in law and proportionate to the issue at hand.

Common Reasons to Dispute a Liquidator’s Decisions or Fees

Disputes usually arise where stakeholders believe the liquidation process is not being handled fairly or transparently.

Excessive Charges

Liquidators’ fees must be approved and justified. Where charges significantly exceed estimates or appear disproportionate to the work undertaken, creditors may question whether the remuneration is reasonable.

Questionable Asset Sales

Concerns may arise if assets appear to have been sold at undervalue or to connected parties without adequate explanation or evidence that best value was achieved.

Alleged Misconduct or Poor Practice

This can include failures to communicate, inadequate reporting, or actions that suggest bias or lack of independence. Such concerns may justify court scrutiny or a regulatory complaint.

Initial Steps: Requesting Information and Engaging with Creditors

Before taking formal action, it is usually sensible to seek clarification and attempt resolution.

Under Insolvency Rule 18.9, certain parties may request further information about remuneration and expenses:

• Any secured creditor, or
• Unsecured creditors representing at least 5% in value of unsecured claims.

The request must be made within 21 days of receiving the relevant progress report. The liquidator must respond within 14 days, either providing the information or explaining why it is not being provided.

Engaging with other creditors can also be effective. Creditors representing at least 10% in value or number may require a creditors’ meeting or decision procedure to be convened. Collective discussion can sometimes resolve concerns without court involvement.

Checklist for Initial Steps:

• Submit a timely written request for fee information under Rule 18.9.
• Contact other creditors to gauge support.
• Use meetings or decision procedures to raise concerns formally.
• Attempt direct, proportionate engagement with the liquidator before escalating.

Court Procedures for Challenging a Liquidator’s Actions

If informal steps do not resolve the issue, a court application may be appropriate.

1. Identify the Legal Basis:
   Ensure the challenge relates to a recognised statutory route, such as section 168(5) or a fee challenge under the Insolvency Rules.
2. Confirm Standing:
   Applicants are typically creditors or contributories, but section 168(5) allows any person aggrieved by an act or decision to apply.
3. Issue the Application:
   Applications are made to the High Court or appropriate county court while the liquidation is ongoing.
4. Prepare Evidence:
   Evidence should show why the act, decision, or fees are unreasonable, improper, or unfairly prejudicial.
5. Court Outcome:
   The court may confirm, reverse, or modify the liquidator’s actions, adjust fees, or in serious cases order removal.

Prompt action is important, particularly where specific statutory deadlines apply.

How to Challenge Liquidator Fees and Expenses

Liquidator remuneration is usually approved by creditors or a creditors’ committee and may be calculated by time costs, a fixed amount, or a percentage of realisations.

Requesting Information – As noted, Rule 18.9 allows eligible creditors to seek further details about how fees and expenses have been calculated.

Applying to Court – If concerns remain, Insolvency Rule 18.34 allows a court application to challenge fees or expenses. This must be made within 8 weeks of receipt of the progress report that reports the charging of the remuneration or expenses.

• Secured creditors may apply on their own.
• Unsecured creditors generally require at least 10% support by value or the court’s permission.

The court may reduce fees or order repayment if it considers the charges unreasonable. Applicants usually bear their own costs unless the court orders otherwise.

Removing or Replacing the Liquidator

The process for removal depends on the type of liquidation.

Creditors’ Voluntary Liquidation (CVL): Creditors may remove and replace the liquidator through a formal decision procedure convened in accordance with the Insolvency Rules.

Members’ Voluntary Liquidation (MVL): Shareholders may pass a resolution to replace the liquidator.

Compulsory Liquidation: A liquidator may be removed only by a court order or by a decision of the creditors in accordance with section 172 of the Insolvency Act 1986.

Removal applications must demonstrate proper grounds, such as conflict of interest or serious procedural failings.

Misfeasance Allegations and Regulatory Complaints

Misfeasance Claims

Under section 212 of the Insolvency Act 1986, the court may examine a liquidator’s conduct if there is alleged misfeasance or breach of duty. Remedies can include orders to repay or restore assets.

Examples include:

• Misapplication or retention of company funds.
• Failure to act in the interests of the estate.
• Serious procedural or fiduciary breaches.

Regulatory Complaints

Complaints about professional conduct can be submitted via the Insolvency Service Complaints Gateway. These are investigated by the liquidator’s authorising body and may lead to disciplinary action. 

However, regulatory complaints do not reverse liquidation decisions or alter fees; those outcomes require court action.

Key Deadlines, Risks, and Cost Considerations

Key time limits include:

• 21 days to request further fee information under Rule 18.9.
• 8 weeks to challenge fees or expenses under Rule 18.34.

Court challenges carry cost risks, as applicants usually bear their own legal expenses. It is important to weigh the likely benefit against the financial and practical impact.

Benefits and Risks:

Benefits

• Potential reduction of unreasonable fees.
• Greater transparency and accountability.
• Protection of estate value.

Risks

• Legal costs may exceed any recovery.
• Delay to the liquidation process.
• Court may uphold the liquidator’s actions.

Your Next Steps if You’re Planning a Challenge

• Collect and organise all reports, correspondence, and fee information.
• Coordinate early with other creditors to meet statutory thresholds where required.
• Monitor deadlines carefully; missed time limits may remove key rights.
• Seek specialist legal or insolvency advice before issuing proceedings.
• Consider whether informal engagement or creditor action may resolve the issue more efficiently.

Approached carefully, challenges can be a legitimate way to ensure that liquidation is conducted fairly, proportionately, and in accordance with the law.

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