What the court decided
No contractual cap for liquidators personally. The court concluded that a liquidator’s duties derive from the statutory scheme and statutory trust over the company’s assets. Those duties are not owed purely to the company, and the company cannot limit a liquidator’s liability for breach of them. The liquidator is a fiduciary administering assets for statutory purposes, and cannot contract out of that framework (a limitation clause in their engagement letter to that effect is ineffective).
Firms can potentially cap their own separate and vicarious liability. Engagement terms are effective, as a matter of construction, to limit the firm’s liability for services within scope, including services during the liquidation (other than the liquidators themselves)
Practical implications for office holders
Do not rely on liability caps for your conduct as liquidator. Even if agreed pre‑appointment with directors (or known to shareholders), a cap will not necessarily protect you once appointed.
Engagement architecture still matters – for the firm. Properly drafted engagement letters can cap the firm’s exposure and, potentially, its vicarious liability for staff assisting, provided the work falls within the contractually defined services and subject to the unfair contract terms act.
Mind the “theory vs reality” gap. In law the office holder acts personally; in practice, firm staff do the work and invoices issue in the firm’s name. The court recognised this commercial reality and read the engagement accordingly – but without extending protection to the office holder’s own liability.
Use court directions to manage risk. The court noted that liquidators can seek directions on difficult questions, and regulatory insurance/bonding exists to address exposure. That remains a primary risk‑mitigation tool.
This decision ties the inability to limit liquidator liability squarely to the statutory trust and fiduciary nature of liquidation, offering a principled explanation for why directors and auditors may benefit from exculpation clauses but liquidators may not. PI insurance, bonds, and directions are critical. Reliance on engagement‑letter limits will not protect the office holder personally.
The Restructuring & Insolvency team at DMH Stallard have extensive experience in advising individuals and insolvency practitioners in relation to personal insolvency, disputes with HMRC, director claims and directors’ disqualification. Please get in touch or call 03333 231580.
