Judgment summary
In Rawbank SA v Banfield & Ors [2025] EWHC 3054 (Ch), the High Court exercised its jurisdiction to appoint two additional "conflict" liquidators from Grant Thornton to investigate potential claims in circumstances where the incumbent PwC liquidators were considered to be subject to perceived conflicts of interest. The decision, handed down by ICC Judge Barber, affirms the court's power under Section 108 of the Insolvency Act 1986 ("IA 1986") to appoint supplementary, as opposed to substitute, liquidators where necessary to safeguard the independence of investigations.
Background
The Applicant, an unsecured creditor, made an application under s.108 IA 1986 ("s.108 Application") seeking the appointment of two independent insolvency practitioners as additional liquidators of a company alongside the incumbent liquidators.
For context, the applicant, Rawbank, is the largest bank in the Democratic Republic of Congo. The Company was part of the Travelex Group which operated as a wholesale supplier of bank notes to financial institutions, including Rawbank with which it had done business since 2004. The company’s immediate parent was a company known as Travelex Limited. The head of the Travelex Group was Travelex Holdings Ltd. Travelex Holdings Limited was itself a subsidiary of Finablr Plc ("Finablr").
The Applicant and the Company conducted business together since 2004. On 4 October 2013, the Applicant and the Company entered into a contract which set out the terms on which the Company would sell US dollar banknotes to the Applicant from that point onwards ("the 2013 contract"). In the following years, numerous high-value transactions took place pursuant to the 2013 Contract (typically, US$40 million to $50 million of banknotes) were ordered and delivered each week.
By late 2019, Finablr was having significant financial difficulties and engaged a team from PwC (not including any of the Respondents) to act as its financial advisers.
Unaware of the extent of the Travelex Group's difficulties, on 16 March 2020, the Applicant placed an order with the Company pursuant to the 2013 contract for US $40 million in bank notes. The initial delivery date agreed was 23 March 2020. No money was paid at the time of the order; payment was due on 19 March 2020.
Following the Company's failure to deliver the ordered bank notes and refusal to pay a refund, on 14 April 2020, the Applicant issued an application for a freezing order alleging, among other things, fraud. After various adjournments of that application, on 4 May 2020, the Applicant issued a claim for breach of contract and/or misrepresentation.
On 7 May 2020, the freezing order application was heard by Birss J (the "2020 Proceedings"). The judge declined to make a freezing order but instead made a limited disclosure order requiring the Company to give seven days' advance notice of any disposal of assets that would reduce its assets by more than £5 million.
Following an application by the Applicant for summary judgment, on 15 June 2020, the Company agreed to judgment being entered against it for the sum of US$60,072,000
The Company failed to satisfy the judgment debt and on 21 July 2020 went into administration on an out of court appointment by the directors. Three IPs from PwC were appointed as joint administrators. In 2023, the Company moved from administration to creditors voluntary liquidation, and the joint administrators were appointed as liquidators.
The S.108 Application
The Applicant had concerns that events in the run-up to the Company's entry into administration might have given rise to officeholder and/or Company claims. The Applicant wished to see such claims being properly investigated and was concerned that the Respondents might be conflicted in doing so.
The Applicants' concerns, inter-alia, stemmed from the following:
- The Respondents were in a position of actual or potential conflict in investigating events over the period running from the date of their engagement letter of 18 March 2020 to their appointment as administrators on 21 July 2020 (the "Pre-Administration Period"). The PwC team engaged by the Company to provide advice over the Pre-Administration Period included two of the three officeholders subsequently appointed as its administrators and there after liquidators.
- According to the terms of the engagement letter dated 18 March 2020, the PwC team advised the Company on financial and cashflow decisions, at the time when the Applicant was paying for its original order of bank notes and placing the supplemental order. The same PwC team was also in place and giving the green or red light to given financial and cashflow decisions (i) on 6 April 2020, when the Company refused to refund the Applicant its US $60 million on the ground that it was going through a restructuring and (ii) when the Company paid out significant sums to another creditor ("Creditor A").
- Whilst there was no basis for suggesting any impropriety on the Respondents' part, according to the Applicant, it was readily apparent that, when considering what investigations to make and what claims may or may not be viable, the Respondents may have found themselves in a position of actual or potential conflict which may, even subconsciously, have affected their approach to such investigations.
Judgment
The legal issues presented before the Court were as follows:
a. The scope of the Court to appoint an additional liquidator in circumstances where a liquidator is in actual or perceived conflict.
- The Court was "satisfied" (with reference to case law) that it had jurisdiction to appoint additional liquidators under the s.108 Application in certain circumstances, including those in which the appointment of a conflict liquidator is required.
b. Whether the Liquidators were in actual or perceived conflict in investigating potential claims arising in the pre-administration period.
- The Court found that the Respondents at the very least in a position of potential conflict when considering what investigations to carry out in respect of the Company in relation to the pre-administration period and in determining which claims may or may not be viable. A fair-minded and informed observer would conclude that the Respondents, as the decision-makers, at the very least had the potential to be biased. Whilst the Court accepted that at there may be occasions when such actual or potential conflicts can properly be 'managed' in ways which do not require an office holder to step down from office, such 'management' must be put in place immediately. This was not the case here, as the Respondents investigated themselves for the first six months of the administration, only bringing in Brown Rudnick for what is described as an 'independent' review in February 2021. It was, therefore, open to the Court to appoint additional conflict liquidators for the purpose of investigating potential claims under the s.108 Application.
c. If the Court has the jurisdiction to appoint additional liquidators, whether it is appropriate to do so.
- The Court held that subject to appropriate undertakings regarding funding arrangements and protection against adverse costs orders being put in place, conflict liquidators could be appointed. The Court was satisfied that if additional liquidators were appointed, there was a real prospect that the additional liquidators would be able to investigate and pursue claims for the benefit of the creditors as a whole or, at the very least, the unsecured creditors as a whole. The Court considered there was a strong prima facie case of preference in relation to the payments to Creditor A. A successful preference claim against Creditor A in respect of those payments would itself increase the return to the Applicant from a few hundred thousand pounds to a sum exceeding £2m and other unsecured creditors will also see a corresponding significant increase in their respective returns.
The Court proceeded to appoint the Applicant's nominees as conflict liquidators for the purpose of investigation claims.
The Court ordered the following safeguard measures to be implemented:
- The Applicant to cover all costs of the additional officeholders and their proposed further investigations and all reasonable costs of the Respondents (and any other associated costs) incurred in keeping the liquidation open.
- The Applicant to make a security payment to Court to ensure the Respondents have appropriate costs cover (the Court suggested a sum of £150,000 to be an appropriate starting point).
- The Applicant to offer an undertaking to indemnify (or arrange appropriate insurance cover) for the Company against any adverse costs orders made against it.
Comment
Whilst the wording under s.108 IA 1986 refers to circumstances where "there is no liquidator acting" (in which case, the Court can appoint a liquidator), the judgment in Rawbank SA v Banfield clarified the Court's power can be extended to appointing additional liquidators if a "cause can be shown". Whilst the Court is traditionally reluctant to interfere with the officeholders' conduct of the estate, this decision shows that where potential conflict arises, the Court will be prepared to intervene (even if there is no evidence of misconduct) with a view to ensuring that the estate is being managed in an independent and unbiased manner, and for the benefit of the creditors as a whole.
