Comment

In autumn of 2025, the English High Court decided that liquidators have unlimited personal exposure: they cannot contractually limit or exclude their personal liability for breach of duty. An application for permission to appeal that decision is now before the Court of Appeal.  

The first instance decision underscored that a liquidator’s duty is not to the company, nor any other person. Rather, the nature of a liquidator’s duty is that of a trustee under a statutory trust over the company’s assets, to be administered in accordance with and for the purposes of the statutory scheme. Thus, it was not possible for the debtor company (whether acting through its directors or shareholder body) to waive the duty or modify a liquidator’s responsibilities or liability. In contrast, the liquidator’s firm may limit its and its other staff’s liability (provided properly drafted and otherwise lawful).

It remains to be seen whether the Court of Appeal will both grant permission to appeal and overturn the first instance decision.  

This alert will be of interest to insolvency practitioners and their firms.

Facts

Pagden v Fry [2025] EWHC 2316 (Ch) involved claims against former liquidators appointed in a members’ voluntary liquidation (together with their associated firm) regarding alleged breaches of duty (including entering into transactions at an undervalue and misfeasance) during the liquidation of a group of companies in the Core VCT group (the Companies). Although the Companies had been dissolved at the end of the members’ voluntary liquidation process, they had since been restored to the register and new liquidators appointed, who then brought the claims on behalf of the Companies. 

The former liquidators’ firm had issued engagement letters (together with its standard terms) that included liability caps of £1 million for the benefit of the liquidators, as well as for the firm and its employees working on the engagement. The court was asked to determine whether these clauses were effective.

Decision

Liquidators’ Duties Are Statutory 

The court held that a liquidator acts as trustee under the statutory scheme provided for in the Insolvency Act 1986. The court observed that the law has moved on from the proposition that a liquidator’s duty is to the creditors or members (citing Ayerst (Inspector of Taxes) v C. & K. (Construction) Ltd [1976] A.C. 167). As such, these duties cannot be limited otherwise than in accordance with the legislation (i.e., even if such limitation is otherwise agreed by the directors and members of the relevant company). The fact that the liquidator’s fiduciary duty arises under statutory trust distinguishes its position from that of auditors or directors, whose liabilities may be limited by contract. 

The Liquidator’s Firm May Limit Its Liability By Contract

There is nothing in principle objectionable about the liquidator’s firm limiting its own and its other staff’s liability in connection with the assignment on which the liquidator has been engaged. In this instance, as a matter of construction of the terms of the firm’s limitation of liability provision in its standard terms of engagement, the court held that it was effective to cap the liability of its staff (other than the liquidators themselves). It is only the liquidators themselves who are subject to the fiduciary duty of the statutory trust.

Subsequent Developments

The decision in Pagden has been followed in at least one case. Cedar Securities Ltd v Phillips [2025] EWHC 2760 (Ch) concerned the purported exclusion of a liquidator’s liability where the conduct complained of related to the discharge of liabilities. The court identified no good reason why the principles explained in Pagden would not apply equally in this case, but this pre-dated the application for permission to appeal the Pagden decision.    

Key Takeaways

Pending a final decision from the Court of Appeal, liquidators would be well advised to assume that they cannot contractually limit or exclude their personal liability for breach of duty. Engagement letters should be drafted accordingly with clear language used to limit or exclude any separate liability that the liquidator’s firm or its staff (other than the liquidators) may have. The adequacy of professional indemnity insurance coverage should be kept under review.            

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