The High Court has recently provided clarity on whether liquidators, or the firms supporting them, can limit their liability when acting in a Members’ Voluntary Liquidation (MVL).
The case of Pagden[1] confirms that while firms supporting liquidators may be able to limit liability in certain circumstances, liquidators themselves cannot.
Background to the Case
The dispute arose out of the liquidation of three venture capital trusts where the joint liquidators, appointed to oversee the MVLs, and their professional services firm were sued for breach of duty. A key issue was whether they could rely on limitation of liability clauses contained in their engagement letters which sought to cap their liability for any loss or damage arising from their services.
The claimants argued that, because a liquidator is acting in a statutory capacity owing fiduciary duties to the company and its members, they cannot limit those duties by contract.
The defendants countered that, while the liquidator acts in a statutory capacity, the professional firm’s work was contractual and therefore any agreed limitation should stand.
The Court’s Decision
- Liquidators Cannot Limit Their Statutory Liability
The Court held that liquidators act as fiduciaries under the Insolvency Act 1986, holding the company’s property on a statutory trust for the benefit of shareholders or creditors. Because this duty arises by statute (not by contract), a liquidator cannot contract out of or restrict those obligations through an engagement letter or other agreement.
- The Firm Supporting the Liquidator May Limit Its Liability
The Court drew a clear distinction between the individual liquidator, who acts under statutory powers and duties and the insolvency practitioner’s firm.
If the engagement letter between the firm and the company contains a properly drafted limitation of liability clause and if the services in question relate to advisory or support work carried out under that contract (for example, administrative assistance not forming part of the liquidator’s statutory functions), the firm may be able to rely on that clause to cap its exposure.
However, the enforceability of a limitation clause will depend on the facts and whether the clause is “reasonable” under the Unfair Contract Terms Act 1977 (UCTA).
Why This Matters
- For Liquidators
Liquidators cannot use a limitation of liability clause to restrict exposure for their work. Their duties are statutory and fiduciary in nature and those cannot be contracted away.
Liquidators should therefore ensure that:
- They have adequate professional indemnity insurance in place; and
- Their engagement letters make clear which obligations are statutory and which belong to the firm.
- For Professional Services Firms
Firms providing insolvency services may still rely on limitation of liability clauses, but only if:
- The clause is clearly drafted and covers the relevant advisory or support services that are provided under contract, rather than duties carried out by the officeholder; and
- It meets the reasonableness test under UCTA.
Firms should also review how engagement letters describe roles and responsibilities, ensuring a clear distinction between the liquidator’s statutory duties and the firm’s contractual obligations.
Further Judicial Endorsement of Pagden v Fry
More recently the decision of the court in, Cedar Securities Ltd & Anor v Phillips & Ors [2025] EWHC 2760 (Ch)[2] has further confirmed the approach taken in Pagden.
In that case, the Court said that the reasoning in Pagden applies equally where an exclusion (rather than a limitation) of liability is used. The judge expressly stated that he had no reason to doubt the conclusions reached in Pagden, reinforcing the principle that liquidators cannot exclude or limit their statutory liability, even by contract.
[1] Laurence Pagden & Ors v Fry & Anor [2025] EWHC 2316 (Ch) (10 September 2025)
[2] Cedar Securities Ltd & Anor v Phillips & Ors [2025] EWHC 2760 (Ch) (24 October 2025)
