The undertaking in damages given on the appointment of a provisional liquidator did not automatically terminate on the making of a winding up order so as to deprive the court of jurisdiction to enforce the undertaking by ordering an inquiry as to damages.

David Richards J so held when granting the application by the applicant, Abbey Forwarding Ltd (“Abbey”), for an inquiry as to damages on an undertaking given by the respondents, the Revenue and Customs Commissioners, on the appointment of a provisional liquidator of Abbey on 4 February 2009, and directing that the inquiry was to proceed on the basis that Abbey would not have been wound up on the Revenue’s petition presented on 4 February 2009.

DAVID RICHARDS J said that it was well recognised that the appointment of a provisional liquidator would frequently inflict terminal damage on the company. For that reason an undertaking in damages was particularly important: see Revenue and Customs Commissioners v Rochdale Drinks Distributors Ltd [2011] EWCA Civ 1116; [2012] STC 186. Although there were many cases concerned with the enforcement of undertakings in damages given on the grant of an interim injunction, counsel had been unable to find any authority concerned with the enforcement of an undertaking given on the appointment of a provisional liquidator. In the ordinary case of an interim injunction, the question whether it was properly granted for the purposes of the undertaking in damages would generally be answered by whether a final injunction to similar effect was granted at trial, leaving aside any question of the court being misled on the application or non-disclosure of material matters. The revenue submitted that the appointment of a provisional liquidator was an analogous order. His Lordship did not accept that it was the only test for determining whether there should be an inquiry as to damages. The breadth of the court’s discretion in deciding whether to order an inquiry was made clear in the authorities: see Cheltenham & Gloucester Building Society v Ricketts [1993] 1 WLR 1545. The appointment of a provisional liquidator was sui generis and it was not necessarily helpful to attempt to find the closest analogy. To the extent that an analogy might be drawn, the analogy with a freezing order was closer. Like a freezing order, the appointment of a provisional liquidator was usually made in order to safeguard the assets of the company. The appointment of a provisional liquidator might cause loss to the company and hence to its creditors and shareholders, even if subsequently a winding up order was made. In such cases, if subsequently it could be seen that the circumstances did not justify the appointment, there was no reason in principle why an inquiry as to damages should not be ordered. Just as the allegations of a risk of dissipation might well not be relevant at the trial of a claim in which a freezing order had been made, so in many if not almost all cases of winding up petitions, the allegations of fraud or other risks on which the appointment of a provisional liquidator was made would not be a matter for determination at the hearing of the winding up petition. That illustrated that the right approach was that stated by the Court of Appeal in the Cheltenham & Gloucester Building Society case, providing for a broad discretion to be exercised judicially, in keeping with the usual form of undertaking. It followed that the undertaking given on the appointment of a provisional liquidator did not automatically terminate on the making of a winding up order, so as to deprive the court of jurisdiction to enforce the undertaking by ordering an inquiry as to damages. The court retained its discretion to order an inquiry if the circumstances made it just. The fact that a winding up order had been made would in all cases be a highly relevant factor, as also might be the absence of any opposition to the making of the order, but those factors were not determinative.