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Removal of a court-appointed liquidator on grounds other than dereliction of duty

The Prague High Court has confirmed that a court-appointed liquidator may be removed by the court also for other reasons than their failure to fulfill their duties.

In today’s article, we shall take a closer look at a legal opinion voiced by the Prague High Court in a specific case in which it decided that removing a court-appointed liquidator and appointing a new one is permissible not only if the erstwhile liquidator failed to properly discharge their duties but also for other objective reasons.

The High Court stated that while Sec. 191 (2) of the Civil Code stipulates that the court shall remove a liquidator who fails to properly discharge their duties, this statutory provision does not rule out the possibility to remove the liquidator also for other reasons. The High Court derives this authority of the courts from Sec. 194 of the Civil Code, in which the rule is enshrined that any court-appointed liquidator may only ever be removed again by the court. Generally speaking, a body or person who elects a specific individual into office is also entitled to again remove them from that office. In this sense, Sec. 191 (2) of the Civil Code is a sanction clause and at the same time represents special law to Sec. 194’s general provision. It would therefore be wrong to conclude that recalling the court-appointed liquidator is only and exclusively possible on grounds of that liquidator having failed to properly discharge their duties.

Citing case law of the Supreme Court and its own jurisprudence, the High Court differentiates between two categories of reasons for which a liquidator may be recalled. The first category are sanctions, i.e., cases in which the liquidator does not properly fulfill their duties, i.e., acts in conflict with the law or other legal rules and regulations, or with the founding charter of the company. The High Court divides the second category – reasons other than sanctions – into objective and subjective grounds. Subjective grounds only ever apply to liquidators who were not appointed by the court (and may be given e.g. if there exist differences of opinion between the liquidator and the shareholders). Objective grounds may also be present in cases where the liquidator was appointed by the court, and includes e.g. a situation in which there objectively exists a person who would be better suited to act as the liquidator than the person currently filling the role, if switching liquidators would lead to a better and more efficient liquidation process.

According to the High Court, if there exists a better choice for filling the position of the liquidator (e.g. because they know the company intimately in their capacity as managing director), there is no legal reason why the court could not remove the existing liquidator and appoint such better candidate. In order to fulfill the purpose of the liquidation procedure, it is desirable that the liquidation be overseen by the best-qualified person – and it should be no obstacle that this best-qualified person was not appointed as the liquidator right at the beginning. The one aspect which should always be taken into account is that the liquidation should play out in the most effective and accomplished manner.

In the case at hand, the court said the cost-effectiveness of the liquidation process had been its key consideration, and concluded that if the removal of the court-appointed liquidator and the appointment of a new liquidator contributes to a better, more efficient liquidation, then there is no reason not to do so.

Source:
Act No. 89/2012 Coll., Civil Code
Prague High Court resolution 7 Cmo 179/2020 of 25 February 2021