Liability of liquidator - Case law update from the "Cour d'Appel (Civil)" of April 2nd 2014

The decision of the Court of Appeal (Cour d’Appel) is made upon referral back to the lower court following an order to re-try by the Supreme Court (Cour de Cassation) of February 7th 2013, which has already been discussed in the BSP Newsletter of September 2013.

"The Court of Appeal had to consider whether the liquidator of a solvent construction company should have anticipated - by way of a provision or insurance coverage - a compensation obligation for possible construction defects appearing after the closing of the liquidation but within the ten-year constructor’s warranty period."

It was held that the liquidator should not have distributed all remaining corporate assets if he has or should have had knowledge of contingent liabilities even though they might not be certain yet. In the case at hand, the liquidator was previously managing director of the construction company and was personally attending the acceptance of the relevant works back in June 1999. This is why the liquidator should have known about the liability risk in respect of potential defects of the works.

Therefore, the Court of Appeal concluded that, when the liquidator decided to distribute the assets of the company (in liquidation) in April 2003, he committed a fault in light of article 149 of the Law of  August 10th 1915 on Commercial Companies, as amended (the “LSC”) by not creating a reserve for contingent liabilities arising from the ten-year warranty granted by the constructing company prior to its liquidation.

It is irrelevant that articles 144 to 148 of the LSC do not expressly provide for a general obligation of the liquidator to make a provision for contingent liabilities.

Moreover, the liquidator being aware of the scope of works carried out may not argue that he was unable to determine the exact amount to be set aside as he should have made an approximate estimation of any liability potentially arising under the constructor’s warranty.

Finally, the Court considered that the liquidator may not be discharged from its obligation by the fact that the owners could get insurance for the same risk at the beginning of the construction and that subsequently insurance companies do not offer risk coverage anymore.

Consequently and before the appointment of the liquidator, his position within or towards the company to be put into liquidation should be carefully assessed, especially regarding his knowledge or potential knowledge of contingent liabilities of the company. Furthermore, the attention of liquidators should be drawn in any event to statutory and contractual warranty provisions or other pitfalls, which may be the source of liquidators’ liabilities according to article 149 of the LSC.