Court of Session refuses advance remuneration request
By Steven Wood, Practice Support Specialist (Insolvency)
19 February 2024
A recent Court of Session judgment provides some useful clarification and guidance around concluding an administration via a court winding-up and the court’s powers in relation to advance remuneration requests.
Background
The joint administrators (JAs) were appointed on 12 May 2021 and previously had their term in office extended to 11 February 2024.
The JAs concluded their investigations into the company, realised all known assets and distributed available funds to creditors. The only outstanding matter is a potential claim against the company’s former auditors, which has been assigned to a specialist litigation investment company, subject to an agreement that if the claim is successful, a percentage of the sum realised will be returned to the company.
The JAs submitted a note to court requesting that the administration should cease immediately and that they be discharged from liability for their actions as JAs. They further requested that the company be wound up under the provisions of the Insolvency Act 1986 (IA86), with the JAs appointed as joint liquidators, to allow them to:
- Support the claim against the company's auditors by providing financial analysis and information, as required, to enable that claim to be pursued.
- Finalise and pay any administration expenses.
- Finalise VAT and corporation tax returns with HMRC.
- Distribute remaining funds to the floating charge holder.
Unusually, the note also requested that the remuneration of the noters as joint liquidators be fixed as 20% of the value of any assets of the company realised by them.
Winding up
In connection with the winding up of the company, the court had two issues to consider:
- If it is competent to apply for a winding-up order by note, rather than by petition.
- Whether, when invoking S140 of IA86, the court must appoint an interim liquidator.
On the first issue, the court concluded that “it is both competent and appropriate for the noters to proceed by way of note, and for the court to make an order winding the company up."
The court was persuaded that the terms of paragraph 79(4) of schedule B1 to IA86, while not unrestricted, are sufficiently wide as to give it the power to make an order winding the company up. Lord Braid pragmatically concludes that it would “be futile, and detrimental to the company, to require the noters to go to the additional expense of presenting a winding-up petition”.
On the second issue, the court compares the position to that in England and Wales where S140(3) of IA86 makes it clear that the Official Receiver, who would ordinarily be appointed at the winding-up stage, does not become liquidator following administration.
In Scotland, a potential issue arises because S138 is not made subject to S140. So while the court is empowered by S140 to make a winding-up order, on a literal reading of the legislation, S138 requires that person to be appointed as ‘interim’ liquidator.
Lord Braid again took a pragmatic view and concluded “There appears to be no legislative intention that the normal procedures should be bypassed in the latter jurisdiction but not in the former, nor would there be any sensible or rational purpose in treating the two jurisdictions differently."
He therefore reached the view that “S140, properly construed, does empower the court to appoint the administrators as liquidators, not as interim liquidators, the legislative intention being to bypass the trouble and expense which would be incurred if the normal procedures had to be utilised."
Remuneration request
In regards to the JAs’ advance remuneration request, the court firstly made clear that the basis of a liquidator's remuneration may be fixed as a percentage of the value of the assets realised in accordance with R7.11(8) of the Insolvency (Scotland) (Receivership and Winding up) Rules 2018.
However, Lord Braid was unwilling to grant the JA’s request for a number of reasons:
- He considered it incompetent to do so as the rules do not permit a claim for remuneration in advance of the work being done.
- Even if competent, it was inappropriate to fix remuneration in advance, particularly on a percentage basis, due to the lack of narrative around what work the liquidators expect to have to carry out. There was no basis upon which the court could assess whether the remuneration requested is fair.
- The court was not satisfied that a percentage fee of 20% would not result in disproportionately high remuneration.
Lord Braid concludes “if the court is being asked to fix the liquidator's remuneration, that requires to be done at the appropriate time, which is not now; a decision can only be reached in the future, in light of all the circumstances."
Comment
It is good to see a pragmatic and sensible approach being taken by the court. The opinion will provide welcome clarity on procedural aspects for those seeking court winding-up following administration. It also sets out in clear terms the scope of the court’s powers in relation to advance remuneration requests.
