England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		26/04/2012

The Chancellor :

Introduction
1. Paragraph 99 of Schedule B1 to the Insolvency Act 1986, so far as relevant, provides:

"Vacation of office: charges and liabilities

99 (1) This paragraph applies where a person ceases to be the administrator of a company (whether because he vacates office by reason of resignation, death or otherwise, because he is removed from office or because his appointment ceases to have effect).

(2) In this paragraph—

"the former administrator" means the person referred to in sub-paragraph (1), and

"cessation" means the time when he ceases to be the company's administrator.

(3) The former administrator's remuneration and expenses shall be—

(a) charged on and payable out of property of which he had custody or control immediately before cessation, and

(b) payable in priority to any security to which paragraph 70 applies.

(4) A sum payable in respect of a debt or liability arising out of a contract entered into by the former administrator or a predecessor before cessation shall be—

(a) charged on and payable out of property of which the former administrator had custody or control immediately before cessation, and

(b) payable in priority to any charge arising under sub-paragraph (3).

[(5)

(6)]"

2. MK Airlines Ltd ("MKA") was incorporated in England on 14th March 1990. It carried on business as a cargo airline from premises at Landhurst, Hartfield, East Sussex. On 10th June 2008 the directors of MKA appointed the first three respondents, partners in a firm called Bridge Business Recovery, to be administrators of MKA pursuant to paragraph 22(2) Schedule B1 to the Insolvency Act 1986. I shall refer to them collectively as the Bridge Administrators. On 9th March 2009 the Bridge Administrators, were replaced by the fourth and fifth respondents, two partners in Grant Thornton ("the GT Administrators"). Such replacement constituted a "cessation" for the purposes of paragraph 99 and gave rise to the charge for which that paragraph provides over "…property of which [the Bridge Administrators] had custody or control immediately before cessation…".
3. By order of Registrar Jaques made on 24th June 2009 the appointment of the GT Administrators ceased to have effect and they were discharged from liability. That order was made on the basis of undertakings given by the eighth respondent, Transatlantic Aviation Ltd ("TAL") and in the belief that MKA was then solvent. One consequence of the Registrar's order was a further cessation for the purposes of paragraph 99 and a charge over "…property of which [the GT Administrators] had custody or control immediately before cessation…".
4. MKA ceased to carry on business in early 2010. A petition to wind it up was presented by a creditor on 12th April 2010. The GT Administrators were, on their own application, appointed as provisional liquidators by Lewison J on 22nd June 2010. On 6th October 2010 Lewison J made an order for the compulsory winding up of MKA on the creditor's petition presented in April and, on their application, appointed the GT Administrators as receivers pending the appointment of liquidators. The applicants, respectively a partner in David Rubin & Partners LLP and a partner in Carter Backer Winter LLP, were, on 11th October, appointed liquidators of MKA ("the Liquidators") with effect from 7th October 2010.
5. The application now before me was issued by the Liquidators on 15th August 2011. The respondents are the Bridge Administrators and the GT Administrators. The sixth and seventh respondents are the administrators of MK Airlines Property Ltd ("MKAP"), having been appointed as such by Bank of Scotland on 7th July 2010. That company was the landlord of MKA in respect of its principal place of business at Landhurst, East Sussex and a creditor of MKA for rent due from before the commencement of the Bridge Administration down to the alleged disclaimer of the lease made by the Liquidators on 24th March 2011. The eighth respondent is TAL, the holding company of MKA. It was joined at its request on 14th September 2011. There is no respondent who is an unsecured creditor of MKA unconnected with any other party.
6. The relief sought by this application was considered by Deputy Registrar Garwood. By his order made on 14th September 2011 he directed that the following issues be determined by a judge, namely:

"1. Whether the Applicants should treat the charge or charges arising in respect of assets of the Company under paragraph 99 of Schedule B1 to the Insolvency Act 1986 ("Para 99) in the manner proposed at paragraphs 45 to 50 of Mr Katz's 3rd Statement or in some other manner (and if so, in what manner), and in particular whether the following assets are or are not subject to a charge under Para 99:

(a) The US$200,000 forfeited exclusivity payment.

(b) The business rates refund.

(c) The ENB monies.

(d) The Halifax deposit.

(e) The fuel company credit balances.

(f) The VAT refunds.

2. Whether the Court should direct that the Applicants:

(a) Have the powers in respect of the Para 99 Assets of liquidators in a winding up by the court.

(b) Should invite persons claiming to be entitled to a charge or charges under Para 99 to lodge proofs of such claims and should administer such proofs as if they were proofs of debt in a liquidation (Chapter 9 of Part 4 of the Insolvency Rules applying as required).

3. Whether the Applicants should be allowed a sum for remuneration on account and if so, what sum."

By her order made on 29th February 2012 Registrar Barber added the following:

"4. Whether the costs of the provisional liquidation of the Company should also be met out of the Paragraph 99 Assets."

Property and priorities under the paragraph 99 charge(s)
7. The paragraphs in the affidavit of Mr Katz referred to in the first of those issues indicates the nature of the advice received by the Liquidators. He seeks directions whether the Liquidators should continue to administer the assets of MKA on the basis of that advice in three particular respects. They are, in summary, (a) whether there is one paragraph 99 charge or two, (b) what are their relative priorities and (c) what properties are subject to them?
8. In my view it is evident from the terms of paragraph 99 that a charge arose on the cessation of the Bridge Administration and again on the cessation of the GT Administration. As those events occurred on, respectively, 9th March and 24th June 2009, the property comprised in each charge may not be identical as MKA may have acquired or disposed of property in the intervening three months. In addition it is plain from paragraph 99(3) that the amounts secured by each charge are different in that the Bridge Charge secures the Bridge Administrators' remuneration and expenses and the GT Charge that of the GT Administrators. It follows, and was not disputed before me, that there were and are two paragraph 99 charges; depending on the date of any particular asset's acquisition or disposal it may be comprised in both of them.
9. Their priorities inter se are laid down by the order of creation of the two charges, the terms of paragraph 99(3) and (4) and Insolvency Rule 2.67. Thus the Bridge Charge has priority over the GT charge. Within each charge the debts or liabilities referred to in sub-paragraph (4) have priority over the administrator's remuneration and expenses referred to in sub-paragraph (3). Though remuneration is referred to before expenses their priorities inter se are laid down by Insolvency Rule 2.67, but subject to the discretion of the court under sub-paragraphs (2) and (3). In accordance with that rule, which, as provided by sub-paragraph (4), enumerates the expenses to which paragraph 99(3) applies, the administrator's remuneration fixed under Chapter 11 comes eighth.
10. It follows that there are essentially four classes of creditor (1) Bridge Administration creditors within paragraph 99(4), (2) Bridge Administrators' expenses and remuneration within Insolvency Rule 2.67, (3) GT Administration creditors within paragraph 99(4) and (4) GT Administrators' expenses and remuneration within Insolvency Rule 2.67. Creditors in each class, including sub-classes under IR 2.67, would be paid in full if the assets subject to that charge were sufficient, or pari passu if they were not. Only the surplus, if any, would be available for the next class or sub-class. Although the first and third classes are distinct, creditors within the first are likely also to be within the third as paragraph 99(4) includes debts etc arising from contracts made with a predecessor (administrator) of that administrator. If the assets subject to the paragraph 99 charges were insufficient to pay all those entitled thereto then such creditors would be entitled to prove as unsecured creditors in the general winding up. It may be that issues in relation to marshalling will arise. They will have to be dealt with on their merits if and when they do.
11. The principal issue on this part of the application is the proper interpretation and application of that part of paragraph 99 as imposes the charge on "property of which [the administrator] had custody or control immediately before cessation". The word "property" is defined in s.436 Insolvency Act 1986, subject to the context, as including:

"money, goods, things in action, land and every description of property wherever situated and also obligations and every description of interest, whether present or future or vested or contingent, arising out of, or incidental to, property;"

12. Counsel for the Liquidators contended that the formula "custody or control" necessarily constituted a sub-category of all the property, as defined, of the company at the time of cessation. He suggested that the qualification for that sub-category is that the administrator should have taken the necessary steps to obtain that custody or control of any specific item of property to which it is amenable. He suggested that a car in a locked garage in another city or a claim for a refund of which the administrator is unaware could not be property of which the administrator had custody or control. I did not understand his submission to go so far as to require that such custody or control should have been fully obtained; only that the administrator should have done something to achieve that state of affairs.
13. This submission was opposed by all the respondents on the ground that such a construction was unworkable, inequitable and unwarranted by the words of paragraph 99 or authority. It was said to be unworkable because it is too imprecise. How much control is required? In relation to, for example, a chose in action what control is required over and above its enforceability? If some action is required to be taken by the administrator, how much? It was said to be inequitable, not only because of its imprecision but also because the property rights of those entitled to the benefit of the charge would depend on the diligence and priorities of the administrator. It was said to be unwarranted partly because of its statutory derivation and partly because of a dictum of Lord Diplock in Ayerst v C & K (Construction) Ltd [1976] AC 167, 177. In that passage Lord Diplock considered the effect of an order for compulsory winding up of a company. He said that upon the making of the order:

"(1) The custody and control of all the property and choses in action of the company are transferred from those persons who were entitled under the memorandum and articles to manage its affairs on its behalf, to a liquidator charged with the statutory duty of dealing with the company's assets in accordance with the statutory scheme (section 243). Any disposition of the property of the company otherwise than by the liquidator is void (section 227)."

That is to be contrasted with the reference in the next paragraph to the statutory duty of the liquidator to collect the assets of the company and to apply them in the discharge of its liabilities.

14. I prefer the submissions for the respondents. First, the concept of a liquidator or other fiduciary taking custody or control of an asset is of long standing and in the nature of a term of art. S.94 Companies Act 1862 required the liquidator to "take into his..custody or under his..control the property, effects and things in action to which the company is or appears to be entitled". In the event of a vacancy in the office of liquidator "the property of the company shall be deemed to be in the custody of the court", s.92. Similar terminology is to be found in s.150 Companies (Consolidation) Act 1908 and Companies Act 1948. The equivalent provision is now contained in s.144 Insolvency Act in these terms:

"When a winding-up order has been made, or where a provisional liquidator has been appointed, the liquidator or the provisional liquidator (as the case may be) shall take into his custody or under his control all the property and things in action to which the company is or appears to be entitled."

By contrast s.143 imposes on the liquidator the function:

"to secure that the assets of the company are got in, realised and distributed to the company's creditors"

Similarly paragraph 67 of Schedule B1 requires the administrator on his appointment to "take custody or control of all the property to which he thinks that the company is entitled".

15. The contrast is not between having and not having custody or control but between the custody or control of the directors and that of the liquidators or administrators. This contrast is apparent in the passage from the speech of Lord Diplock I have already quoted. In addition I accept the other submissions of the respondents on this point. If it were necessary for the administrators to have taken some steps to obtain custody or control of the item of property in question there would be much uncertainty. And why should the property rights of chargees depend on the diligence, choice or order of priorities determined by the administrator. In all cases the property right remains vested in the company but its custody and control passes from the directors to the administrators or liquidators on appointment and without the need for any further action on their part.
16. That being the test I turn to consider the specific assets referred to in the order of Deputy Registrar Garwood quoted in paragraph 6 above. It is now accepted by all parties that the ENB monies, the VAT refunds, and the fuel company credit balances did not fall within either of the paragraph 99 charges. Accordingly, they are part of what in argument was called "the free pool". By contrast it was accepted by all that the Halifax deposit is subject to one or more paragraph 99 charges and is therefore comprised in "the paragraph 99 pool". The dispute remains in relation to the $200,000 exclusivity deposit and the business rate refund.
$200,000 Exclusivity Deposit
17. At all material times MKA had what have been called 'aviation assets'. They comprised, for example, reconditioned aero engines and spare parts. It is common ground that those assets were subject to either or both the paragraph 99 charges and are therefore part of the paragraph 99 pool. Initially they were valued at $4.9m. That price was unobtainable. In February 2011 expressions of interest were received by the Liquidators from TAL. TAL indicated a willingness to buy the aviation assets for $1,590,000 but required a period of exclusivity within which to continue their investigations and negotiations with the Liquidators. By a letter dated 25th February 2011, countersigned by way of acceptance on behalf of TAL on 1st March 2011, the Liquidators agreed:

"In consideration of a deposit of $200,000 USD…and entering into or continuing negotiations relating to the proposed purchase we undertake not to solicit interest from, or enter into any negotiations with, any other party in relation to the sale of the [aviation assets] from the date of this letter until…"

Paragraph 3 provided that the deposit was not refundable. On 23rd March 2011 Vos J gave authority to the Liquidators to sell the aviation assets to TAL for $1,590,000. That sale did not proceed and the Exclusivity Deposit was forfeited by MKA. Ultimately the aviation assets were sold to TAL for $850,000.

18. The Liquidators contend that the deposit was paid long after both cessations and by way of payment for an advantage provided to TAL by the Liquidators. As such, they contend, the sum of $200,000 did not fall within the scope of any paragraph 99 charge. Alternatively they seek to draw an analogy with the income of property subject to a mortgage. In the absence of any express provision the mortgagor is entitled to the income unless and until the mortgagee takes possession. Accordingly, they claim to retain this sum as part of the free pool available for distribution amongst all the company's creditors.
19. The respondents disagree. They contend that the deposit arose from the aviation assets which themselves were subject to the paragraph 99 charges and part of the paragraph 99 pool. They submit that the period of exclusivity, though allowed by the Liquidators, was in respect of the aviation assets and, no doubt, formed part of the notional purchase price TAL was prepared to pay. They point out that had it not been for the availability of the aviation assets there would have been no occasion to seek, let alone pay $200,000 for, a right of exclusivity.
20. I accept the submissions for the respondents. The underlying commercial reason for the deposit being made in the first place is clearly and inextricably linked to the aviation assets. The analogy with the income of mortgaged property is either not sufficiently close or points in the opposite direction because the deposit was not, in any sense, income of the aviation assets. I would go further and accept that the deposit was in substance part of the purchase price for the assets. Clearly it was from the view point of the prospective purchaser. From the view point of the prospective vendor it constituted a product of the exploitation of the aviation assets. The idea that it was somehow just a payment for an advantage provided by the liquidators from the free resources of the company lacks commercial sense. Accordingly, I will declare that the US$200,000 deposit was and is an asset subject to the paragraph 99 charges and comprised in the paragraph 99 pool.
Business Rates Refund
21. On 11th March 2011 the Liquidators received three cheques from the South Gloucester Council for £967,513. This was a refund of business rates for all periods since April 2005. The covering letter indicated that the amounts and periods to which they related were:

£602,579	1st April 2005 to 9th June 2008
£233,583	10th June 2008 to 23rd June 2009
£130,990	All periods since 23rd June 2009

It is agreed that the refund for all periods since 23rd June 2009 could not have been within the custody or control of either set of administrators. Accordingly the sum of £130,990 is not within the scope of either paragraph 99 charge and falls to be dealt with as part of the free pool to be administered by the Liquidators. The dispute relates to the first two payments.

22. The covering letter from the South Gloucester Council merely states that:

"The hereditament described as [the company's property] was recently transferred from the South Gloucester rating list to the Bristol City Council rating list…This was due to an error on the part of the Bristol Valuation Office in determining within which authority the assessment was situate. As a result of this transfer South Gloucester Council is refunding monies to [the company] in respective of the non-domestic rates paid for the year 2005 onwards."

The letter then set out the period and amounts as shown above. The letter concluded:

"Due to the status of the company, these monies are being refunded to MK Airlines Ltd, care of Grant Thornton UK LLP, rather than being transferred to Bristol City Council. That authority will, no doubt, have submitted a claim against the company for the debt now due to them."

23. This is the only evidence in relation to the business rates refunds. It is insufficient to determine the answer to whether any part of the rates refunded were within the custody or control of either set of administrators. In those circumstances I am asked to indicate the relevant test in the hope that the parties can then agree amongst themselves whether the first two amounts are subject to either of the paragraph 99 trusts. For the reasons I have given I conclude that the relevant test is legal entitlement to the refunds regardless of what, if any, steps have been taken to recover them. If the right to the refund had arisen before the two cessations then the amounts thereof are within the scope of the paragraph 99 charges. If it did not arise until after 24th June 2009 then they are not.
24. In my view that is the position as between the parties to this application, but Bristol City Council is not a party. I am told that it has submitted a proof of debt in the liquidation of the company as an unsecured creditor but now claims to be entitled to the benefit of one or both paragraph 99 charges. Accordingly, the claims of Bristol City Council must be resolved before any part of the refunds in issue are applied either as part of the paragraph 99 pool or as part of the free pool.
Powers of the Liquidators over the Paragraph 99 assets
25. It is a surprising fact that although Schedule B1 makes extensive provision for administrations and paragraph 99 thereof creates the charges I have been considering, the Act and Schedule are entirely silent as to the consequences if a paragraph 99 charge is created but not duly discharged. The powers of a liquidator set out in Schedule 4 Insolvency Act 1986 are conferred on liquidators by ss.165 to 167 in respect of the company's assets generally. It is suggested that this does not enable liquidators to deal with assets within the scope of the paragraph 99 charges except with the consent of all the chargees. The position is tested by reference to administrators being discharged and control of the company being resumed by the directors. In those circumstances, if the sums secured by the paragraph 99 charge have not been paid enforcement of the charge cannot be left to the directors.
26. In my view the charges imposed by paragraph 99 are enforceable, if no other means are available, by the appointment of a receiver. On such an appointment his powers and remuneration would be fixed by the court. I see no reason why, in that event, powers should not be conferred on the receiver by reference to those set out in Schedule 4 to the Insolvency Act. Accordingly it is unnecessary to determine whether the powers conferred on the Liquidators by Schedule 4 are exercisable by the Liquidators in relation to assets subject to the paragraph 99 charges if the jurisdiction of the court in respect of receivers is exercised so as to confer the same powers on the Liquidators in respect of assets subject to those charges. In the course of argument I indicated my concern that instances where a conflict of interest may arise between chargees and ordinary unsecured creditors should be recognised and dealt with appropriately. Counsel for the applicants has produced an amended draft order requiring an application to the court in such a case. That is, in my view, appropriate and sufficient.
27. The Liquidators also seek appropriate powers and authority to apply Chapter 9 of the Insolvency Rules concerning proofs and quantification of claims to those claiming to be entitled to the benefit of a paragraph 99 charge. That is obviously sensible and was not opposed. Accordingly, in exercise of the like jurisdiction, I will make the direction sought.
Costs of the Provisional Liquidation
28. It is convenient to consider this issue next. As I have indicated it was added by the order of Registrar Barber made on 29^th February 2012. The costs of the GT Administrators as provisional liquidators from 22^nd June to 6^th October 2010 are claimed in the sum of £1,385,098 of which £468,043 is claimed as time cost remuneration. Normally the costs of a provisional liquidation are payable as an expense of the liquidation in the order of priority prescribed by Insolvency Rule 4.218. In accordance with that rule the costs are payable out of the assets of the company available for payment of general creditors (see IR 4.218(2)(a)) and in the order prescribed by IR 4.218(3). Thus, absent some other order, the costs of the provisional liquidation will not be payable from the assets subject to the paragraph 99 charges in priority to those entitled to such charges.
29. Mr Katz, the first applicant, exhibited estimated outcome statements to his sixth witness statement made on 21^st January 2012 in which he debited all the costs of the provisional liquidation to the assets in the paragraph 99 pool. On this basis there is a deficiency in that pool of £354,395 but a credit balance in the free pool of £914,789. If the debit of the costs of the provisional liquidation is mistaken then the position is a credit on the paragraph 99 pool of £1,030,703 and a debit on the free pool of £470,309. (I leave out of account for the moment the other reattributions or deletions to the statements suggested by one or more respondents.)
30. The GT Administrators contend that the debit of the costs of the provisional liquidation to the paragraph 99 pool is justified by the principles established in Re Berkeley Applegate (Investment Consultants) Ltd No.2 [1989] Ch 32 as exemplified in their application by Briggs J in Re Sports Betting Media [2008] BCC 177. The former concerned a company which invested clients' money in first mortgages of freehold property. The benefit of the mortgages and clients' deposits were held in trust for the clients. The company went into liquidation. The costs thereof were likely to exceed the value of the free assets of the company. The liquidators sought directions as to whether they might discharge any part of the costs and remuneration out of the money held on trust for the clients.
31. Mr Edward Nugee QC, sitting as a deputy High Court judge, held that they could. At page 50 he said:

"The authorities establish, in my judgment, a general principle that where a person seeks to enforce a claim to an equitable interest in property, the court has a discretion to require as a condition of giving effect to that equitable interest that an allowance be made for costs incurred and for skill and labour expended in connection with the administration of the property. It is a discretion which will be sparingly exercised; but factors which will operate in favour of its being exercised include the fact that, if the work had not been done by the person to whom the allowance is sought to be made, it would have had to be done either by the person entitled to the equitable interest (as in In re Marine Mansions Co., L.R. 4 Eq. 601 and similar cases) or by a receiver appointed by the court whose fees would have been borne by the trust property (as in Scott v. Nesbitt, 14 Ves. Jun. 438); and the fact that the work has been of substantial benefit to the trust property and to the persons interested in it in equity (as in Phipps v. Boardman [1964] 1 W.L.R. 993). In my judgment this is a case in which the jurisdiction can properly be exercised."

32. In Re Sports Betting Media [2008] BCC 177 one set of administrators had replaced another. The second set sought to recover their costs and remuneration from the assets subject to the paragraph 99 charge arising on the cessation constituted by the replacement. Such costs had been incurred only in giving effect to the paragraph 99 charge so arising. Briggs J acceded to the application on the basis that (para 11):

"[Counsel] is right to seek to have the Berkeley Applegate principle applied to the position of administrators who, when taking office after the cessation of former administrators, find that they are, whether they realised it previously or not, in the position of having to administer and execute the terms of the statutory charge created by sch B1, para 99(4). It seems to me, as a matter of common sense, justice and equity, only right that the beneficiaries of that charge should have to pay collectively a reasonable sum towards the cost of having it executed in their favour against the company's assets."

33. The Liquidators and the GT Administrators submit that that principle applies in this case. The witness statement made by Mr Hellard, the fourth respondent, on 21^st June 2010 to support his application for appointment as provisional liquidator sets out in detail relevant events following the cessation of the GT Administration and the concerns to which they gave rise. In paragraph 57 he stated:

"The ground on which this application is made is that there is a real concern that certain of the assets which are secured by the statutory charge are in jeopardy. The reasons why Mr Hosking and I have reached that conclusion are set out in more detail below."

I assume that the words "secured by" are a mistake for "subject to". I have also seen a witness statement made by Mr Hellard on 20^th September 2010 describing what he and his co provisional liquidator had been doing in that capacity. In his 7^th witness statement made on this application on 6^th March 2012 Mr Hellard confirms in paragraph 6 that he and Mr Hosking had been appointed to preserve the assets not to put MKA in a position where it could recommence trading.

34. In these circumstances counsel for the Liquidators invites me to accept that a substantial proportion of the costs of the provisional liquidation were incurred in preserving assets in the paragraph 99 pool and should be paid out of the assets subject to those charges. Seemingly, if they were they would be payable in accordance with the priority provided in paragraph 99(4) and IR 2.67. He also accepts that not all the costs and remuneration claimed by the GT Administrators in relation to the provisional liquidation are so attributable. He suggests that I should undertake what he described as a summary apportionment and attribute 90% to the preservation of the assets in the paragraph 99 pool and the remaining 10% to the free asset pool.
35. Mr Duncan accepted that the total costs of the provisional liquidation should be apportioned as suggested but that it should be properly processed, not by so summary and arbitrary a manner as suggested. Mr Oldham did not oppose the principle of allowing some of the costs of the provisional liquidation out of the paragraph 99 pool but, like Mr Duncan, considered that they should be properly assessed. Counsel for the GT Administrators supported the submissions of counsel for the applicants. He also accepted that some of the costs of the provisional liquidation are attributable to protecting and realising assets in the free pool. He did not dissent from the suggestion that 90% of the costs of the provisional liquidation were attributable to the preservation of assets in the paragraph 99 pool. Counsel for the administrators of MKAP supported the submissions of counsel for the Liquidators but suggested that the proportion attributable to the paragraph 99 pool should be only 65%. He based this on the comparative value of the assets in the respective pools, but he arrived at those values by substantially rewriting the estimated outcome statements produced by Mr Katz.
36. Counsel for TAL opposed any part of the costs of the provisional liquidation being paid out of the paragraph 99 pool. He pointed out that the GT Administrators had had themselves appointed as provisional liquidators, not receivers. He submitted that in those circumstances they had their remedies and priorities provided for by Insolvency Rules 4.30 and 4.218. He pointed out that the amounts claimed are huge; he suggested that the benefit to those interested in the paragraph 99 pool is merely consequential on the actions of those who had been appointed only as provisional liquidators; he suggested that there was insufficient material before the court to make any determination, let alone a summary one.
37. The suggestion that merely consequential benefit is not sufficient is based on a decision of the Court of Appeal in Re Regents Canal Ironworks (1875) 3 Ch App 411. In that case the previous owner of the business of the company lent money to the company, by then in liquidation, for the payment of rent, rates, wages and other outgoings connected with the running of the company's business. The lender sought repayment in priority to debts due to a debenture holder. Such priority was refused. In the course of argument it was suggested that in so far as the loan was applied in payment of rent and taxes it was paid by way of salvage because otherwise the lessor would have re-entered. That claim was rejected too. At page 421 James LJ said:

"...it is suggested that what Grissell has paid for rent and taxes during that time was paid by way of salvage, because the lessor would have entered for a forfeiture if he had not paid these debts. It does not appear whether that would be so or not, but in truth these payments of rent and taxes were made as part of the current outgoings of the business when he was managing the business under those agreements, and of course would be outgoings to which the very first receipts from the business would be applicable. I am of opinion, therefore, that he paid those sums, not on behalf of the debenture holders, not for the purpose of securing the debenture holders anything, but merely as part and parcel of the management which he was carrying on under the agreement that he made. That being so, it appears to me that there is no claim which he can sustain against the mortgagees for payment of those sums."

The judgments of Mellish and Baggallay LJJ and Brett J were to the like effect.

38. I do not think that the principle of that case is applicable to the facts of this. The GT Administrators sought and obtained appointment for the purpose of protecting the assets in both the paragraph 99 and free pools. That is what they did. The fact that they were appointed as provisional liquidators and not receivers cannot alter the purpose of their appointment or subsequent actions. In my view the GT Administrators are entitled to some part of the costs of the provisional liquidation as costs of the paragraph 99 charges. If I follow the course suggested by Mr Duncan and Mr Oldham of directing the Registrar to assess which costs should be attributable to which pool substantial further costs will be incurred to the advantage of few. Nevertheless, if the GT Administrators fail to provide the evidence on which I can make a proper assessment then the risk of error must fall on them in the sense that any summary apportionment I make should err of the side of caution.
39. In these circumstances I will make a summary apportionment. I do not accept the substantial rewriting of the estimated outcome assessments made by counsel for the administrators of MKAP. Many of the grounds for making them are speculative. In any event the comparative value of the net assets in each pool as at 31^st December 2011 is not a reliable guide as to what proportion of the total costs incurred between 22^nd June and 6^th October 2010 and amounting, as claimed, to £1,385,098 were incurred in preserving or realising property in the paragraph 99 pool. Accordingly I reject the submission that the appropriate proportion is 65%. On the other hand I consider that 90% is too much bearing in mind the need for caution. Doing the best I can and having in mind what Mr Hellard has stated in his witness statements to which I have referred, on which he was not cross-examined, I consider that the appropriate proportion is 75% or for simplicity, if the amount claimed is correct, £1,040,000.
The Liquidators' Remuneration
40. The principle that the Liquidators should be entitled to recover their remuneration for services rendered in the preservation, realisation and eventual distribution of property in the paragraph 99 pool is not in dispute. As at 31st December 2012 they had, on a time charge basis, accrued remuneration of £455,088 since the commencement of the winding up none of which has been paid. They now seek to establish a right to such remuneration on a time charge basis and to a payment on account of £227,544. The order they seek goes further than a mere payment on account. It would provide that

"such payment [of £150,000] shall not be refundable and to that extent the said costs shall be afforded, if it prove necessary, priority."

There are two issues (1) whether the Liquidators are entitled to charge on a time basis and (2) whether they should be entitled to do so on those terms. I will deal with them in that order.

41. The fixing of the remuneration of liquidators is dealt with in Insolvency Rules 4.127 to 4.131. IR 4.127 establishes that a liquidator is entitled to receive remuneration for his services as such on the basis of scale charges or time charges. In the ordinary case it is for the liquidation committee, or if none, a meeting of creditors to fix the basis. If his remuneration is not fixed by any of those procedures within 18 months of his appointment then, in accordance with IR 4.127(6), IR 4.127A applies. That rule prescribes scale rates only. IR 4.127B deals with cases in which the liquidator realises assets on behalf a secured creditor. Sub-paragraphs (2) and (3) make different provision according to whether the security "when created" was a fixed or floating charge. In either case remuneration is to be ascertained by applying a scale or scales. Under IR 4.130 where a liquidator's remuneration has been fixed by one or other of the processes for which IR 4.127 applies the liquidator may apply to the court to change the basis of assessment or the amount of his remuneration if he considers them to be insufficient or inappropriate. Finally IR 4.131A allows a liquidator, in prescribed circumstances, and in the event of a material and substantial change in circumstances to apply to the court for a change in the basis for fixing his remuneration.
42. Following their appointment the Liquidators entered into correspondence with the GT Administrators seeking agreement for remuneration out of the paragraph 99 pool in respect of their costs of preserving, realising and distributing such assets. Agreement was reached for the payment of scale remuneration in respect of one asset and on "an interim basis" in relation to all others. This was against the background of aviation assets thought to be worth US$4.9m and a litigation claim said to be worth $10m. Neither forecast was accurate. The aviation assets fetched only $850,000 when sold to TAL and the litigation claim was settled on the basis of no payment. It is not now suggested that the Liquidators are contractually bound to the scale charges then agreed but it is denied that the Liquidators are entitled to charge on anything other than a scale basis.
43. The Liquidators' application was opposed by Mr Duncan and Mr Oldham. They thought that the Liquidators should be kept to their bargain, even if the agreements were not legally binding, and be paid only in accordance with the appropriate Insolvency Rule. The GT Administrators, the Administrators of MKAP and TAL all contended that IR 4.127B applies to impose scale rates on the footing that the paragraph 99 charges are fixed or floating charges. They submitted that neither IR 4.130 or 4.131A applied so as to permit an alteration in the basis of charging remuneration or its amount.
44. I do not accept those submissions. First, IR 4.127B only applies to cases in which it can be said that the liquidators have realised assets for a secured creditor "under a charge which when created was a [fixed or floating] charge". The paragraph 99 charges were not "created" in that sense as a charge of either description. They were imposed by statute on the occurrence of a prescribed event. Such a charge does not fit the description of either a fixed or floating charge. Accordingly, IR 4.127B does not apply. Second, the Liquidators are seeking remuneration in part on the basis of the principle enunciated in Re Berkeley Applegate (Investment Consultants) Ltd No.2 in relation to the assets in the paragraph 99 pool and in respect of the free pool as liquidator under the rules. The first is in the discretion of the court and susceptible of increase if the court thinks fit. In this respect the position of the liquidators is analogous to that of receivers appointed to enforce a charge.
45. In relation to the second the remuneration of the Liquidators must be ascertained as prescribed by the rules. I have already concluded that IR 4.127B does not apply but, seemingly, IR 4.127(6) applied with effect from 11^th March 2012. That paragraph applies the provisions of IR 4.127A but is amenable to increase by the court under IR 4.130. I do not consider that IR 4.131A is applicable because IR 4.131A(2)(d) confers on the creditors the power to agree or not to a change. This creates a problem because, whereas the court is entitled to fix the remuneration in respect of the paragraph 99 charges I have no evidence by which to assess what proportion of the Liquidators' remuneration is attributable to the paragraph 99 charges and what proportion to the administration of the free pool.
46. In relation to the proportion attributable to the paragraph 99 charges I am prepared to authorise remuneration on the basis of time charges because it is clear that two of the assets subject to paragraph 99 charges were valued at about US$15m but realised only US$850,000. It is not suggested that the overvaluation was the fault of the Liquidators or that they should have foreseen it. I will refer to the Registrar the question of the proportions of the Liquidators' remuneration to be attributed to the two pools and whether the remuneration attributed to the free pool can and should be increased under IR 4.130 taking account of the increase I am authorising to the paragraph 99 pool.
47. This leaves the issue of payment 'on account'. This is opposed by all the respondents precisely because it is not 'on account' but 'in any event'. They all question why the Liquidators should enjoy the super-super-priority that this would involve, particularly if Mr Oldham is right when they have not got in all the assets available to the Liquidators. They consider that the Liquidators made a commercial decision to take on this liquidation and should not be rescued from the consequences at the expense of other creditors.
48. This is a formidable argument. But against that I have to recognise that the Liquidators cannot be made to work for nothing. The delay and extra expense involved in removing these liquidators and appointing the Official Receiver is likely to involve substantial delay and extra expense to all creditors. Authorising some payment so as to ensure the prompt completion of the liquidation appears to me to be the lesser of two evils. The sum of £227,544 sought by the applicants is the equivalent of one half of the all the time charges but I am unable to quantify how much the Liquidators are entitled to claim on that basis. Doing the best I can it appears to me that £75,000 would be well within the overall sum for remuneration they are entitled to seek; but the court must receive an appropriate assurance that the winding up will be completed by the Liquidators as cheaply and expeditiously as is reasonably possible. I am not prepared to authorise interim remuneration 'in any event' if the Liquidators are going to resign the next day. I invite counsel for the Liquidators to formulate the appropriate undertakings.
Summary of conclusions
49. For all these reasons:

(1) I conclude that the relevant test of custody or control to be applied pursuant to paragraph 99 Schedule B1 is entitlement to that property or to the property from which it is derived.

(2) The Exclusivity Deposit paid by TAL and forfeited by MKA is comprised in the paragraph 99 pool.

(3) I confer on the Liquidators in relation to the assets subject to the paragraph 99 charges

(a) the powers of liquidators under Schedule 4 Insolvency Act 1986 but subject to the qualification mentioned in paragraph 26 above and (b) liberty to administer the claims of persons claiming to be entitled to a debt or liability secured by such a charge as if they were debts in a liquidation and Chapter 9 of Part 4 Insolvency Rules 1986 applied to them.

(4) 75% (£1,040,000 if the assumption made in paragraph 39 is correct), part of the costs of the provisional liquidation, shall be treated as incurred in the preservation, realisation and distribution of the property subject to the paragraph 99 charges.

(5) There is referred to the Registrar the question of what proportion of the costs and expenses of the Liquidators are to be treated as referable to the preservation, realisation and distribution of (a) the property subject to the paragraph 99 charges and (b) the other assets of MKA available for distribution amongst its general creditors.

(6) The Liquidators are entitled to £75,000 in respect of their remuneration to date on terms that they give an undertaking to the court to complete the winding up of the affairs of MKA, including the enforcement and satisfaction of the paragraph 99 charges as cheaply and as expeditiously as is reasonably possible.

50. I cannot part with this application without expressing my acute concern at the prospect of further time and money being expended on what has become a dispute between insolvency practitioners as to which of them has priority over the others in respect of a fast diminishing and bankrupt estate. The interests of the creditors in respect of the paragraph 99 pool and the free pool could have been resolved more quickly and cheaply if the issues as to the costs, including remuneration, of the provisional liquidators and the liquidators had not been included, cf Re Barbour's Settlement [1974] 1 WLR 1198. I am also concerned to be told that the earliest date for the Registrar's hearing is early December 2012. This hearing should, in my view, be given much more expedition than that timetable envisages if the costs haemorrhage is to be staunched. I direct the applicants to apply for a greatly expedited hearing.
51. I will hear counsel on the terms of my order, the costs of this application and any other consequential matters when I hand down this judgment. It is not appropriate on this occasion to deal with outstanding matters on the basis of further written arguments. It will assist such consideration as is necessary if the Liquidators provide to me and the other parties in advance of the further hearing revised estimated outcome statements for the paragraph 99 pool and the free pool making the various adjustments to which my judgment will have given rise and any others which the Liquidators consider to be appropriate.