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Cite as: [2002] ScotCS 327

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Scotatlas Ltd, Re discharge of provisional liquidator [2002] ScotCS 327 (24 December 2002)

OUTER HOUSE, COURT OF SESSION

P276/02

OPINION OF LORD NIMMO SMITH

in Note of

GERALD IAN RANKIN, C.A. liquidator of SCOTATLAS LIMITED, and the former provisional liquidator of that company

Noter;

for

discharge as provisional liquidator and interim remuneration as liquidator

________________

Noter: Sellar, Q.C., DLA

24 December 2002

The Noter is the present liquidator, and former provisional liquidator, of Scotatlas Limited ("the Company"), a company incorporated under the Companies Acts with its registered office at Block 1, Caldwell Industrial Estate, Lanark. He was appointed provisional liquidator of the Company by interlocutor dated 5 February 2002 in terms of section 135 of the Insolvency Act 1986 ("the 1986 Act") and Part 4, Chapter 1, of the Insolvency (Scotland) Rules 1986 ("the Insolvency Rules"). By interlocutor dated 27 February 2002 it was ordered that the Company be wound up by the Court and the Noter was appointed as its interim liquidator, all in terms of the 1986 Act and the Insolvency Rules. The Noter was confirmed as liquidator of the Company at a meeting of its creditors held on 8 April 2002, in terms of section 138 of the 1986 Act. No liquidation committee in terms of section 142 of the 1986 Act was appointed at that meeting.

In the present application, the Noter seeks (i) orders relating to his discharge as provisional liquidator and (ii) in the absence of a liquidation committee, orders relating to his interim remuneration and outlays (including his account for legal services) for the period when he acted as interim liquidator. I have already pronounced an interlocutor dealing with some of these matters, with which this Opinion is not concerned. I have made avizandum as regards head (vi) of the application, which is in these terms:-

"(vi) To find that on a correct interpretation of section 53(2A) of the Bankruptcy (Scotland) Act 1985 (as applied to the liquidation of the Company by Rules 4.32(1) and 46.8(1) of the Insolvency (Scotland) Rules 1986) that the Noter may pay, without submitting it for taxation, any account which the Noter has incurred in respect of legal services; failing which finding, to remit to the Auditor to tax the account which the Noter has incurred in respect of legal services for [the accounting period from 4 February until 3 August 2002] ...."

Senior counsel for the Noter, in a helpful submission, indicated that difficulty had been encountered in the interpretation of the relevant statutory provisions and invited me to write the present Opinion for the assistance of liquidation practitioners.

The first task is to establish the text of the relevant statutory provisions. This is not as easy as might be hoped. Section 53 of the 1985 Act was amended by the Bankruptcy (Scotland) Act 1993. It and other provisions of the 1985 Act apply in relation to the liquidation of a company as they apply in relation to a sequestration of a debtor's estate, in terms of Rule 4.68(1) of the Insolvency Rules, subject to the modifications specified in Rules 4.16(2) and 4.32(2) and (3) and to any other necessary modifications. The relevant subsections of section 53, as so modified, are as follows:

"(1) Within two weeks after the end of an accounting period, the liquidator shall, in respect of that period, submit to the liquidation committee or, if there is no liquidation committee, to the court -

(a) his accounts of his intromissions with the company's assets for audit and, where funds are available after making allowance for contingencies, a scheme of division of the divisible funds; and

(b) a claim for the outlays reasonably incurred by him and for his remuneration;

and, where the said documents are submitted to the liquidation committee, he shall send a copy of them to the court.

(1A) The liquidator may, at any time before the end of an accounting period, submit to the liquidation committee (if any) an interim claim in respect of that period for the outlays reasonably incurred by him and for his remuneration and the liquidation committee may make an interim determination in relation to the amount of the outlays and remuneration payable to the liquidator and, where they do so, they shall take into account that interim determination when making their determination under subsection (3)(a)(ii).

(2) Subject to subsection (2A) below, all accounts in respect of legal services incurred by the liquidator shall, before payment thereof by him, be submitted for taxation to the auditor of the court before which the liquidation is pending.

(2A) Where -

(a) any such account has been agreed between the liquidator and the person entitled to payment in respect of that account (in this subsection referred to as the 'payee');

(b) the liquidator is not an associate of the payee; and

the liquidator may pay such account without submitting it for taxation.

(3) Within six weeks after the end of an accounting period -

(a) the liquidation committee or, as the case may be, the court -

(i) may audit the account; and

(ii) shall issue a determination fixing the amount of the outlays and the remuneration payable to the liquidator; and

(b) the liquidator shall make the audited accounts, scheme of division and the said determination available for inspection by the company and the creditors."

The expression "accounting period" is defined in section 52(2) (as modified), and the expression "associate" is defined in section 74.

Counsel explained that the question which has arisen is whether, on a correct interpretation of section 53(2A), where an account in respect of legal services incurred by a liquidator has been agreed between the liquidator and the solicitors entitled to payment in respect of that account, the liquidator is not an associate of the solicitors, and there is no liquidation committee to determine whether or not the account should be submitted for taxation, the liquidator may pay such account without submitting it for taxation. Counsel said that in the course of his research he had not found any directly relevant material. He referred to passages in Hansard and a commentary by Professor McBryde, neither of which was directed to liquidations as distinct from sequestrations. He accepted that on a literal interpretation of the subsection, if there is no liquidation committee to determine whether or not the account should be submitted for taxation, it is not open to the liquidator to pay the account without submitting it for taxation. He suggested, however, that it might be implied in the subsection that paragraph (c) only applies if a liquidation committee has been established.

In my opinion, although section 53(2A) (as modified) might have been more happily expressed, it is sufficiently clear that the intention is that, if no liquidation committee has been established, the liquidator may not pay the solicitors' account without submitting it for taxation. Subsections (1), (1A) and (3) all contain provisions as to what is to happen, depending on whether or not there is a liquidation committee. Subsection (1A) (in particular) uses the expression "the liquidation committee (if any)", and if there is no liquidation committee there can be no interim determination in terms of that subsection. It would be anomalous if subsection (2A) were to permit payment of the solicitors' account in circumstances where it could not be paid under subsection (1A). It is because the liquidation committee provides a safeguard that certain matters may be left for its decision, as in subsection (1A). If it were to be implied in subsection (2A) that paragraph (c) only applies if there is a liquidation committee, so that if there is not the liquidator may nevertheless pay the solicitors' account without submitting it for taxation, there would be no independent check on the account. While there is no suggestion that this is such a case, it is not difficult to think of a hypothetical case where the relationship between a liquidator and his solicitors, while not falling within the definition of "associate" in section 74, may nevertheless be such as to make external scrutiny of their account desirable. There therefore appear to me to be sound reasons of policy for favouring the literal construction of section 53(2A). In the absence of a liquidation committee, a liquidator's solicitors' account must be submitted for taxation by the Auditor of Court.

For these reasons I shall dispose of head (vi) of the Note by remitting to the Auditor of Court to tax the account which the Noter has incurred in respect of legal services for the accounting period from 4 February until 3 August 2002.