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Hyndman v. Readman [2004] ScotCS 156 (25 June 2004)

FIRST DIVISION, INNER HOUSE, COURT OF SESSION

Lord President

Lady Cosgrove

Lord McCluskey

XA103/02

OPINION OF THE COURT

delivered by THE LORD PRESIDENT

APPEAL FOR OBJECTOR AND APPELLANT

From the Sheriffdom of Glasgow and Strathkelvin at Glasgow

in the cause

CAROLE HYNDMAN

Objector and Appellant;

against

J.C. READMAN, Former Liquidator

Liquidator and Respondent:

_______

Act: Holroyd; Haig Scott & Co. (Objector and Appellant)

Alt: Robertson; Dundas & Wilson (Liquidator and Respondent)

25 June 2004

[1] On 9 January 1989 an order was made in the Sheriff Court for the winding up of R.C. Hyndman Ltd, on the ground that this was just and equitable. The appellant, at whose instance the order was made, held 5% of the shares in the company. On the same date the respondent was appointed to be interim liquidator. On 20 February 1989 at the first meeting of the creditors it was resolved that he be appointed liquidator of the company. It was also resolved that no liquidation committee should be appointed to act with him. In this case the assets of the company were realised prior to the liquidation, and the funds were advanced by the company's solicitors to the respondent after his appointment.

[2] On 18 September 1997 the sheriff remitted the account of the respondent's intromissions up to on 22 August 1997 to James D.C. McIntyre C.A., an insolvency practitioner, "to report what in his opinion is a suitable remuneration". The sheriff considered that the report which the reporter thereafter provided did not give adequate information as to the nature and extent of the remuneration sought by the respondent, and on 24 March 2000 he requested the reporter to provide a supplementary report containing a detailed breakdown of the basis for the remuneration claimed and the justification therefor. The reporter provided a revised report, in the light of which the sheriff by interlocutor dated 29 May 2002 determined the amount of remuneration to be paid to the respondent for the period, and authorised him to pay a certain fee to the reporter. The objector has appealed against that interlocutor.

[3] The respondent had provided the reporter with a summary of events which set out the duties and investigation which had been performed within various periods up to 22 August 1997, along with a summary of the time spent by him and members of his staff and the rates at which the time had been charged. This brought out a total sum of £69,405.51. The reporter stated that he had reviewed the files of correspondence, mainly relating to the investigation of the actions of the directors and the management of the company. There was no analysis of the different areas of work undertaken as such a facility was not available. However, the reporter stated that he considered that, on the basis of the information which he had been given in relation to the works carried out, the chargeable hours did not appear to be excessive. Based on his review of the files he expressed the view that the respondent had allocated suitably experienced individuals to carry out the various tasks. The rates which had been charged were the usual rates applied by his firm, and well within the range of rates charged by firms specialising in insolvency work.

[4] The reporter also stated that, on the basis of the information provided by the respondent, the investigative work which had been carried out by his staff was properly undertaken in the sense that this was necessary to try to investigate the affairs of the company. However, there was no recovery of funds and no action was taken against any director or officer of the company. The respondent through his staff had undertaken investigations at the request of shareholders in relation to the affairs of the company. However, the ability of the respondent to pursue matters was materially impaired by the state of the company's records as maintained by the directors prior to the liquidation.

[5] Section 53(3) of the Bankruptcy (Scotland) Act 1985, as applied to the liquidation of companies, by The Insolvency (Scotland) Rules 1986, provides that within six weeks after the end of an accounting period the liquidation committee or, as the case may be, the court, is to issue a determination fixing the amount of the outlays and the remuneration payable to the liquidator. This appeal is principally concerned with subsection (4) of section 53 which, as applied to liquidation, states:

"the basis for fixing the amount of the remuneration payable to the liquidator may be a commission calculated by reference to the value of the company's assets which has been realised by the liquidator, but there shall in any event be taken into account -

(a) the work which, having regard to that value, was reasonably

undertaken by him; and

(b) the extent of his responsibilities in administering the company's

assets".

[6] Mr. Holroyd, who appeared in this court for the appellant, made a number of submissions as to the significance of the terms of subsection (4). The first was that the subsection accorded primacy to a commission basis for the fixing of the amount of the liquidator's remuneration. It was, in his words, systematically and logically prior. The use of this basis should play an important part in maximising the recovery of assets. Neither the reporter nor the sheriff had explained why this basis had not been adopted. Mr. Holroyd also criticised the sheriff in regard to the width of the remit which had been given to the reporter. The second proposition was that paragraphs (a) and (b), with which it was mandatory to comply, set out a comprehensive test by reference to which the amount of remuneration was to be fixed. At the same time the application of their terms could act as a means of moderating the result of using a commission basis, so as to avoid over-generosity or the reverse. Where no assets had been realised by a liquidator, the appropriate amount of his remuneration could be nil.

[7] It may be noted that neither of these submissions was advanced in argument before the sheriff. The submission made by counsel who then appeared on behalf of the appellant was that the report to the sheriff was incomplete, so that it provided an insufficient basis to enable him to fix the amount of the liquidator's remuneration. We are in any event satisfied that the submissions made by Mr. Holroyd are not well founded. Subsection (4) does not create a presumption in favour of the use of a commission basis for the fixing of the amount of the remuneration, let alone make its use mandatory. The terms of the subsection permit its use, but do not exclude the use of some other basis. In this respect the subsection is wider than the previous enactment (see McGregor's Sequestration 1955 S.L.T. 270), and reflects the recommendations of the Scottish Law Commission in its Report on Bankruptcy and Related Aspects of Insolvency and Liquidation in 1982 (Scot. Law Com. No.68). Accordingly the sheriff did not require to justify the use of a basis other than a commission, in this case the measurement of the extent of the work undertaken by or on behalf of the liquidator. No doubt that would fall to be ascertained by reference to the standards, rates and practices of the relevant profession. As regards paragraphs (a) and (b), there is no doubt that, whatever the basis for the remuneration, the matters to which they relate have to be "taken into account". However, they should not be understood as constituting the test for remuneration, or as excluding any other consideration. Even by themselves they do not provide complete directions; for example, they do not prescribe how the value of the assets or the responsibilities of the liquidator are to be taken into account. Where a liquidator had reasonably, but unsuccessfully, performed work with a view to realising assets in addition to those realised before his appointment, the authority for reflecting this in his remuneration could, if necessary, be found in paragraph (b). The proposition that, where, as in the present case, the liquidator has not realised any assets, he might not be entitled to any remuneration, demonstrates the extreme, if not the absurd, consequences of the appellant's approach to the subsection.

[8] We turn now to consider certain criticisms of the report and the sheriff's decision which were advanced by Mr. Holroyd.

[9] Mr. Holroyd submitted that the reporter had not properly addressed the problem which he said was presented by paragraph (a). He had merely said that, given the realisation of the assets prior to the appointment of the liquidator, and having given careful consideration to the matter, he had concluded that it was difficult to justify the liquidator's claim for remuneration in terms of that paragraph. The liquidator's claim for remuneration, which was based on the time which had been expended by him or on his behalf, bore no relationship to that paragraph. As regards paragraph (b), the reporter had expressed no view, stating that the issue was whether or to what extent in all the circumstances the court considered that the fees sought should be paid taking into account the responsibilities of the liquidator in administering the estate. The reporter had not identified the tasks which had been done, or expressed a view as to whether and to what extent they were appropriate or should be discounted, and how long they should have taken. He had not taken as a sample an individual piece of work and followed it through for this purpose. He had taken for granted that a reasonable number of hours had been expended. He had not confirmed that the correspondence which he had examined covered all the work. As regards the sheriff, Mr. Holroyd submitted that he had failed to identify the errors of the reporter, and he had misunderstood the significance of paragraph (b). He also submitted that the sheriff had been in error in stating that a party objecting to such a report must specify in detail the basis on which it was contended that the remuneration claimed was too great.

[10] As can be seen that from this summary of Mr. Holroyd's submissions, the attack on the sheriff's determination of the respondent's remuneration was based to a large extent on the proposition that his reliance on the report was misplaced, in respect that it was defective. The purpose of the report was to provide the sheriff with factual information on the basis of which he could determine the appropriate remuneration, in accordance with section 53(4). In his report the reporter advised the sheriff that the respondent had allocated suitably experienced individuals to carry out the various tasks, that he believed that the appropriate level of fee earners had carried out the work and that the chargeable hours which had been expended by the various grades of staff did not appear to him to be excessive (pages 1 and 3); the rates which had been charged were the usual rates applied by the respondent's firm and were within the range of rates charged by firms specialising in insolvency work during the period from September 1988 to September 1997 (page 1). He concluded that the fees sought were justified by the records which had been made available to him (page 3). He also stated that, on the basis of the information provided by the respondent, the investigation work carried out by his staff was properly undertaken, in the sense that it was necessary to try to investigate the affairs of the company at the request of the appellant and Ruth Hyndman and/or their agents or as a consequence of actions taken by them (page 2). He added:

"I do however have reservations about whether all the work which was carried out was ultimately to the benefit of the shareholders and creditors albeit, in the circumstances of this case, it was work carried out at the request of certain of the shareholders".

[11] In his note the sheriff makes it clear that he was aware that the determination of a liquidator's remuneration had to take into account paragraphs (a) and (b). It is true that he does not indicate their bearing on the respondent's remuneration. Given that the argument before him was concerned with whether there was sufficient information to enable him to determine the respondent's remuneration, this is not surprising. In the present case paragraph (a) was of no real significance in respect that the assets which were available for distribution had been realised prior to the respondent's appointment. The sheriff was entitled to determine the respondent's remuneration by reference to paragraph (b). The respondent had the responsibility of undertaking a number of tasks. These included the investigation of various claims by or against the company, and in particular complaints which had been made by the appellant and Ruth Hyndman. The reporter had advised him that the fees claimed by the respondent were reasonable. It was not essential that the reporter should have undertaken an audit of the respondent's work or provided further specification of the items of work carried out by him and the proposed charge for each of them. We are satisfied that it was open to the sheriff to conclude, on the basis of the report, that the respondent had justified the remuneration claimed by him. We do not find that the sheriff was in error as to the onus of proof. He did not apply a presumption that the respondent's claim was well-founded,. His observations were consistent with the shifting of the evidential burden to the appellant.

[12] Mr. Holroyd also presented a submission that the sheriff had been in error in excluding from consideration the question of the professional competence of the respondent. This was not a matter which was argued before the sheriff. In any event it became clear during the course of the discussion that the appellant was concerned with a series of complaints that the respondent had failed to pursue a number of matters. However, it has to be borne in mind that the remuneration to which the respondent was found entitled related to the work which had been done by him or on his behalf. It was not concerned with any further work which he might have done. Accordingly these complaints have no bearing on the remuneration which was determined by the sheriff. Whether and to what extent any of these allegations would found a claim, and in particular a claim at the instance of the appellant, is not a matter with which this court is concerned in dealing with the present appeal.

[13] Lastly, Mr. Holroyd submitted that the sheriff had been in error in authorising the respondent to pay the reporter's fee of £8,500, on the basis that this fee included an amount for preparing earlier reports which had been held to be of no assistance to the court. This again is not a matter which was argued before the sheriff. It is impossible on the material before this court to determine the extent to which, if at all, the earlier work made no contribution to the ultimate report. Mr. Holroyd invited the court to allow him to amend the grounds of appeal so as to challenge the fee in the event of his criticisms of the report being held to be well founded. However, the court declined to allow him to amend on the ground that this came at far too late a stage. In any event, the criticisms have not been accepted.

[14] In these circumstances the appeal is refused.