Scottish Court of Session Decisions

OUTER HOUSE, COURT OF SESSION [2010] CSOH 138

P669/06

OPINION OF LORD GLENNIE in the Note by JOHN CHARLES REID and JAMES BERNARD STEPHEN, both of Deloitte & Touche LLP, Lomond House, 9 George Square, Glasgow, the Joint liquidators of Arakin Limited (SC061475) Noters; for audit of their intromissions with the Company's estate, for approval of their accounts, for discharge from liability as regards their conduct in the liquidation, and to sist the winding up. ­­­­­­­­­­­­­­­­­________________

Noters: Connal QC; McGrigors

Respondents: personally present

13 October 2010

Introduction

[1] On 6 April 2006 the Joint Liquidators (hereafter "the Noters") applied by Note (No.37 of Process) in the winding up of Arakin Limited ("the Company") (i) for their outlays and remuneration as interim liquidators and liquidators for the period from 14 October 2004 until 28 February 2006 to be fixed, (ii) for a discharge from liability for their acts and omissions in the course of the winding up and, thereafter, (iii) for the winding up to be sisted. A motion for the grant of the relief claimed in the Note was enrolled by them on 12 April 2006.

[2] This Opinion follows the final hearing of that Note and that motion, as well as a supplementary motion enrolled on 24 July 2009 (referred to in para.[7] below). Earlier stages of the proceedings in the Note are recorded in my Opinions of 28 March 2008 ([2008] CSOH 56), leading to the interlocutor of 2 April 2008 (referred to in para.[5] below), and 22 December 2009 ([2009] CSOH 175).

[3] Although the winding up was an insolvent winding up, based on the deemed inability of the Company to pay its debts under s.123(1)(c) of the Insolvency Act 1986, it has never been in doubt that the assets of the Company by far exceeded its liabilities - so much so that within a few months the creditors of the Company were all paid out of liquid assets without the need for any of its properties to be sold. In those circumstances, it was considered expedient to sist the winding up and thereby return the Company to its directors and shareholders, currently Mr and Mrs McNamara.

[4] Mr and Mrs McNamara are the respondents to the Note. For convenience I shall on occasion refer to them collectively as "the respondents". They did not oppose the winding up being sisted - indeed they were pressing for some time for this course to be adopted - but they challenged both the Noters' claim for outlays and remuneration and also their entitlement to be discharged from liability for their acts and omissions in the course of the winding up.

[5] On 2 April 2008 I pronounced an interlocutor, of consent of the parties, which, when supplemented by a further interlocutor of 2 May 2008, had the effect of sisting the winding up from that later date, thereby returning the Company to its directors and shareholders before the disputed matters of outlays and remuneration and the discharge from liability were dealt with, whilst preserving the position of the parties in respect of those matters. The interlocutor of 2 April 2008 gave certain consequential directions as to how and when those matters were to be progressed and also ruled on certain other matters. So far as is material, it provided, in substance, as follows:

(1) it permitted the Noters to proceed with their application to have their outlays and remuneration fixed and for them to be released and discharged from liability in respect of their acts and omissions as liquidators;

(2) it appointed the Noters to submit by 2 July 2008 an account of their intromissions from 14 October 2004 until the date of the sist, together with their claim for outlays and remuneration;

(3) it remitted to Mr Colin Hastings, Chartered Accountant, as Reporter, to examine and audit the Noters' account of their intromissions and to report thereon and to suggest a suitable sum for outlays and remuneration;

(4) it remitted to the Auditor of Court to report what in his opinion was a suitable sum for outlays and remuneration;

(5) it appointed the Reporter and the Auditor to confer before issuing their reports;

(6) it remitted to the Auditor of Court to tax the Noters' Law Agents' (McGrigors') account of expenses to the date of the sist, without prejudice to the Company's right to make representations regarding the outcome of that taxation and its bearing upon the amount of legal expenses which the Noters might be entitled to recover from the assets of the Company as part of their outlays;

(7) it appointed the Noters to serve any motion for approval of their outlays and remuneration, and for their release and discharge, upon the respondents and the Company on a period of notice of 21 days; and

(8) it deferred until the hearing of that motion the other applications made by the Noters in their Note (No.37 of Process);

(9) it found that, as between the Noters and the Company, responsibility for any tax payable to HMRC in respect of the period of the liquidation lay with the Company;

(10) it ordered the Company to pay the Noters the sums which the court found to be payable by way of outlays and remuneration as liquidators and any further outlays and remuneration reasonably incurred in relation to this application - in effect, a declarator of liability to pay; and

(11) it made provision for the Noters, before the sist took effect, to put up security for such payment out of the assets of the Company in the sum of £1 million, half by way of a heritable security over a property belonging to the Company and half by way of a deposit in an interest bearing account in the name of the Noters' solicitors.

The interlocutor then went on to deal with certain other matters which are not relevant for present purposes.

[6] The timetable set down in that interlocutor proved to have been optimistic. Nonetheless, the various steps required to be taken in terms of the interlocutor have all now been taken. The Noters submitted, albeit late, an account of their intromissions as interim liquidators and liquidators for the period from 14 October 2004 until 2 May 2008 together with their claim for outlays and remuneration during that period. Their claim for outlays and remuneration was in the sum of £358,339.25. The Reporter, Mr Colin Hastings, has duly examined and audited the account of the Noters' intromissions, as those have been revised from time to time, though not without some difficulty standing the state of the documentation submitted to him. At the request of the court, he produced an Interim Report on 13 November 2008 and afforded the parties the opportunity of commenting on it before issuing his final Report on 11 May 2009. On 11 May 2009 both the Reporter and the Auditor of Court, having conferred before so doing, reported that in their opinion £265,000 plus VAT was a suitable sum for outlays and remuneration of the Noters while acting as interim liquidators and liquidators for that period. In addition, the Reporter recommended payment of £1,025 by way of Category 1 Disbursements. Separately, the Auditor of Court has taxed the Noters' Law Agents' account of expenses as between them and the Noters in the sum of £206,317.14.

[7] Para.(7) of the interlocutor of 2 April 2008 appointed the Noters, after receipt of such Reports, to apply by motion for approval of their outlays and remuneration and for their release and discharge from liability. By motion enrolled on 24 July 2009, the Noters moved the court for that approval and release. In particular, they moved the court to make the orders to the following effect:

(1) to find the Noters entitled to such sum in respect of outlays and remuneration as is appropriate, having regard to the Reports of the Reporter and the Auditor of Court and the Noters' comments thereon;

(2) to find the Noters' Law agents entitled to the sum shown in their account of expenses as taxed, and to order the Company to pay the Noters this amount, which failing to allow the Noters to pay this sum from the security deposit set up in terms of para.(11) of the interlocutor of 2 April 2008;

(3) to order that any failure of the Noters to comply with the requirements of the Bankruptcy (Scotland) Act 1985, as applied to corporate insolvency by the Insolvency (Scotland) Rules 1986, or with the requirements of the Insolvency (Scotland) Rules 1986 themselves, be waived - this was a matter raised in the Note and was one of the matters reserved in para.(8) of the interlocutor of 2 April 2008;

(4) to declare that the Noters are released and discharged from all liability both in respect of their acts and omissions in the winding up and otherwise in relation to their conduct as interim liquidators and liquidators;

(5) to find the Noters entitled to their outlays, remuneration and legal expenses incurred in and about their motion, and for payment of such amounts in the same manner as set out in para.(2) above; and

(6) to find the Noters entitled to their further outlays, remuneration and legal expenses incurred in respect of the further proceedings in, or in connection with, the liquidation since 2 May 2008.

[8] In my Opinion of 22 December 2009, I dealt with some of the legal points arising out of the Note and the voluminous notes of argument which it had spawned. Certain matters were, as a result, excluded from further consideration at the subsequent Hearing on evidence. For reasons set out in that Opinion, an issue regarding the recoverability from the Company of the Noters' legal fees, as taxed by the Auditor, was remitted to Mr James Mure QC, acting as a Reporter on this matter.

[9] A Hearing on evidence took place over five days commencing on 15 March 2010. Both the Noters and the respondents adduced evidence. For the Noters, evidence was led from Miss Crangle, Mr Goodfellow and Mr Milne. The respondents did not themselves give evidence. However, they called the Noters (Mr Reid and Mr Stephen), and also led evidence from Mr Whyte and from Mr Sleigh. I shall refer to the evidence in full below.

[10] The respondents were not legally represented at the Hearing. They appeared in person. Many of their submissions, like many of those for the Noters, were in the form of written submissions handed in at the Hearing. I am grateful to them for that. I found it helpful. Nonetheless, the points taken by them were not always as clearly focused (or stripped of inessentials) as they might have been had they had legal representation. And they covered a wide range of issues. It may therefore assist in understanding the evidence, the issues in dispute and the submissions of the parties, if I were first to set out a narrative of the main events and stages of the liquidation. The correspondence between the Noters and the respondents (principally Mr McNamara) fills many lever arch files. I make no apology, therefore, for the fact that the narrative that follows is necessarily selective and episodic and does not go into everything that was going on at the material times.

Narrative

[11] The petition to wind up the Company was founded upon a debt due to Alexander Stone & Co (now Burness), to whom I shall refer as "Alexander Stone". Alexander Stone obtained a decree against the Company in the sheriff court on 17 July 2001, with a decree for interest on the principal sum following on 6 August 2001. An appeal to the sheriff principal was refused on 2 May 2002 and an attempt to appeal to the Inner House was refused as incompetent on 11 October 2002. The decree was for £59,464.18, being the balance due to Alexander Stone, with interest thereon at 8% a year from 24 February 1998 until payment. The debt was not paid. A charge for payment following on the decree, in the sum of £79,358.26 inclusive of interest and charges, was served on the Company on 19 December 2002 and the induciae of the charge expired without payment.

[12] Many of the problems in the winding up have their origin in the dispute over this debt due to Alexander Stone. It is therefore of some relevance to see how the dispute developed after the expiry of the induciae of the charge for payment. Mr McNamara and Mr Frost, claiming to be assignees of the Company's rights, title and interest in the proceedings, commenced an action seeking reduction of the decree against the Company, suspension of the charge for payment and interdict of Alexander Stone from attempting to procure enforcement of the decree or charge. Interim orders were granted in their favour ex parte and later recalled inter partes. Mr McNamara and Mr Frost reclaimed. Before the reclaiming motion came on for any substantive (as opposed to procedural) hearing, Mr McNamara and Mr Frost parted company, Mr Frost assigning his rights to Mr McNamara, and Mr McNamara thereafter continuing the action in his sole name. At a By Order Hearing in March 2004, Mr McNamara argued that the sums claimed by Alexander Stone had not been duly presented to the Company and, in particular, had not been supported by VAT invoices. It appears to have emerged from documentation obtained under diligence granted by the Inner House that not all the fees charged were supported by VAT invoices. To that extent, there may have been some underlying merit in the point which Mr McNamara sought to argue. The problem for Mr McNamara, however, was that that argument had already been presented to the Auditor at the diet of taxation, when he taxed Alexander Stone's fees, but the Auditor had rejected it. Decree had thereafter passed in the sheriff court on the account as taxed. This decree was not a decree in absence; it was a decree in foro. A decree in foro is capable of being reduced by action in the Court of Session, but only on limited and well-recognised grounds. Mr McNamara put forward no material capable of founding a prima facie case for reduction of the decree in foro. There was therefore no basis for recalling the decree, suspending the charge for payment or interdicting enforcement. These matters are set out in more detail in the Opinion of the Inner House delivered by Lord Hamilton in Andrew McNamara v. Alexander Stone & Co (unreported, 1 April 2004). So while Mr McNamara, or the Company, may have had a legitimate grievance about the absence of VAT invoices - and I express no concluded view on this point - he (or it) had exhausted all legal challenges to the decree in favour of Alexander Stone. But that has not deterred Mr McNamara from continuing to complain about the decree in favour of Alexander Stone and the absence of supporting VAT invoices. His complaints on this score have been at the heart of the problems which have arisen in this winding up.

[13] After the decision of the Inner House, Alexander Stone lost little time in taking steps to enforce their decree. They presented a petition to wind up the Company. An order for intimation and service was made on 29 April 2004. On 20 May 2004 a hearing on the petition and answers was allowed. That hearing took place on 14 October 2004. Precisely what occurred at the hearing is unclear. It appears that Mr McNamara attended the hearing as a shareholder of the Company, though in light of information about the ownership of the shares which has subsequently come to light (see paras.[26]ff. below), it must be open to doubt whether he was in fact then a shareholder. His daughter, Ms Dailly, sought to appear in her capacity of managing director of the Company, but it was held that it was not competent for her in that capacity to represent the Company in court proceedings. A creditor, Mr Warwick, also attended but was not allowed to enter the process. As I understand it, Mr McNamara was held to be entitled to be heard as a shareholder. He apparently submitted that the court should decline jurisdiction. It was held that there were no grounds for so doing. He also moved the court to sist the winding up process. That motion too was refused. As noted in my Opinion of 22 December 2009, it appears that an offer to settle the debt was made by Mr McNamara or Ms Dailly, but that offer was refused, possibly because neither of them had any standing at that hearing to make an offer on behalf of the Company. With hindsight, this may be regarded as unfortunate. Payment of the debt founded upon in the petition, however late, and from whatever source, would have avoided all that has followed in this acrimonious liquidation. But hindsight is a fine thing, and I do not intend to cast any doubt about the correctness of the decisions taken by the court and the petitioners at that time. No doubt, too, it seemed to be the sensible course at the time. At all events, Mr McNamara's opposition to the petition was unsuccessful and an order was made on 14 October 2004 for the winding up of the Company.

[14] The winding up order appointed the Noters, then both of Deloitte & Touche LLP ("Deloittes"), to be interim liquidators. They had a meeting with Mr McNamara and Ms Dailly on 20 October 2004. Mr McNamara said that he would be appealing the interlocutor winding up the Company and appointing the Noters as interim liquidators. There was, nonetheless, some discussion about the assets of the Company. Mr McNamara told the Noters that the assets included a property portfolio valued at approximately £5 million, all of which was debt free, and credit balances sitting in the Company's bank accounts. From the start, Mr McNamara continued to insist that no proper invoices had been provided in respect of the Alexander Stone claims and he suggested that their conduct in pursuing their claims had been tainted by fraud. He also made a number of allegations about other individuals who have been involved in various stages of the Alexander Stone litigation, other related litigations, and the winding up. After discussion about these and other matters, it appears that Mr McNamara said that he would be keeping a close eye not only on the claims lodged with the liquidators but also the costs incurred by the liquidators in the course of the winding up.

[15] Soon after the appointment, the Noters instructed McGrigors to act as their solicitors, and in particular Mr Connal (now QC), the solicitor advocate who had acted for Alexander Stone both in connection with the Alexander Stone debt (c.f. Andrew McNamara v. Alexander Stone) and in the winding up petition, and who Mr McNamara held personally responsible for the summary refusal of the offer of payment made at the hearing on 14 October. This has been another cause of complaint throughout the liquidation, Mr McNamara asserting that McGrigors had a conflict of interest, since they had acted for the petitioning creditor before being appointed by the Noters. In para.[20] of my Opinion of 22 December 2009, I ruled that, in the particular circumstances of this case, the respondents' averments of conflict of interest were irrelevant. But the appointment of McGrigors clearly added to the distrust which has been a significant factor in the problems which have arisen in the winding up.

[16] On 5 November 2004, Mr McNamara marked a reclaiming motion, seeking to challenge the decree by which the Company was wound up. On 9 November 2004, this was refused as incompetent, since it had been marked out of time.

[17] Part 4 of the Insolvency (Scotland) Rules 1986 is concerned with winding up by the court. Rule 4.18(4) required the Noters (a) within 7 days to give notice of their appointment to the Accountant in Bankruptcy and (b) within 28 days to give notice of it to the creditors and contributories. Further, s.138(3) and (4) of the Insolvency Act 1986 required the Noters, as interim liquidators, as soon as practicable within a period of 28 days of their appointment, to summon separate meetings of the company's creditors and, unless they thought it inappropriate, its contributories, for the purpose of choosing a person or persons to be liquidators in place of the interim liquidators. The Noters complied timeously with the requirement to give notice to the Accountant of Court within 7 days, but they failed within that 28 day period either to give notice of their appointment to the creditors and contributories or to summon those meetings. The Noters took the view, wrongly, that the reclaiming motion put the liquidation "on ice" until it was disposed of, and that all execution on the interlocutor of 14 October 2004 was sisted until the reclaiming motion had been determined. As a result, they failed to give notice of their appointment and to summon the relevant meetings within the required time. These failures were waived by the court in an interlocutor dated 19 November 2004. The time for giving the notice was ordered to run from the date of that interlocutor, and an order was made for advertisement. Further, the time allowed for summoning meetings of creditors and contributories was ordered to run from that date, as was the 42 day period allowed under Rule 4.12(2A) for holding the meetings. Thereafter, the requisite notice was duly given to the Accountant in Bankruptcy and the appointment of the Noters as interim liquidators was advertised in the Edinburgh Gazette and the Herald.

[18] A meeting of creditors was summoned for 7 December 2004 to choose a person to be liquidator of the Company and to determine whether a liquidation committee should be established in terms of s.142 of the Act. The Noters decided that it was unnecessary to summon a meeting of contributories, a decision which they were entitled to make under s.138(4) of the Act, since this was a winding up on grounds of the Company's inability to pay its debts. Directions were given as to the submission and acceptance of claims for voting purposes. Mr McNamara submitted a claim for £120,000, in respect of legal costs which he claimed to have incurred on behalf of the Company in its legal actions against Alexander Stone and Tods Murray, his claim being based on an alleged assignation from the Company of its liabilities in these actions. (This alleged assignation later became one of the many issues in dispute between Mr McNamara and the Noters.) At that meeting, the Noters were appointed Joint Liquidators of the Company (in succession to themselves as interim liquidators) and a liquidation committee was established, comprising five members including Mr McNamara. In informal discussions after the meeting, Mr McNamara voiced his concerns about payment of the claims made by Alexander Stone, amongst others.

[19] It was clear from an early stage that there would be sufficient liquid assets to enable all creditors to be paid in full, together with statutory interest, without the need to sell any of the properties belonging to the Company. A letter of 2 November 2004 from Clydesdale Bank plc to Deloittes had shown that there was nearly £400,000 in the Company's various bank accounts with them. As a result, at the meeting of creditors on 7 December 2004, the Noters were able to indicate that they expected to be in a position to make a fast, full and final distribution to the creditors early in 2005 (perhaps as early as the end of January 2005), and then take a decision as to the best way of handing the assets of the Company back to the shareholders once the costs of the liquidation had been met.

[20] Mr McNamara continued to press the Noters on the subject of the claim by Alexander Stone. He also raised points about sums claimed by other firms of solicitors, including Tods Murray, Levy & McRae and Balfour + Manson, but I shall confine this part of the narrative to his dispute concerning the Alexander Stone debt. Reference to one item from the correspondence will suffice to give the flavour of what he was saying. On 5 January 2005 he wrote to the Noters saying that the main issue concerning Alexander Stone was the £29,000 of VAT which they had recovered without raising VAT invoices. Taking this into account, he said, and taking account also of some £20,000 claimed by Alexander Stone when, according to Mr McNamara, the work had already been charged for by Tods Murray, and applying 8% judicial compound interest from the date when Alexander Stone sued the Company, he calculated that Alexander Stone was a debtor of the Company rather than a creditor. He intimated that he would bring this before the Court of Session so as to have the winding up order "annulled"; and he would report the judge who had heard the winding up petition to the Lord President and Scottish Court Services. He expressed reservations about McGrigors acting for the Noters, and suggested that it would be prudent for the Noters to seek advice from a QC on a number of points, including the falsity of Alexander Stone's summons (arising from the absence of VAT invoices), the failure of McGrigors to report Alexander Stone to the court (for presenting a false claim), the failure of Alexander Stone and the other firms to which I have referred to supply VAT invoices, and the consequent falsity of those firms' averments in support of their various claims against the Company. Notwithstanding this, he ended by stating that his main purpose was to return the Company to the McNamara family to mitigate the damage done to it.

[21] The first meeting of the liquidation committee took place on 4 February 2005. In anticipation of the meeting, Mr McNamara wrote to the Noters on 19 January 2005 enclosing "documentation that will form the basis of my reasons for recall of the winding up of Arakin Limited ...". He again raised the issue about the lack of VAT invoices for the sums claimed by Alexander Stone, alleged overcharging by them, and repeated his reservations about McGrigors giving advice to the Noters. At the meeting of the liquidation committee, these points were reiterated by Mr McNamara, and he also raised (or repeated) allegations of impropriety by a number of individuals in connection the claim by Alexander Stone and other claims. At the end of the meeting, the Noters stated that they proposed to proceed with adjudication and payment of creditors' claims, subject to confirmation by the liquidation committee. This included payment of all claims evidenced by decree against the Company, including the claim by Alexander Stone. The Noters agreed to address the VAT issues raised at the meeting. Thereafter, the Noters would examine how, once such claims had been paid, the liquidation could be brought to a conclusion with the remaining assets being distributed to the directors and shareholders.

[22] The claims requiring adjudication included claims by the Inland Revenue. Although they had not become so at this time, I shall refer to them and to HM Customs & Excise from this point on as "HMRC".

[23] In the days, weeks and months following the meeting of the liquidation committee, Mr McNamara continued vigorously to put forward his arguments concerning the decree in favour of Alexander Stone and, in particular, his allegations concerning their alleged failure to issue VAT invoices and his contention that, notwithstanding the decision of the Inner House to which I have referred, the Noters should not pay the judgment debt in favour of Alexander Stone. In letter after letter he pursued these points, accusing various people of fraud and threatening to report individuals variously to the police, to their professional bodies and/or to others, a threat which manifested itself in letters from him to the police, to HMRC, to the then Chancellor of the Exchequer, and to others. Mr McNamara's argument was that it was for the Noters to seek the guidance of the court as to how to proceed in light of the fact that the winding up order, proceeding as it did on the basis of the decree in favour of Alexander Stone, was a gross miscarriage of justice. Whatever the merits of his initial complaint that no VAT invoices had been raised, this view was plainly misconceived. It was not for the Noters to challenge the interlocutor appointing them as liquidators. Further, it was not for the Noters to challenge the debt due to Alexander Stone, which was the subject of a decree by the court, and when an appeal against that decree had been refused by the Inner House. As the Noters said in a letter to Mr McNamara of 26 May 2005, "the extract decree is no longer challengeable". The Noters reasonably took the view that the sums for which decree had passed had to be paid. They also took the view that the allegations of impropriety made against various people by Mr McNamara should not concern them. Nonetheless, the allegations made by Mr McNamara in these and other respects clearly caused problems for the Noters and caused a great deal of time and expense to be incurred by them in dealing with the points. They were concerned, naturally enough, with suggestions from Mr McNamara that they themselves had acted improperly. They emphasised that they had at all times been conscious of their duties and responsibilities and had acted appropriately. They pointed out that payments made or to be made by them had been and would be made with the approval of the liquidation committee.

[24] Their primary concern, as expressed in that letter of 26 May 2005, was to complete the liquidation without undue delay and to restore the company to its shareholders. But, as they pointed out:

"This will simply not be possible in the circumstances where you continue to raise and re-raise all of the issues that you do and challenge payments made or to be made by the liquidators where we have exercised our discretion, as we are empowered and obliged to do, and our decisions have been confirmed as required by the liquidation committee. This is also clearly of relevance as to whether or not the liquidators are able to make an application to the court under s.147(1) to seek a permanent stay of the winding up, or if an application were made by you, for the liquidators not to have to oppose this."

They went on in that letter to make the following observations:

"As you will be aware the default position is that the liquidators make a distribution of the surplus assets to the shareholders and, once all necessary procedural steps have been taken, we would have our release as liquidators. Clearly we would intend to distribute these assets to the shareholders in a manner which is most tax effective from their point of view and invite proposals from you in this regard as to how you would wish this to be achieved.

Although the simplest and most tax effective procedure may be to sist the liquidation, and to restore the company to its directors in terms of s.147(1), that would be a matter for the courts as to whether they considered this is appropriate in all the circumstances. We do not consider that it would be possible for us to either make such an application or, were you to make such an application, for us not to oppose an application, should there be outstanding issues and the liquidation in practical terms not concluded.

In light of the references [by Mr McNamara] to our indemnity insurers we would also wish at that time an acknowledgement from you in writing that as far as you are concerned from the knowledge you have of the conduct of the liquidation to the point of its conclusion that we have acted in a fair and proper manner. We would be seeking an appropriate release from the court in the event of a sist of the liquidation and you would not oppose this.

We have endeavoured at all times to conduct this liquidation in a professional and appropriate manner in circumstances which we have found to be very unusual. We shall continue to do so.

It is hoped that you will allow us to complete the liquidation without undue delay and that you will act in a manner which will make it possible to make the application under s.147(1) which you seek. However, if this does not prove to be possible we can see little alternative, should we manage to reach the point where all appropriate creditors have been paid but outstanding issues remain from your point of view, to a distribution to shareholders of the surplus assets in terms of the relevant legislation in order that we may obtain our release."

[25] Mr McNamara's response to the last paragraph of that letter is contained in his letter of the 13 May 2005. He said this:

"In the last paragraph of your letter are you saying 'that if I don't allow you to sign off and I don't shut-up [you] will make sure that the McNamara family will be held liable for 40% Capital Gains Tax when Arakin Limited is returned'."

This is a reference to the potential tax consequences of the Noters proceeding in the manner there indicated. He continued:

"Kindly [advise] me of your intent on this issue as it will form a salient issue to various complaints I have against your over-all bias and reckless distribution of Arakin's funds ...."

He gave notice of his intention to scrutinise minutely the Noters' fees in respect of their conduct of the liquidation - he had already on 11 April 2005 objected to an interim payment to the Noters - and, separately, his intention to raise an action for reduction of the decree in favour of Alexander Stone.

[26] On 16 June 2005 The West Corporation (hereafter "West") wrote to the Noters saying that they were the sole shareholder in the Company and were surprised that the Noters had not contacted them since their appointment as liquidators. It may be, as emerged from the evidence given by Mr Reid, that the Noters had been told of West's interest at an early stage in the liquidation, but if that was the case they had clearly overlooked it or forgotten about it. The Noters responded on 20 June 2005, sending West copies of all correspondence issued to the creditors to date. On 23 June 2005, West wrote back, picking up on the point made by the Noters in the earlier correspondence that they wished to bring the case to a conclusion and return the Company or surplus assets to the shareholders of the Company. They informed the Noters that they held the shares as trustees for two McNamara Settlements, and accordingly that any assets should be remitted to them at the end of the liquidation.

[27] A meeting of the liquidation committee was held on 4 August 2005. In advance of the meeting, which was requested by Mr McNamara in his capacity as a member of the liquidation committee, Mr McNamara wrote to the Noters on 19 July 2005 asking for a written response to the various issues that he had raised in that letter. His letter was copied to the members of the liquidation committee. Mr McNamara's letter was answered fully by the Noters on 27 July 2005. After dealing with all the points in turn, they concluded by saying this:

"The Joint Liquidators are not prepared to continue with regular (almost daily) telephone calls and correspondence with Mr McNamara on issues which either should have been resolved a number of years ago or indulging his unfounded allegations against a number of parties. If Mr McNamara chooses to persist, we will utilise our powers under Rule 4.44 of the Insolvency (Scotland) Rules 1986."

I take this to be a reference to Rule 4.44(2)(a) which gives the liquidators power to refuse to comply with requests for information where it appears to them that the request is frivolous or unreasonable. The Noters continued by saying how they intended to proceed:

"In summary, we now intend to proceed as follows:

·       finalisation and payment of the remaining creditors in the Liquidation;

·       payment of the taxed account from McGrigors regarding their costs in acting for AS [Alexander Stone];

·       agreement and payment of liquidators' and other professional fees; and

·       to seek directions from the Court regarding return of the Company and/or the surplus assets to the Directors and shareholders."

They noted that the shareholders had requested that the Company be returned and that they intended to take appropriate legal advice to establish whether that could be achieved.

[28] A list of creditors as at 29 July 2005 showed that with the exception of HMRC, all the creditors, including Mr McNamara, had been paid by mid-May 2005. This was confirmed by the Noters in their letter to West of 23 August 2005. The Noters asked West for the name of a person to liaise with them regarding what was to happen at the end of the winding up, and West nominated John Scott, a director, to fill this role.

[29] At a meeting of the liquidation committee in, I think, April 2005, payment to the Noters of an interim fee of £30,000 was agreed. This was subsequently taken by the Noters. It is now agreed that, because of payments made to creditors on the liquidation committee before then, the committee was no longer quorate at that time.

[30] On 26 August 2005 the Noters wrote to Mr McNamara. Amongst other points made in their letter, they dealt with a complaint by Mr McNamara that contributory members of the liquidation committee should have been elected at the meeting on 7 December 2004. They pointed out that the winding up order was granted on the basis that the Company was unable to pay its debts as they fell due, and that in terms of Rule 4.41(1) of the Insolvency (Scotland) Rules 1986 it was not competent for contributory members to be elected in an insolvent winding up. They went on to say that as all members of the liquidation committee had now been paid in full, and were therefore no longer creditors, it was inappropriate for that committee to remain in office. Although at the meeting of 4 August 2005 a resolution had been passed for a further interim fee of £20,000 plus VAT to be paid to the Noters, they had decided that it would be inappropriate for them to draw further remuneration by this process. Accordingly, they intended to seek the appointment of a Court Reporter to determine their fees and to request McGrigors to have their legal costs taxed.

[31] In response to a telephone call from the Noters, West wrote on 31 August 2005 explaining in more detail the position about the shareholding in the Company. The explanation was this:

"In March 1991 Andrew McNamara settled 4,500 shares in Arakin Limited on The West Corporation as trustee of the A McNamara 1991 Settlement. Mrs Jeanette McNamara settled 500 shares in Arakin Limited on The West Corporation as Trustee of the J McNamara 1991 Settlement.

We understand that the 5,000 shares so settled represent the whole issued share capital of Arakin Limited and The West Corporation is, therefore, the sole shareholder of Arakin Limited."

They explained that The West Corporation was an Isle of Man Court approved trust corporation and enclosed a copy of their Memorandum and Articles of Association and Certificate of Incorporation.

[32] In September 2005 Mr McNamara sought to lodge a Note in the liquidation in connection with the claim by Alexander Stone against the Company. By that Note he sought a permanent sist of the winding up of the Company. In it, Mr McNamara asserted that he and his wife were the trustees of the trust which wholly owned the shares of the Company and were therefore entitled to be regarded as contributories of the Company. Leave of the court to lodge the Note was required because it was not signed by counsel or some other person having a right of audience. The requirement for leave in such circumstances is a necessary filter to prevent incompetent or wholly unmeritorious applications being made. Leave was refused. A previous motion seeking the same relief had earlier been rejected. Later in September 2005, Mr McNamara attempted to enrol a motion sisting him into the cause as an interested party with a view to obtaining a permanent sist of the winding up.

[33] By letter of 2 October 2005, Mr McNamara wrote to the Noters notifying them that "a meeting of the contributories of Arakin Limited (in Liquidation)" had been convened on the evening of 28 September 2005 to discuss the conduct of the liquidation thus far. In attendance had been Mr and Mrs McNamara, both of whom claimed to be contributories "by reason of their being the life-renters of the entire dividend income of Arakin Limited, which income has ceased since the winding up order ...", as well as Ms Dailly and Mr McNamara junior, in their capacities as managing director and director respectively. A number of "resolutions" were purportedly passed unanimously, including a resolution that Mr and Mrs McNamara and Ms Dailly be appointed to represent the contributories' interest as members of the liquidation committee. They called upon the Noters to hold a meeting of the newly constituted liquidation committee within seven days. This led to further correspondence. The Noters pointed out, correctly, that the meeting of contributories was not valid. As a result, Mr McNamara purported to convene a further meeting of contributories on 7 November 2005, but again the Noters pointed out that none of the persons present were contributories and therefore that any business conducted at the meeting was of no relevance to the liquidation.

[34] In late September 2005, Mr McNamara paid three taxed accounts of expenses in favour of Alexander Stone amounting in total to £33,890.95. The awards of expenses in each case were against Mr McNamara personally, one account relating to his opposition to the winding up petition and the others relating to the expenses for which he was found liable in the action by Frost and McNamara against Alexander Stone. It appears from a letter of 3 October 2005 from McGrigors to the Noters that Mr McNamara had indicated that he would be seeking to recover the sums from the Noters under the "assignation" between himself and the Company. On 6 October 2005 the Noters wrote to Ms Dailly questioning whether there was in the assignation any obligation on the part of the Company to reimburse or indemnify the assignees for the legal costs incurred by them in relation to the defence of the claims. In due course the Noters rejected this claim, as confirmed by a letter from the Noters of 31 January 2006.

[35] In October 2005 Mr McNamara sought to lodge a Note in the liquidation challenging the Noters' refusal to call a meeting of contributories. He maintained that they should have called such a meeting because it was apparent from the beginning that the Company was solvent. He argued that in those circumstances they should be required to ascertain the wishes of the contributories. He sought to attribute the refusal of the Noters to call such a meeting to the Noters' "fee mongering", i.e. a desire on their part to charge high fees for dealing with a straightforward liquidation. As he made clear in a letter to the Noters of 21 November 2005, one of his reasons for wishing to form a committee of contributories was to challenge the "absurd" fees of the Noters and to return the Company to the control of the directors. It ought to have been apparent to Mr McNamara that a large part of these fees were caused by the Noters having to deal with all the points raised by him. On 28 November 2005, Mr McNamara sought to enrol a Motion in terms of which he sought an order that the Noters take various steps leading to the co-opting of contributories to the liquidation committee. Having considered the history of the previous attempts to apply to the court, the Court on 2 December 2005 refused to allow the motion to proceed, both because it failed to disclose a prima facie case and because it was apparent that Mr McNamara was neither a creditor nor a contributory.

[36] On 14 December 2005, West wrote to the Noters confirming that it was the sole registered shareholder of Arakin and that it held the shares as nominee for certain Isle of Man settlements. Concern was expressed that because the interaction between the Company, the Settlements and the beneficiaries was complex, a return of assets to the shareholders might trigger material tax liabilities; and, therefore, West, as trustees, needed to take advice on how best to proceed.

[37] On 12 January 2006, West again wrote to the Noters. On this occasion they enclosed a stock transfer form for the entire holding of the 5,000 shares in Arakin. They explained that the trusteeships of the two 1991 McNamara Settlements had now been transferred to new trustees, namely Mr and Mrs McNamara, Ms Dailly and Mr McNamara junior. The Register of Members required to be amended to reflect this change. On 20 January 2006 West wrote again asking for confirmation that the shares had now been registered in the names of the transferees. In reply to this, on 3 February 2006, the Noters pointed out that under s.127 of the Insolvency Act 1986, the transfer of shares after the commencement of the winding up was void. The Noters did not recognise the transfer. They went on to say that they were in the process of finalising the remaining matters in the liquidation. They intended to present a Note to the court to have the liquidation sisted, their discharge granted, and control of the assets returned to the Company's officers. They pointed out that once the liquidation was sisted it was open to West and the McNamara family to dispose of the shares as they saw fit. On 7 February 2006 West pointed out that in terms of s.127 of the Act, a transfer of shares could be allowed if the court so ordered. They sought advice as to whether it was for the transferees of the shares or for the Noters to make the relevant application.

[38] The question of the transfer of the shares was taken up by Mr McNamara in a letter of 21 February 2006 to the Noters. After indicating that he agreed with the Noters' proposal to present a Note to the court to have the liquidation sisted, he intimated his intention to seek the court's confirmation of the transfer of the shares. This is of some importance, in light of a complaint made subsequently that the Noters owed a duty to the McNamara family, as potential transferees of the shares, to inform them of the need to make an application to the court. On the same day, Mr McNamara wrote to the Petition Department of the Court of Session stating that the ownership of the shareholding "has been transferred" from West to him and others. On the next day, 22 February 2006, he wrote to the Keeper at the Court of Session asking to be informed of any motion enrolled by the Noters, to allow him to consider what action was necessary to protect "the shareholders interest". At the same time he wrote to the Auditor of the Court of Session asking to be informed when McGrigors' account of their fees was lodged for taxation since "under my assignation rights from Arakin Limited (in Liquidation) and as a Trustee of Arakin shares" he would be raising objections to the Noters' account and to McGrigors' account.

[39] On 9 March 2006, Mr McNamara wrote to the Noters claiming that he was a contributory and a creditor and, in that capacity, seeking the return of the Company to the directors or the formation of a new committee. On the question of the transfer of the shareholding from West, he said that two years prior to the liquidation of the Company, he and his wife had given instructions to have the trust returned to the UK. On that basis, he maintained, the Noters' challenge to the transfer of the shares was a "nullity".

[40] On 17 March 2006 Mr McNamara wrote to the General Department of the Court of Session saying that he would shortly be enrolling a motion to form a new committee or, alternatively, to have the Company restored to the control of the directors. He asked that certain judges should not be appointed to hear the case. He continued in further correspondence with the court to insist that he was both a creditor and a contributory.

[41] In March 2006, Mr Stephen, one of Noters, resigned from Deloittes and thereafter played no further part in the liquidation.

[42] The Note (No.37 of Process) was lodged on 6 April 2006. This is the Note which is at the heart of the present application. By this Note, the Noters sought to have their intromissions and fees dealt with by the court and to have the liquidation sisted (see para.[2] above).

[43] On 12 April 2006 the Noters enrolled a motion seeking the grant of the relief claimed in the Note. The material parts of that motion are as follows:

"On behalf of the Noters to appoint this Note to be intimated on the walls of court in common form and to dispense with the requirements of intimation, service and advertisement of the Note in terms of Rule 15.2(3) and 14.5(2) in respect that no person has a legitimate interest to oppose the Note and accordingly to dispense with the period of notice and thereafter to remit, a point and order in terms of ... the prayer of the Note."

For present purposes it is important to note the request to dispense with intimation on the basis that no person had a legitimate interest to oppose the Note. Before lodging the Note, on 4 April 2006 the Noters, through their agents, had written to the clerk in the Petition Department of the Court of Session enclosing the Note and the accompanying motion. The first full paragraph of that letter dealt with the choice of a Reporter to whom the question of the Noters' intromissions, outlays and remuneration might be remitted if the prayer in the Note were granted. Nothing turns on that for present purposes. The remaining paragraphs dealt with the question of whether any information should be given to Mr McNamara. I should set these out in full:

"We also wish to refer to Mr McNamara's letter to you [this is the letter mentioned in para.[38] above] ... where Mr McNamara states that it is 'essential that he be intimated of any steps occurring (whether, by Motion, Note, or any other applications) being made to the Court in regard to this cause by any other party'.

Our clients dispute that the ownership of the shareholding in [the Company] has been transferred. We refer to paragraphs 37 to 39 of the Note. Our clients also dispute that Mr McNamara is presently a creditor of [the Company]. We refer to paragraph 26 of the Note. Mr McNamara has already been advised by you that he is not a party to the action.

Whether or not Mr McNamara is entitled to intimation of any proceedings is a matter for the Court and our clients hope that the Rules of Court will be applied and Mr McNamara will not be treated any differently from any other person in this regard."

[44] On 19 April 2006, the Noters' motion of 12 April came before Lord Reed. The interlocutor of that date appointed the Note to be intimated on the walls in common form, dispense with advertisement in the Edinburgh Gazette and other newspapers. Notwithstanding the terms of the motion, however, it granted warrant for service of the Note upon West (as well as upon the Accountant of Court and the Accountant in Bankruptcy). Finally, it allowed any party claiming an interest to lodge Answers to the Note.

[45] West did not lodge Answers. Answers were, however, lodged individually by Mr and Mrs McNamara, Ms Dailly and Mr McNamara junior, as well as by all four of them collectively purporting to be "the recently assumed Trustees of the 'McNamara Settlements'. Those Answers are numbers 51, 52, 53, 54 and 55 of Process. Before any substantive hearing of the Note, the Note was itself sisted from time to time, the Answers were withdrawn, and new Answers were lodged.

[46] On 15 August 2006, a hearing was allowed on the Note and Answers as they then stood, to determine the respondents' entitlement to be heard and to debate the relevancy of the Answers. Detailed Notes of Argument were exchanged. At the hearing on 21 September 2006, it appears that the Noters stated that they required to adjudicate upon the claims of members of the McNamara family as put forward in their respective Answers to the Note (Nos. 51, 52, 53, 54 and 55 of Process) and, accordingly, the remainder of the hearing was discharged. The court made no order at that time as to the locus of Mr and Mrs McNamara to appear in the proceedings in relation to the Note and Answers.

[47] On 3 November 2006, the Noters wrote to Mrs McNamara, Ms Dailly and Mr McNamara junior stating that, since no documentary evidence had been provided in support of their claims against the Company, the Noters had adjudicated on their claim and determined that they were not creditors. The question of Mr McNamara's status as a creditor continued to be discussed.

[48] In October 2006, Mr and Mrs McNamara, Ms Dailly and Mr McNamara junior, purporting to be the trustees of the "McNamara Settlements", lodged in process a Note seeking the court's approval of the share transfer from West. That Note, with certain amendments, became No.86 of Process. Answers were lodged (No.85 of Process). At the hearing on 22 November 2006, the court ordered that the share transfer between West and the new trustees should not be avoided by the operation of section 127(1) of the Insolvency Act 1986, and ordered that the said transfer be registered in the Register of Shareholders.

[49] As from that time, although the Company books were missing and the transfer could not therefore be physically registered in the books, the Noters stated in a letter of 29 November 2006 that they were prepared to accept that Mr and Mrs McNamara, Ms Dailly and Mr McNamara junior, as trustees of the "McNamara Settlements", should be treated as though they were the registered shareholders of the Company and should have such rights for the purposes of the winding up as the holders of the shares would have.

[50] In that letter of 29 November 2006, the Noters went on to deal with the future course of the liquidation, emphasising that it was their wish and intention to complete the liquidation and return the Company to the control of the shareholders as quickly as possible. They understood that to be the wish of the McNamara family. However, they took the view that, before that point could be reached, the court had to deal with the other applications presently before it. This included the questions of whether members of the McNamara family were creditors and/or contributories. They pointed out that these issues appeared to go only to locus to participate in the proceedings. Those issues appeared to them to have become academic, since it had now been decided that, by virtue of the transfer from West, the members of the McNamara family were shareholders and had locus as such. As to the McNamaras' claim to be creditors, the Noters said that "there appears to us to be no logic to incur further expense in the liquidation dealing with your claims as creditors ...". If the Company was returned to its shareholders, they would be able to make any payments to themselves which they considered to be due to them as creditors, and a dispute with the Noters as to whether or not the individual members of the McNamara family were creditors would be both irrelevant and wasteful in time and expense. If, however, the Noters were required to decide upon the status of the members of the McNamara family as creditors, they would either reject the claims or accept them. If the claims were rejected, and that rejection were upheld on appeal, then it would have been determined that the members of the family were not creditors and they would have no locus as creditors in the liquidation. If, on the other hand, the claims were accepted, whether originally or on appeal, the Noters would pay them, in which case the members of the family would cease to be creditors and would not have any locus as such in the liquidation. As to the claim to be contributories, the Noters continued to contend that, even though they were shareholders, they were not contributories since all the shares were fully paid-up and no contribution was required from the shareholders. However, given that the members of the McNamara family had locus as shareholders, this issue was also of no relevance; and the Noters suggested that an application to the court by the members of the family in respect of their status as contributories, the establishment of a committee of contributories and/or a meeting of contributories would simply cause unnecessary expense and delay.

[51] It is to be noted that the issue as to whether the shareholders were contributories is no longer live. As I understand it, the point was eventually conceded by the Noters at a hearing on 27 August 2007.

[52] The approach suggested by the Noters was not acceptable to the members of the McNamara family. They sought to lodge further Answers (No.90 of Process) to the Note (No.37 of Process) in their capacity as shareholders. Receipt of these Answers was refused on 25 January 2007 but a revised version (No.94 of Process) was allowed to be received on 1 March 2007. The existing Answers, Nos.51-55 of Process, were all withdrawn with leave of the Court on 5 June 2007.

[53] On 19 April 2007, Mr McNamara notified the Noters that Ms Dailly and Mr McNamara junior had resigned as trustees of the McNamara Settlements and that the shareholding in the Company should be transferred to Mr and Mrs McNamara. After some discussion, the appropriate application was made to court. By interlocutor of 5 June 2007, it was ordered that the transfer should not be avoided by virtue of s.127(1) of the Insolvency Act 1986, and it was directed that the share transfer should be registered. In due course the answers (No.94 of Process) lodged on behalf of the four members of the McNamara family as shareholders were amended to remove Ms Dailly and Mr McNamara junior from the process.

[54] By faxed letters of 5 and 30 July 2007, Mr and Mrs McNamara intimated further claims against the Company. Those claims were rejected by the Noters by letter of 31 July 2007.

[55] On 28 October 2007 Mr McNamara intimated a further claim against the Company. This was rejected by the Noters on 30 November 2007. Mr McNamara appealed this rejection of his claim by Note (No.137 of Process). The Noters' Answers are No.143 of Process. On 18 February 2008 this Note and the Answers thereto were appointed to a three day hearing to take place in June 2008.

[56] On 27 September 2007 Mr and Mrs McNamara lodged a Note seeking inspection of the Company's books and papers under s.155 of the Insolvency Act 1986. Answers were lodged by the Noters, and the Note and Answers were appointed to a three day hearing to take place at the end of April 2008.

[57] In the course of correspondence during the latter part of 2007 and into 2008, Mr and Mrs McNamara indicated that they would wish to make an application under s.212 of the Insolvency Act 1986, contending that the Noters had been guilty of breach of fiduciary or other duty in the course of carrying out their functions as liquidators. Such an application may be made by a creditor or, with leave of the court, by a contributory of the Company. This again brought into focus the question of whether Mr and/or Mrs McNamara were creditors and whether, if the liquidation were sisted, they would continue to be contributories.

[58] As explained in my Opinions of 28 March 2008 and 22 December 2009, the interlocutor of 2 April 2008 was designed to dispense with these various, and in many respects unnecessary, applications to the court and sist the liquidation, leaving the parties to resolve their differences in one set of proceedings concerning the validity of the respondents' criticisms of the Noters' conduct of the liquidation.

[59] Before considering the particular issues raised by the parties, I should first set out the evidence led at the hearing.

The Evidence

[60] In addition to the voluminous correspondence files lodged by the Noters, to which I have referred, and certain other files lodged by the respondents, both parties adduced oral evidence. The Noters called three witnesses, Elaine Crangle, David Goodfellow and Brian Milne. By agreement, the Noters themselves, Mr Reid and Mr Stephen, were called to give evidence by the respondents. The respondents themselves did not give evidence. In addition to the evidence led from the Noters, the respondents adduced evidence from Neil Whyte and Andrew Sleigh. I shall set out their evidence in some detail so as to identify the main points that were raised in the oral evidence and give some context to the discussion which follows.

(a) Elaine Crangle
[61] Elaine Crangle is a certified Chartered Accountant and has recently qualified as an Insolvency Practitioner. She has been working in the field of insolvency for the past 16 years, the last six with Deloittes, starting with them as an insolvency cashier and working her way up to the position of insolvency manager. She was not directly involved in this insolvency until the point when, after the liquidation was sisted, the Noters submitted to the Reporter their account of their intromissions with the affairs of the Company, as well as their claim for outlays and remuneration. In response to issues raised by the Reporter, the Noters presented him with a restatement of their receipts and payments made on behalf of the Company during the liquidation. Ms Crangle's task was to prepare this re-statement. She was asked to review their IPS system (a software system used by insolvency practitioners) and restate the information contained on it which related to income and expenditure in connection with the Company's properties - or, as she put it, basically to correct the way in which that information had been presented. The information in its revised form, together with all the supporting documents, was sent to the Reporter on 4 December 2008.

[62] Ms Crangle took me to a number of quarterly Rent Accounts for the Company's properties sent under cover of letters from Goodfellow Property Management Ltd ("GPM") to Deloittes. GPM were managing the properties on behalf of the Company during the course of the liquidation. Although sent to Deloittes by GPM, the information originated with CB Richard Ellis ("CBRE"). As was explained in the covering letter from GPM, copies of the Rent Accounts, copies of invoices issued to tenants during the relevant period and copies of GPM's management commission accounts had all been sent to PKF (the Company's accountants before the liquidation who continued to provide assistance to the Noters during it) and to Mr McNamara. Ms Crangle explained that those records showed what had been received and paid out in respect of the properties, including rent received and management fees. The documents were intelligible to anyone familiar with the business. She said that she could find the figures for VAT in these statements. The later rent accounts were in a different form, but this was simply because a new computer system had been installed. The content was the same.

[63] The Interim Report produced by the Reporter on 13 November 2008 attached, as Appendix 3, a Statement in the form of an Income and Expenditure Account for the Company from 28 April 2004 until 2 May 2008 (when the liquidation was sisted). This was a document produced by someone at Deloittes, a Mr Kris Keane, who had been instructed to prepare it. In light of the Interim Report and of the Reporter's comments, it appeared that a fuller analysis of the receipts and payments needed to be carried out. Ms Crangle was involved in producing this. The equivalent document which she produced appears at Appendix 3 to the Reporter's Final Report dated 11 May 2009. That differs in a number of respects from the original Appendix 3. Ms Crangle explained that she had gone back to the information provided by GPM. In relation separately to each property, she had put that information into Excel spreadsheet format and, for that property, had analysed out the rent, service charges and other costs. From that she had created corresponding vouchers (or "Account Cards") to be processed to the IPS system. There were no additional items of income or expense - all of it came from the information already provided by GPM, though some of the figures were confirmed by other documentation such as cheques. She had simply started again from scratch with that information. The version of Appendix 3 which she had prepared (i.e. that attached to the Reporter's Final Report) was prepared on the basis of that information. In the earlier version, the net cash received into the bank had simply been put in as one figure. In her version, she had separated out expenses and receipts. The results should have been the same, but they were not. An issue had arisen over VAT. Until recently it had been an unwritten rule with HM Customs and Excise that insolvency practitioners could account for VAT on a cash or receipts basis. In 2004/5, formal guidance had been received from HMRC to the effect that from then on VAT had to be accounted for on an earnings basis. When the person who prepared the earlier version of Appendix 3 took over as case manager, he (correctly) changed to an earnings basis, but he failed to go back and apply this consistently. The first version of Appendix 3 had therefore dealt with VAT partly on a net cash basis and partly on an earnings basis. Ms Crangle went back and worked through the VAT calculations as they should have been done. The relevant material was all available from the information provided by GPM. It showed a balance presently due to HMRC in respect of the VAT of about £39,000.

[64] Ms Crangle was cross-examined by Mr McNamara. He challenged the manner in which the Noters had dealt with VAT and corporation tax. Under reference to certain correspondence between Ms Dailly (purporting to write as Managing Director of the Company, despite the fact that the Company was in liquidation) and HMRC on 1 and 7 September 2005, Ms Crangle agreed that HMRC operated a prescription period of three years and further agreed that if the Noters had received VAT which they should not have received, then it would be their responsibility to repay that to HMRC. With reference to her version of Appendix 3, she explained that some, but not all, of the expenses were subject to VAT. She was shown a letter from HMRC to Mr McNamara dated 7 October 2008, in which, amongst other points, it is shown that over the period of the liquidation some £228,493.74 had been paid by way of VAT. By reference to the statement of income in the revised version of Appendix 3 which she had prepared, it was put to her that this seemed improbably high. She accepted that she had initially been surprised by this, but her clear view, having gone through all the documents provided by GPM, was that there was a further £39,000 due by way of VAT. That matter was left there. She was not taken through the detailed calculations by reference to those documents. Certain other points were raised with her but it is not necessary to recite them here.

[65] I should mention one further point in relation to Ms Crangle's evidence. In the revised version of Appendix 3 which she prepared, she had listed sums totalling about £116,000 under the heading "other income" from the four properties owned by the Company (Shettleston Road, Duchess Trading Estate, Campsie House and The Atrium). She had also identified "property expenses" relating to those properties of about £143,000. This gave rise to some concern on the part of the respondents as to where this income and these expenses had come from. They had not been shown on the earlier version of Appendix 3. They appeared to be new income and new expenditure. Ms Crangle was able to explain that they arose simply out of the exercise of re-identifying income and expenses which had already been brought into account in the previous version of Appendix 3. She confirmed that there was no new income and there were no new items of expenditure.

[66] Ms Crangle was a careful and impressive witness. She had competently carried out the exercise of re-presenting the material for the purpose of answering the questions raised by the Reporter. I accept her evidence on these matters. Although she was challenged on the question of whether the Company had overpaid VAT, she dealt satisfactorily with the points put to her. Since she was not cross-examined in detail about the underlying figures which were available to the respondents had they wished to carry out the exercise of showing that VAT had been overpaid, and since no contrary evidence was led by the respondents, I have no reason to doubt her evidence about the Company's VAT position. This finding does not, of course, prevent the Company making representations to HMRC in respect of any alleged overpayment of VAT. I am only concerned with allegations that the Noters have failed properly to deal with the affairs of the Company in this regard. On the evidence before me, I do not find those allegations proved.

(b) David Goodfellow

[67] David Goodfellow gave evidence under reference to an Affidavit sworn by him on 4 March 2010. He has been a chartered surveyor since 1973. With one brief exception, he worked for Richard Ellis & Son, latterly CB Richard Ellis ("CBRE") from that time until he started his own company, Goodfellow Property Management Ltd ("GPM") in 2004. In his Affidavit and in his oral evidence he dealt with certain allegations which had been made against him by the respondents in their "Addendum to the Respondents' Statement of Objections" (No.210 of Process), and also gave evidence about matters with which he had been involved.

[68] The first and most substantial allegation was to the effect that, by bringing in GPM, the Noters were duplicating property management activities which were already being carried out and charged by CBRE. The respondents said that CBRE had a pre-existing contract with the Company to manage its properties and that they continued to carry out those activities after the commencement of the liquidation.

[69] Mr Goodfellow explained that the Company had been a client of CBRE since the mid-1990s. Mr Goodfellow himself had been the point of contact. CBRE managed the Company's portfolio of properties and Mr Goodfellow was responsible for the management department of CBRE. On 11 November 2003, following an earlier telephone conversation between them, Mr Goodfellow wrote to Mr McNamara confirming that he would be leaving CBRE at the end of the year. He went on to say this:

"... I also advised you that I had obtained the approval of my Chairman in Scotland to seek your agreement to appoint my Company to manage your properties from the 1 January 2004.

I am delighted that you would like me to continue managing your properties and I can give you my assurance that you will receive a very personal service. Furthermore, I would confirm that the collection of rent etc will continue to be undertaken by [CBRE] in the meantime and there will therefore be no change so far as the financial management is concerned, thereby ensuring a smooth continuation in income collection.

I should be grateful if you would be kind enough to drop me a short line confirming that you would like my Company to manage your properties ..."

On 17 November 2003 Mr McNamara replied on behalf of the Company confirming his agreement to this and asking Mr Goodfellow thereafter to contact his daughter, Ms Dailly, who, as a Director of the Company, would be running the Company along with his son Andrew ("Mr McNamara junior") in the near future. This new arrangement was confirmed by a letter from Mr Goodfellow dated 21 January 2004, again following a telephone conversation, in which Mr Goodfellow gave details of his new company, GPM. Mr Goodfellow sent letters to the tenants of the properties advising them of the position and also had a meeting with Ms Dailly and Mr McNamara junior. From 1 January 2004, GPM charged a management commission on the same basis and at the same rate as that previously charged by CBRE. The commission was deducted from the service charge paid by the tenants of the properties (and held in an Arakin client account opened by CBRE) before the balance was paid over to the Company. Mr Goodfellow wrote to the Company in April 2004 enclosing the Rent Account for the period up to 25 March 2004, and did so again in July 2004 in respect of the next period. Although it was apparent that these documents were sent by GPM, there was no complaint by the Company or by Mr McNamara to the effect that GPM should not have been involved. When the Company was put into liquidation, Mr Goodfellow attended a meeting with the Noters and Mr McNamara. Mr McNamara confirmed that he was happy for GPM to provide any information required by Deloittes.

[70] In April 2006, Mr Goodfellow was asked by Ms Dailly to provide Mr McNamara with copies of all fee accounts raised in the name of the Company during the period of liquidation. Mr Goodfellow provided this information and copy invoices on 24 April 2006. It appears that early in 2007, or possibly late in 2006, Mr McNamara expressed some concern and sought confirmation that he was not being invoiced by CBRE as well as by GPM. By letter of 8 January 2007 Mr Goodfellow confirmed that no invoices had been raised against the Company by CBRE in respect of services provided since GPM had taken over the management of properties at the beginning of 2004. CBRE had provided an account service to GPM - collecting all rents, service charges, insurance premiums, VAT and management charges as subcontractors to GPM - but this had been paid for by GPM out of the management commission which the Company paid to GPM. The Company was not being double charged. Confirmation of this was given by Mr Goodfellow in his letter of 5 February 2007 and was further elaborated in subsequent correspondence. When the liquidators were appointed, they instructed GPM on the same basis as the Company had previously instructed them. GPM continued to use the services of the Property Management accounts department of CBRE, and to pay CBRE for those services out of the management commission which they earned. GPM resigned from acting for the Company with effect from 31 December 2007, though they agreed to stay on for another quarter (until the end of March 2008) at the request of the Noters.

[71] There is therefore, in my opinion, no substance to this allegation made by the respondents.

[72] The second allegation is that no appropriate VAT invoices were rendered by GPM to the Company. He denied this. In the period leading up to the Hearing, Mr Goodfellow was contacted by Mr McNamara with a request that he produce VAT invoices for the £143,000 of additional property costs and for the £116,000 of income shown in the revised version of Appendix 3 prepared by Ms Crangle. As I have already pointed out, Ms Crangle explained that these were not new items of income or expenditure. Mr Goodfellow, not unnaturally, was uncertain as to what unvouched items were being referred to. In his Affidavit, he said that in November 2008 he was asked by the Noters to produce for them copies of invoices which he had received and sent during the course of the liquidation. He replied on 11 December 2008, confirming that he had already given the Noters a full set of invoices, and had also made them available to Mr McNamara. I accept this.

[73] The third allegation against Mr Goodfellow relates to building repairs carried out to Campsie House. Mr McNamara complained that no VAT invoices had been made out to the Company in respect of those repairs. He said that the contractors invoiced GPM and there were no onward VAT invoices from GPM to the Company. Mr Goodfellow accepted that the only invoices from GPM to the Company were for property management duties and a rent review. But he explained that the work for the repairs carried out to the property was invoiced directly to the Company (albeit "℅ GPM") by the contractors. Some potential confusion arose from the fact that in terms of their leases, three of the tenants were to pay for their share of the repairs, leaving the Company with only a small payment to make. The tenants were invoiced in advance on the basis of the estimates for the work, and the Company put up a certain sums by way of a float to enable the work to be carried out. This is explained in detail by Mr Goodfellow in para.24 of his Affidavit. Nothing turns on those details so I do not propose to set them out here. Again, I accept Mr Goodfellow's explanation.

[74] The fourth allegation is that GPM caused a loss to the Company by interfering with the terms previously agreed between the Company and one of its tenants, Drew Johnston, by agreeing a maximum limit on Drew Johnston's contribution to the cost of repairs when there had previously been no such limit. Mr Goodfellow disputed this allegation and pointed to correspondence in September and October 2001 in which this maximum limit had been agreed by solicitors acting for the Company. There is nothing in this criticism by the respondents.

[75] The fifth allegation is that GPM caused a loss to the Company by granting Halfords Ltd permission to sublet, when such permission had previously been refused. In paragraphs 29-34 of his Affidavit, Mr Goodfellow sought to explain what had happened. The premises were indeed sublet, but the sublease was agreed when the company was in liquidation, when GPM were not accountable to the respondents for their actions. In any event, the sublease was to a respectable tenant on similar terms to those of the head lease, so that the Company was never disadvantaged. There is no substance to the complaint.

[76] The sixth and final allegation relates to a unit at the Duchess Trading Estate and an attempt early in 2008 to enter into a lease with Key Lighting in respect of that unit. Mr and Mrs McNamara allege that the Noters were warned by them and by Mr Gow, the Company's solicitor, that it would be a waste of time and effort to attempt to persuade Key Lighting to enter into the lease. The allegation is made in para.4.1(d)(iii) of the "Addendum to the Respondents' Statement of Objections" (No.210 of Process). The precise nature of the allegation is not clear from this. Nonetheless, Mr Goodfellow sought to explain the position. From that explanation and the correspondence to which he referred it is clear that the allegation is without merit.

[77] Mr Goodfellow was cross-examined by Mr and Mrs McNamara. Much of the cross-examination appeared to proceed upon the misapprehension that, prior to the liquidation, GPM had acted as subcontractors to CBRE rather than, as Mr Goodfellow explained, the other way round. A number of other points were taken, but I am satisfied that nothing emerged in cross-examination to shake Mr Goodfellow's evidence. He was an impressive and, in my opinion, wholly reliable witness. I have no hesitation in accepting his evidence.

(c) Brian Milne

[78] Brian Milne is an insolvency practitioner and has been involved in insolvency and corporate recovery work for over 17 years. He joined Deloittes in July 2005. He was not directly concerned in the conduct of the liquidation, except for being party to discussions on one occasion shortly before the sist, but became involved in looking at the issues raised by the Reporter.

[79] He gave evidence about the time recording system used by the Noters and the process by which time spent was allocated to any particular aspect. In his opinion the Statement of Intromissions submitted to the Reporter, accompanied as it was by a report of what the relevant insolvency practitioner had done and the time and expenses summary set out in accordance with SIP 9, was entirely normal.

[80] Mr Milne gave evidence about the treatment of corporation tax when the Company was in liquidation. He stressed that a sist of the liquidation with a view to returning the company to its shareholders as a going concern was unusual. A company in liquidation was required to pay tax on its chargeable gains, including on interest earned on funds held on deposit. But while the company was in liquidation, HMRC required corporation tax to be paid on a receipts and payments basis. A new accounting period commenced when the liquidation commenced and another new accounting period commenced when the liquidation was sisted. At the commencement of the new accounting period when the winding up commenced, the basis upon which corporation tax was paid by the company changed to a receipts and payments basis; and upon the liquidation being sisted a new accounting period commenced and the basis of payment of the tax changed back. Not all of the expenses incurred by the liquidators in conducting the liquidation could be claimed as deductions for the purposes of corporation tax. Only expenses incurred by the liquidators in carrying on the business of the Company or in realising chargeable gains could be deducted.

[81] In the present case, none of the liquidators' claims for payment or reimbursement of expenses had yet been sanctioned or paid, except for a small payment at the beginning, because the liquidators had not complied with their obligations under s.53 of the Bankruptcy (Scotland) Act 1985 as applied to liquidations by the Insolvency (Scotland) Rules 1986. I asked him how, in those circumstances, the fees and expenses of the liquidators, which had not yet been approved or paid, would be dealt with. His view was that, whilst the Company was in liquidation and corporation tax was dealt with on a receipts and payments basis, then until the liquidators' fees and expenses had been approved by the court (or liquidation committee) and paid, they could not be set off against receipts for the purpose of calculating the tax due. When they were approved and paid, the Company could set them off against its receipts. Once the liquidation was sisted however, and the Company was returned to its shareholders, liability to corporation tax fell to be assessed on a different basis. It was possible that such of the fees and expenses incurred by the liquidators which were in principle deductible, could now be brought into account even though not yet paid. The Company might be allowed to resubmit a corporation tax return covering the period of the liquidation. So far as Mr Milne was aware, this was something about which there was no clear guidance. He thought that the argument could be made and was compelling as a matter of accounting common sense, albeit he did not know what the approach of HMRC would be to it.

[82] Mr Milne explained that there were different ways of bringing a liquidation to an end. It could be done by a final meeting of the creditors or by order of the court. In either case it was necessary to finalise the tax position with HMRC. If there were any live issues between the Company and HMRC, arising out of the business carried out before the liquidation or out of the conduct of the liquidation itself, these would have to be resolved between the liquidators and HMRC before the liquidation was formally brought to a close.

[83] The Reporter, in his Report, considered that the "total time charged by 'Partners & Directors'" of Deloittes was excessive. Disagreeing with this, Mr Milne supported the submissions made by the Noters at paras.4-8 of their "Statement ..." (No.207 of Process). The correspondence relating to the liquidation, particularly that between the Noters and Mr McNamara, had been "problematic". He referred to paras.27-36 of that "Statement ..." (No.207 of Process). In all the circumstances, Mr Reid, correctly in his view, had not wanted junior members of staff dealing with the case.

[84] One of the issues before the court concerns the question of waiver of the Noters' failures to comply with the requirements of s.53 of the Bankruptcy (Scotland) Act 1985. Mr Milne said that it was not uncommon for liquidators not to comply with those requirements. It was an expensive process. That section required the Noters after each accounting period of six months to submit an account of their intromissions with the Company's property and their claim for outlays and remuneration. Preparation of those submissions, with the involvement of solicitors, cost some hundreds of pounds. A Reporter was appointed by the court to consider the documents submitted by each occasion, and this cost in the region of a further £1,000 plus VAT. So it all cost up to about £2,000 per time. The only person who was disadvantaged by a failure to comply with that section was the insolvency practitioner himself, since he was the one who would be out of pocket.

[85] Mr Milne was cross-examined by Mr McNamara. He was shown a Memorandum from the Reporter dated October 2008. This was prepared by the Reporter after he had examined all of the files produced to him for his review, and in a number of respects raised questions about the hours and rates claimed by the Noters for certain of the work carried on by them. The Noters has responded to this and their comments had been taken into account in the Reporter's final Report. Nonetheless, Mr McNamara took up some of the points with Mr Milne. In answer to the questions put in cross-examination, Mr Milne confirmed that PKF, who had been employed by the Company before the liquidation in respect of payroll and tax matters, had been employed also by the Noters to carry out certain tasks during the liquidation. Mr Milne could not say precisely what they were engaged on but he thought that PAYE "rang a bell". Mr Milne confirmed that the Noters engaged a Property Manager (GPM) to deal with the Company's property matters and thereby to assist them in their conduct of the liquidation.

[86] Mr Milne was then asked questions about the Noters' time and trouble account which they had submitted to the Reporter. He confirmed that he was aware of it but he had not studied it carefully. A number of points were put to him about the way in which corporation tax had been treated by the Noters. Under reference to a letter from HMRC dated 7 October 2008, he accepted that the liquidators had only claimed the sum of £54,093 against corporation tax in respect of their fees and professional fees incurred by them up to that date. He was referred to the Income and Expenditure Account prepared by Ms Crangle and attached to the Reporter's final Report as Appendix 3. He was asked about a number of items in the expenditure column and, in particular, whether such items were allowable against corporation tax. He confirmed that the figure for advertising concerned the advertising of the liquidation and was not allowable against tax, whereas the redundancy payment was probably allowable. Other items, such as property expenses would depend upon the nature of the expense. He disclaimed any expertise in tax matters.

[87] Mr McNamara questioned Mr Milne about the "prime responsibility" of the liquidators after all the creditors had been paid. Mr Milne considered that the liquidators had a residual duty of care to the shareholders of the Company. He stated again that the failure to report to the court as required by s.53 of the Bankruptcy (Scotland) Act 1985 was because of the costs involved. He was pressed with the increase in the cost of the liquidation after the time in May 2005 when all creditors of the Company had been paid off, and was asked why, in those circumstances the Noters had not complied with their obligations to put in six monthly accounts under the Act. He suggested that that question should be directed to Mr Reid, since he had had very little involvement until after the liquidation was sisted. He was familiar with the liquidation only in broad general terms. He was not shocked by the number of Deloittes' staff used in the course of the liquidation. It should not have been a particularly difficult job in the ordinary course of events but he was aware of the voluminous correspondence which had had to be dealt with by the Noters. Saving costs was generally the reason for not submitting returns every six months as required by the Bankruptcy (Scotland) Act 1985. He did not agree that there would have been a saving in time, confusion and argument if Deloittes had put in their returns within six weeks of 28 April 2005 and every six months thereafter. In his opinion that would simply have meant that there was a hearing like this one every six months or so. His understanding from the files was that the Noters were trying from April or May 2005 to bring this case to a conclusion and that was why they thought it unnecessary to comply with their obligations under s.53 of the Act. It was pointed out to him that, on that basis, there was no reason not to make such an application. He said that he did not have an answer to that. It was put to him that had the Noters submitted their returns under s.53 at the correct time, the Reporter might have picked up the problems at an earlier date, before they became so significant. He was unable to answer this. He said that he was not sure what was in dispute.

[88] Mr Milne's only involvement before the liquidation was sisted had been to attend the strategy meeting in June 2007. He was asked what strategy was agreed. He could not remember the specific outcome of the meeting. He explained that he had been asked to attend by Mr Reid because of his expertise in liquidations in general. The discussion had been about why the liquidation was not progressing smoothly and what could be done to make it go better. Mr Milne said that he came out of the meeting with the view that everything was being done that could be done.

[89] I did not get the impression that, in his evidence, Mr Milne was willing to assist the Court to the best of his ability. He was defensive in his manner and gave the impression that he was giving his evidence reluctantly. He did not appear to have taken any steps before going into the witness box to refresh his recollection. For example, he was unable to help in identifying what the activity codes in the time and trouble account meant. Since, I assume, he had been called with a view to be able to speak to these matters, I would have expected him to have taken the time to find out. Nonetheless, I formed the view that he was truthful in the evidence that he gave. In the event, he was able to say little of direct relevance to the matters in issue. On the issue that most concerns me in this connection, namely the Noters' failure to comply with the requirements of s.53 of the Bankruptcy (Scotland) Act 1985, I was not wholly persuaded by his evidence. However, in fairness to him, he had not been directly involved in the decisions not to submit returns in accordance with the Act and was simply giving his view as to the reasons which he believed would have been behind the decisions that were made.

(d) James Stephen

[90] At the time of his appointment as Joint Liquidator, Mr Stephen was a director of Deloittes. He left Deloittes in March 2006 and thereafter had no involvement at all in the liquidation. Other than in a social context, he was not told of any decisions made in the liquidation after he left or of any of the particular problems that arose. He did not, however, resign from his position as joint liquidator when he left Deloittes. He accepted that he was still responsible for the conduct of the liquidation. He explained that it quite often happens that where a liquidator leaves the firm, and it is expected that the liquidation will be concluded fairly quickly, he will just remain in office until that time. He will make loose arrangements to ensure that the liquidation is carried on and will notify his regulatory body that he remains liquidator even though the liquidation is not being carried out within his new firm. But in practice, in a case where there are joint liquidators, the conduct of the liquidation will be left with the "incumbent" (i.e. the joint liquidator remaining with the original firm), and if there are any major issues which require to be discussed, the onus is on the incumbent to contact the person who has left. Mr Stephen said that he was not going to phone up every three months and ask to be sent the correspondence on the liquidation.

[91] That arrangement is, to my mind, not altogether satisfactory. I shall return to that at the end of this Opinion. For present purposes, however, what is of importance is that Mr Stephen, albeit accepting responsibility for what had occurred, was not in a position to give any material evidence about what had happened after he left Deloittes; and even in respect of the period before he left Deloittes, there were a number of occasions when he emphasised that, because he had had no involvement for over four years, he had no clear recollection of particular matters.

[92] Mr Stephen was asked to confirm that soon after he came into office as joint liquidator, the Noters asked the McNamara family to waive their claims as creditors on the basis that that would save time and make the liquidation easier to progress. He recalled that there were discussions about them waving their claims, but Mr McNamara did raise claims in the liquidation. Mr Stephen recalled a sum of £30,000 being paid to him early in the liquidation, and a sum of about £5,000 being paid much later, certainly after July 2005. The suggestion that the respondents waived their claims struck him as "a bit of an odd question".

[93] He was shown a list of creditors and was asked to confirm that the last payment of a creditor was on 17 May 2005. He was also asked to agree that the total of the creditors' claims in the liquidation amounted to no more than about £272,000. He was unable to say what the correct figure was, but he did not agree that there were no further creditors to be paid after 17 May 2005. He said that there were still potential claims from HMRC for VAT and PAYE. There was also the possibility of claims from Mr Frost and another individual, Mr Warwick, though no claims were ever formally lodged by them. Later, the McNamara family also raised further claims.

[94] So far as concerns the claims from HMRC he explained that in any liquidation there were pre-appointment liabilities, i.e. claims that the Revenue had up to the date of the liquidation. These claims were amongst those which were paid off by 17 May 2005. However, before the liquidation could be closed, there was a need to agree and pay the post-appointment liabilities. In any insolvency where the company had assets and a business which required to be run (or run down), there was a potential liability for VAT, corporation tax and PAYE. In such cases, although all the pre-appointment creditors might have been paid off, the question of liability to HMRC for post-appointment tax of one sort or another had to be dealt with.

[95] Mr Stephen was shown a letter dated 16 December 2004 from Mr Gow, a solicitor who had previously acted for the Company. In that letter, Mr Gow referred to the possibility of the liquidation being sisted under section 147 of the Insolvency Act 1986. He also set out in that letter a definition of "contributory" as used in the Act.

[96] Mr Stephen confirmed that the Noters corresponded with The West Corporation from June 2005 onwards. He was taken through that correspondence. In August 2005 the Noters had written to West saying that since all the creditors would be paid in full, they intended to seek guidance from the court as to the most appropriate route to take, including sisting the liquidation. At that stage all the creditors apart from HMRC had been paid, though subsequently there were further claims from the McNamara family. West had responded. They assumed that, on the basis that the liquidation would soon be brought to an end, the Noters would be submitting their costs in the near future; and they asked to be sent a draft of the costs submission in case there was anything they wished to comment on. In their response, the Noters identified two options for ending the liquidation. One was to distribute the assets to the shareholders. They anticipated that at the end of the liquidation they would be holding cash in excess of £300,000 in addition to the Company's property portfolio. The alternative was to apply to the court to sist the liquidation and return the Company to the control of its directors and shareholders. The Noters pointed out that this kind of application to the court was extremely rare. They asked West for any comments on these two options. A director of West, a Mr Seaward, wrote to the Noters on 14 December 2005 informing them that West was the sole registered shareholder of the Company and held the shares as nominee for Isle of Man settlements created by and for the benefit of the members of the McNamara family. He was concerned about the potential tax liabilities if the liquidation was brought to an end by a distribution of assets to the shareholders.

[97] It appears that Mr Seaward had discussions with the McNamara family and others concerning a proposal that Mr and Mrs McNamara together with their son and daughter, Ms Dailly and Mr McNamara junior, should replace West as trustees. On 12 January 2006, West wrote to the Noters enclosing a stock transfer form for the whole of the shareholding of 5,000 ordinary £1 shares in the Company held by them as trustees of the two McNamara settlements. They said that the trusteeships had now been transferred to the new trustees, i.e. Mr and Mrs McNamara and their son and daughter, and that the Register of Members should be amended to reflect that change. On 20 January 2006, they asked for confirmation that the change had been made. Mr Stephen was asked in cross-examination what he did with that letter. He pointed out that such a transfer was void under s.127 of the Insolvency Act 1986. He assumed that he would have discussed this with Mr Reid and probably also with McGrigors, though he had no specific recollection. He wrote to West on 3 February 2006 saying that the transfer was void and that the Noters did not recognise it. He went on to say that the Noters were in the process of finalising remaining matters in the liquidation and that it was their intention to present a note to the court to have the liquidation sisted, the discharge granted and control of the assets of the Company returned to the Company's officers. Once that had been done, West and the McNamara family could agree whatever transfer of shares they wanted. On the basis that West remained the shareholder of all the shares in the Company, he asked for confirmation that they agreed to this course of action. West responded on 7 February 2006 to the effect that the transfer would not be void if the court so ordered, but they were not clear whether the application to the court should be made by the Noters or the transferees. They pointed out that the transferees were not professional trustees or insolvency specialists and might not be aware of what was needed. They saw no reason why the court would not make an order validating the transfer. They added this:

"Presumably in making an application for the liquidation to be sisted, you must make full disclosure of this matter and note the interest or potential interest of the transferees and indeed give notice of the application to the transferees. However, I should be grateful if you would please confirm if you do not intend to give such notice."

They concluded by saying that West, having resigned as trustees, had no further interest in the matter and therefore could not give their confirmation to the proposal to have the liquidation sisted. They said that the "new trustees", as they called them, might wish to object to this. They suggested that the Noters contact them to ascertain their position.

[98] Mr Stephen was asked why he did not do something to notify the McNamara family of what steps they needed to take, given that they had been told by West that the McNamara family were not professional trustees or insolvency specialists and might not be aware that any application was needed. Mr Stephen said that he presumed that the McNamara family would have been told by West. He was surprised if West did not advise the McNamaras at the time that applications were needed. The Noters were not there to advise them. Mr Stephen was asked about subsequent correspondence and conduct in relation to this matter, but was unable to help since he left Deloittes at this point. He could only answer regarding the conduct of the joint liquidators up until the day he left Deloittes. At that point the issue of the share transfer was a live issue, but he could not comment about what was written in letters subsequently. He was pressed by Mrs McNamara on whether he felt he owed some duty of care to the respondents, to point them in the right direction on the question of the share transfer. He repeated that he assumed that there was correspondence between West and the McNamara family on this question. But he added this:

"all your questions seem to be directed towards this, this share transfer and the fact that we considered it under section 127. Probably the easier way for me to answer the question is to put it in the context of where we were in the liquidation at that point. At that point we were ready to start preparing the note to sist the liquidation, so rather than going through a process of transferring the shares from the West Corporation into the McNamara family, to be absolutely blunt about it, the whole liquidation was not a happy process. And to end the liquidation, it was always going to be much easier dealing with the West Corporation then yourselves [i.e. the McNamara family]. So we took, we took the view, as I was leaving Deloittes, that we would, we would sist the liquidation, and after that you and the West Corporation could decide whatever you wanted to do regarding the shares."

Pressed further on this by Mrs McNamara, Mr Stephen emphasised that West, not the McNamaras, were the shareholders.

[99] I should note here that in cross-examination by Mr Connal QC, Mr Stephen was shown correspondence in February 2006, not long before he left Deloittes, in which Mr McNamara had intimated his intention to seek the court's confirmation of the transfer. It appears - and Mr Stephen assented to this - that despite what was put to him by the respondents, Mr McNamara understood quite clearly the necessity of making an application to the court in respect of the transfer of shares from West to the McNamara family.

[100] The Note (No.37 of Process), to which I have referred in para.[2] above, was lodged on 6 April 2006. By that Note, the Noters sought approval of the outlays and remuneration, a discharge from liability for their acts and intromissions and for the winding up to be sisted. However, they did not immediately inform either West or any member of the McNamara family of this. On 12 April 2006 they enrolled a motion in the following terms:

"On behalf of the Noters to appoint this Note to be intimated on the walls of court in common form and to dispense with the requirements of intimation, service and advertisement of the Note ... in respect that no person has a legitimate interest to oppose the Note and accordingly to dispense with the period of notice and thereafter to remit, appoint and order in terms of [the material parts of the prayer of the Note]."

Attached to the motion was a draft Order in terms of which, if granted, the Noters' various failures to comply with the Bankruptcy (Scotland) Act 1985 and the Insolvency (Scotland) Rules 1986 would have been waived, a Reporter what would have been appointed to audit the Noters' accounts of their intromissions and to report on suitable outlays and remuneration, the Noters' law agents' account of expenses would have been remitted to taxation and, once these various matters had been completed, the winding up would have been sisted. Mr Stephen said that he had not been involved in that motion, since he had left Deloittes by then, though he knew that there was going to be an application to sist the liquidation.

[101] Mr Stephen was asked about the failure of the Noters to comply with the provisions of the Bankruptcy (Scotland) Act 1985, and their motion for these failures to be waived. He accepted that "strictly under the legislation, yes, you should be doing it every six months" but he protested that it was not uncommon to wait for 12 or 18 months before it was done, so that it could all be wrapped up in one. It would simply increase the costs if you had continual court reports. He explained that in the period he was involved in, for about 18 months from October 2004 until the end of February 2006, they were always hopeful that the liquidation could be drawn to a close quite quickly. Therefore the decision was taken not to go to the court reporter. This was not unusual where the liquidation was reaching an end.

[102] Mr Stephen was also examined by Mr McNamara on certain additional points. He accepted, in answer to questions about when various creditors were paid, that the committee of creditors was not validly in office in July 2005, since those creditors who had been on the committee had been paid. Normally, he said, you would leave the creditors with a small balance outstanding, so that they could continue to constitute the committee, but "unfortunately in this case we didn't do that". He was referred to the meeting of the liquidation committee of 4 August 2005, at which payment to the Noters of an interim fee was agreed. Mr Stephen accepted that that was a mistake, since the committee was no longer validly constituted. On the question of the proper accounting for VAT, Mr Stephen said that, during the time that he was at Deloittes, HMRC never gave any indication that there was any problem with the VAT accounting.

[103] One of the items in the time and trouble account lodged with the Reporter related to telephone calls received by the Noters from Mr McNamara. This had been minuted and, in some cases, the duration of the call itself had been noted. Mr Stephen explained that it was not simply the duration of the call which was taken into account in the time sheets submitted to the reporter, but also the time discussing the allegations made in the telephone calls by Mr McNamara and deciding what, if anything, to do about them. Simply to go to the time sheets and pick out every entry with the words "telephone call" next to it, and then to take the time of the call itself, was not the correct way to assess the position.

[104] In cross-examination by Mr Connal QC, Mr Stephen explained that there were a lot of phone calls and other communications from Mr McNamara in the course of the liquidation. He was asked whether those caused a particular difficulty in handling the liquidation. In order to give a fair picture of one aspect of the liquidation, I should set out his answer in full:

"They caused us considerable difficulty at the outset. Due to the foul language that was used in the calls, we had to take Judith Howson off the case and replace her with Nick Clinton. And then ultimately, by and large if I was in the office, I would be the only one that would take his calls, again, due to the allegations and foul language that was used throughout. ... [The calls] continued from October 2004 to the day I left Deloittes."

He explained that due to the allegations which were being made, and the fact that Mr McNamara chose to write to senior partners within Deloittes, to Gordon Brown (the then Chancellor of the Exchequer), to the police, and to HMRC, he felt it was appropriate to keep some record of the calls. He was taken to some examples in the files which were illustrative of the wide variety of matters covered by the calls and a wide variety of complaints made by Mr McNamara.

[105] Mr Stephen rejected allegations that Deloittes was guilty of overstating the amounts they were entitled to. He said that the vast majority of time that was spent "was due to the actions of Mr McNamara in continually raising allegations, issues, regular telephone calls, letters, which frequently had huge attachments to them".

[106] Finally, Mr Stephen said that prior to the correspondence with West, he had understood the shareholders to be the McNamara family, because Mr McNamara had regularly written to them advising that he was the shareholder and, at some points, had advised them that he was holding meetings of contributories, which Mr Stephen took to be the members of the Company.

[107] I considered Mr Stephen to be an honest and reliable witness. Where I have a criticism - and I deal with this below - it is not related to the manner in which he gave his evidence, or to his honesty or reliability.

(e) John Reid

[108] Mr Reid is a chartered accountant with Deloittes. He has been involved in insolvency restructuring for over 25 years. He obtained an insolvency licence in 1993 and started taking appointments in his own name as a partner in Deloittes in 1995. He is one of the Noters and, as Mr Stephen made clear, the senior of the two. After Mr Stephen left Deloittes, it was Mr Reid who took practical responsibility for any decisions that were made, although Mr Stephen, as he himself accepted, also remained legally responsible for such decisions.

[109] Mr Reid confirmed that early in the liquidation, the Noters asked the McNamaras to waive their claims against the Company to enable the liquidation to be brought to a close more speedily. At the commencement of the liquidation, Mr McNamara had claims, arising out of directors' loans, of about £30,000. There was then a further claim of about £5,000 which was paid in January 2006. In addition, he said, there were at various different stages other claims lodged by other members of the McNamara family.

[110] Mr Reid was challenged on the basis that, although the creditors had been paid off by the end of March/April 2005, the Noters delayed in moving the court to sist the liquidation until April 2006. It was put to him that the costs incurred in the liquidation in the period in between were incurred because the Noters attempted to run the company as an ongoing trading activity, which itself involved them in carrying out work on tax and VAT. Mr Reid rejected this allegation. Insofar as the criticism was based upon the Interim Report of the Reporter, the Noters had responded to that Interim Report and the Reporter had been satisfied, since the points did not appear in his final Report. There had been a need to deal with about 16 VAT returns and about 4 corporation tax returns. In addition, the Noters approached the shareholders of the Company, West, with proposals as to how the liquidation should be brought to an end, and that involved consideration of the tax consequences of the different ways of achieving that. This was not detailed tax planning; rather, it involved looking at it from the "broad perspective of what would be tax advantageous". Insofar as the Reporter had at one stage not seen all the material from the Noters' files, further material was sent to him. That material appeared to have satisfied him.

[111] At the beginning of the liquidation, when the Noters were appointed, there was a degree of surprise on their part that the assets of the Company included cash totalling about half a million pounds and a property portfolio. It was their intention to agree the claims of the creditors, complete whatever other matters of liquidation administration were necessary, and then seek an exit. At that stage, they did not know what would be the appropriate exit strategy. A liquidator would not normally spend a lot of time discussing or debating the exit from the liquidation, because the statute lays down the ordinary process by which he takes his discharge and how he vacates office.

[112] Mr Reid was asked about the interim payment made to the Noters when the liquidation committee was not properly constituted. He explained that they had approached the liquidation committee with a claim for about £53,000. There had been some discussion amongst members of the committee as to the appropriate amount and the figure of £30,000 was settled upon and accepted by the Noters. However, when the Noters went back to the liquidation committee to get formal authorisation, by that stage three out of the five members of the committee had been paid and the committee was therefore no longer quorate. This had been a mistake, but the Noters had not intentionally obtained payment improperly. It was put to Mr Reid that if they had not been able to obtain the £30,000 in that way, they would have had to apply to the court in terms of s.53 of the Bankruptcy (Scotland) Act 1985. He agreed with that. He did not agree, however, with the suggestion that their failure to do that contributed to the delay in handing back the Company.

[113] Mr Reid was shown the letter from Mr Gow of 16 December 2004 in which Mr Gow had referred to the possibility that the liquidation could be sisted under s.147 of the Insolvency Act 1986. Mr Reid agreed that this put forward a solution which might be appropriate to the particular case, but he added that it was the mechanism which the Noters themselves used when they made the application for a sist in April 2006.

[114] Mr Reid was taken to the correspondence from West which had been shown to Mr Stephen. It was apparent, and he accepted this, that the Noters were aware as early as 7 December 2005 that West were the shareholders. On 12 January 2006 West enclose the stock transfer form by which they purported to transfer their shareholding to Mr and Mrs McNamara, Ms Dailly and Mr McNamara junior. Mr Reid said that they decided to oppose the transfer. They discussed the matter with McGrigors. The principal reason was that any such transfer would require court authorisation. The Noters were "completely neutral" as to who held the shares. But in their view that could all be done post liquidation - dealing with it then would be an unnecessary activity which would hold up the process of sisting the liquidation. Asked again about this, he reiterated that "the principal reason for our objecting was in order to expedite the sist of the company." The further transfer of shares was not necessary for the purpose of bringing the liquidation to a conclusion. The quicker the liquidation was brought to a conclusion, the quicker the share transfer could then be effected without any interference from the Noters or the need for sanction from the court. He noted, under reference to a further letter of 8 August 2006, that West were still enquiring as late as August 2006 whether progress had been made. The motion of 12 April 2006 to sist the liquidation was made after the correspondence with West in January and February 2006 regarding the share transfer. West had resigned (or purported to resign) as trustees. That was why it was thought possible in that motion to say that no person had a legitimate interest to oppose the Note. West had expressed the view that they had no further interest and the Noters considered that the McNamaras did not have a legitimate interest, since the transfer to them was not valid and they were therefore not shareholders. That matter was discussed with McGrigors as well.

[115] In answer to questions from the court, Mr Reid accepted that part of his thinking was that while the Noters could deal with West the liquidation could be brought to an end fairly easily. On the other hand, if the transfer went ahead before the liquidation could be sisted, that would give rise to further difficulties because of the breakdown of relations (or "trench warfare") between the Noters and the McNamaras. As Mr Reid put it:

"there were two strands to our thinking, the one that I've ... alluded to earlier, which was that ... the action to transfer the shares, to get the courts agreement was yet another action that was unnecessary. But the second point that you allude to ... was exactly that, without, unfortunately, the history of this case and the history of the ... relations with ... Mr and Mrs McNamara ... were implacably opposed to the liquidation in the first place. [They] had a history of taking actions against professional advisers. They had also supplied us with voluminous correspondence throughout the liquidation up until that date, in which there had been a whole series of allegations and accusations, both in writing and on the telephone, indicating that they were, I think, ... to understate the case, not minded to agree anything with regard to fees in our case, therefore, in these circumstances ... we were looking at an appropriate route which would help to protect our firm and ourselves as liquidators in ... the cessation process."

Asked by the court whether it would be fair to say that the Noters' interest would be served by either opposing the transfer or least not help it along until they had got out of the liquidation, Mr Reid replied:

"Yes. And, to be clear, we would have opposed ... the transfer for those reasons. We did not think the transfer would facilitate the speedy and efficient sisting of the liquidation."

Asked if this was because of what they perceived to be difficulties that would be placed in their way were the McNamaras to be in the position of having a legitimate interest to oppose or take a part in the process of deciding the future disposal of the liquidation, Mr Reid said "yes, that's a fair summary".

[116] Mr Reid did not accept the suggestion put to him by Mrs McNamara that by seeking a judicial discharge or release from liability in respect of their actings as liquidators they were acting in their own interests rather than carrying out their duties under the Act. He said that they were seeking to have the liquidation brought to as expedient and efficient end as they possibly could, and were seeking to have the process of sisting the liquidation reflect, as far as possible, the more usual process of bringing the liquidation to an end. That process involved a judicial discharge of the type sought in the Note. He accepted that in relation to the Note and the motion in April 2006, he was seeking to deny locus to Mr and Mrs McNamara. He wanted the sist to go ahead without the involvement of the McNamaras in the process. In the event, the court did not dispense with the requirements of intimation and service. The interlocutor of 19 April 2006 required service of the Note on West and allowed any party claiming an interest to lodge answers to it.

[117] A motion was made in June or July 2006, or perhaps somewhat later, by Mr and Mrs McNamara for the share transfer to be recognised. Mr Reid confirmed that he instructed McGrigors at that stage to oppose the application for approval of the share transfer. There was an appearance before the court on 21 September 2006 at which, according to a letter written by Mrs McNamara to the court the following day, the court was unable to consider the matter until it was in possession of the stock transfer form. Mr Reid recalled being in court but did not recall that particular issue being raised. It was suggested in the letter, and this suggestion was repeated to him in his evidence before me, that it was surprising that he had failed to instruct counsel that the signed stock transfer form had been sent to Deloittes in January 2006. Mr Reid confirmed that he was aware of the stock transfer form having been delivered to them on 12 January 2006. He could give no explanation as to why that should not have been brought to the attention of the court at that time. He denied, however, that there was any deliberate intention to keep this from the court. It may have been oversight at the time, but certainly there was no intent. Once the stock transfer form was made available, it did not take very long for the court to give its approval to the transfer by its interlocutor of 22 November 2006. The note lodged by the McNamara family to have the stock transfer approved by the court was initially opposed. The Noters lodged answers to it. However, by the time of the hearing on 22 November 2006 there was no longer any active opposition.

[118] The suggestion was made at that time by Mr and Mrs McNamara that there should be a meeting of contributories so that their wishes could be ascertained. This was taken up in correspondence. Mr Reid was asked about this. I do not think it is necessary to set out this part of his evidence. At that stage the Noters were disputing the status of the members of the McNamara family as contributories. They continued to dispute that until a hearing on 27 August 2007 when it was accepted on their behalf that the shareholders were contributories. Mr Reid accepted, in answer to a question from the court, that this denial of their status as contributories was part of the same tactical approach which he had explained earlier, of taking steps to prevent the McNamaras coming into the process and disrupting the Noters' attempts to bring the liquidation to an end. But he strongly refuted the suggestion from Mrs McNamara that the Noters were hoping, by denying locus to the McNamaras, to have the prayer of the note granted without opposition and thereby deny the McNamaras an opportunity of complaining about the VAT and other irregularities or breaches of duty allegedly committed by the Noters during the course of the liquidation.

[119] Mr Reid was also asked some questions by Mr McNamara. On the question of the Noters' dealings with HMRC, Mr Reid confirmed the evidence given by Mr Milne that, for a company in liquidation, corporation tax is dealt with on a receipts and payments basis, and all that is required is a simple receipts and payment account. Accordingly, when a company goes into liquidation, corporation tax, which was previously charged on earnings basis, is thereafter charged on a cash or receipts basis; and if the company comes out of liquidation and is restored to its shareholders, it reverts to paying corporation tax on an earnings basis. Whilst the company is in liquidation, HMRC does not insist on the submission of full statutory accounts. On a separate point, about whether or not the liquidators' fees and expenses were all deductible against liability for tax, Mr Reid explained that their fees and expenses would be deductible in so far as they were incurred in respect of running the business but would not be deductible if incurred solely for the purpose of the liquidation. He explained that he was not a tax expert. He had staff who prepared the numbers and the accounts. He did not have a detailed knowledge of every entry and every transaction. Broadly speaking the costs of running the companies would be deductible unless they were a capital item.

[120] Mr McNamara pressed Mr Reid about the expenses which could have been claimed against tax but, according to Mr McNamara, were not, leading to a large overpayment by the Company. Although Mr Reid could not speak to the individual entries, he was asked by the court in general terms how the liquidators' fees and expenses would be taken into account. While the Company was in liquidation the tax was assessed on a receipts and payments basis. This would mean that very little of the Noters' fees and expenses to date would have been taken into account. The only amount approved and paid was the £30,000 (wrongly) approved by the liquidation committee at an early stage. If, as a result of this application, the court approved the Noters' claim for remuneration and outlays over the four years or so of the liquidation, and those were then paid, it was Mr Reid's understanding that it would be possible to reopen earlier corporation tax returns for periods in respect of which tax had already been paid. Further, as and when the liquidators' fees and outlays are approved and paid by the Company, at that time any VAT element will be deductible in the hands of the Company in its then current VAT return. There would be no barrier to recovery of VAT in those circumstances.

[121] Mr Reid was asked questions about the Noters' failure to comply with the provisions of the Bankruptcy (Scotland) Act 1985. In answer to questions from the court, he explained that part of the reason for not submitting returns every six months was the cost of the application and the fact that it was envisaged that the liquidation could be brought to an end relatively quickly. In addition, however, he said that

"we also expected that any sort of process such as the appointment of a Court Reporter would immediately provoke some form of flurry of motions to court from Mr and Mrs McNamara and, in those circumstances, we took the decision that we ... were waiting till the conclusion ..."

Mr Reid confirmed that this related back to the point discussed earlier about the Noters' strategy of trying to avoid the possibility of Mr and Mrs McNamara becoming involved before the liquidation was sisted. They were trying to close the liquidation before the McNamaras could become involved. But he did not, as I understood it, accept that if regular returns had been made every six months it would have made any significant difference to the length of time and the costs incurred in the liquidation.

[122] Mr Reid was cross-examined by Mr Connal QC on a number of points of detail. He clarified that after an initial payment of £30,000 to Mr McNamara in respect of his claim, a further claim for £5,000 was made and paid in early February 2006. Given the financial position of the Company, if a claim by a creditor was accepted, it would have been paid in full and the creditor would have thereupon cease to be a creditor. Accordingly, the attempts by Mr McNamara to be recognised as a creditor at various stages were pointless. The approach of the Noters was to say, let's not worry about whether these claims are or are not valid, let's just finish the liquidation and return the Company to the family, and then the family can do as they wish with the assets.

[123] It seemed to me that Mr Reid was entirely candid in giving his evidence. Indeed, in explaining his thinking behind various actions, and in particular how certain decisions taken by him were motivated by a desire to prevent the McNamaras becoming involved in the liquidation before it could be sisted, he not only showed a refreshing honesty but also revealed the extent of the difficulties and frustration experienced by the Noters in the course of dealing with this particular liquidation. I shall have to consider carefully what to make of that aspect of the Noters' conduct, but that is a separate question from that of his credibility and reliability as a witness.

(f) Neil Whyte

[124] Neil Whyte was an accountant with PKF, who had been the Company's accountants and auditors since 1987. They were paid approximately £4,000 a year to supply auditing, accounting, salary and wages, National Insurance Contributions, VAT and corporation tax services to the Company. At the request of the Noters, PKF had prepared the accounts for the Company for the period ending 28 April 2004. The Noters retained the services of PKF for the purpose of dealing with wages and accounting to the Inland Revenue for Employers' National Insurance Contributions until the end of 2007. Mr Whyte confirmed that the final accounts for the period ending 28 April 2004 showed a debt of about £183,000 owed to Mr McNamara under the terms of an Assignation dated 6 April 2000, together with a sum of £35,000 due to Messrs A & J McNamara on a directors' loan account. These details were confirmed in a letter sent by PKF to Ms Dailly dated 5 December 2005, which had been forwarded to the Noters by Mr McNamara on 12 December 2005. Mr Whyte could find no correspondence from the Noters questioning whether the sums were due. On 20 January 2006 PKF had written to the Noters, at the request of Ms Dailly and Mr McNamara, to confirm that Mr McNamara had requested that the sum of £35,000 and any balance on his directors' loan account should be repaid to him. In cross-examination by Mr Connal QC, he confirmed that it was for the Noters, as liquidators, to adjudicate on claims against the Company.

[125] Mr Whyte also confirmed that The West Corporation, with an address in the Isle of Man, was a trustee services company which was associated with PKF.

[126] I had no difficulty in accepting Mr Whyte's evidence on the limited matters with which he dealt.

(g) Andrew Sleigh

[127] Andrew Sleigh was a solicitor in Burness at the time of the liquidation. He is now a partner in Levy & McRae. He was appointed as a creditor member of the liquidation committee. Burness' claim was paid on 16 March 2005. He was not able to say whether or not Levy & McRae were creditors after 18 March 2005. He was asked to confirm that after March 2005, by which time the creditors committee was inquorate, the only way for the Noters to get paid to their fees would be by way of an application to the court under s.53 of the Bankruptcy (Scotland) Act 1985. Mr Sleigh was simply able to confirm that if there was no creditors' committee, the Noters would have to fall back on the Insolvency (Scotland) Rules 1986.

[128] As with Mr Whyte, I had no difficulty in accepting Mr Sleigh's evidence so far as it went.

Submissions for the Noters

[129] For the Noters, Mr Connal QC first addressed the linked questions of the proper basis of accounting and the payment of corporation tax for the period during which the Company was in liquidation. He pointed out that in terms of section 192 of the Insolvency Act 1986, read with Rule 4.11 and Form 4.6 (Scot) of the Insolvency (Scotland) Rules 1986, the Noters were required annually to send to the Registrar of Companies a statement of the receipts and payments of the Company. There was no statement as to what was required to be submitted to HMRC, but, consistently with Mr Milne's evidence, he submitted that, despite the statement in Tolley's Company Law (Issue 108, December 2009) at para.I7504 that trading and other income of a company in liquidation is generally taxed in the same way as any other company, HMRC was in fact also likely to accept a simple statement of receipts and payments. Section 12 of the Corporation Tax Act 2009 provides that the commencement of liquidation - which, in a case such as the present, occurs on the date of presentation of the petition for the winding up of the company - brings a company's current accounting period to an end and a new accounting period will then begin. Corporation tax in respect of periods before the commencement of the liquidation is computed and charged according to the normal rules. That is also generally the case in relation to the trading and other income of a company in liquidation: Tolley para.I7504. The expenses incurred by the liquidators in respect of the carrying on or management of the company's business are deductible, but there is no general rule that a liquidator's expenses of conducting the liquidation may be deducted: Tolley para.I7510. The letter from HMRC to the respondents dated 7 October 2008 confirmed that HMRC does not insist on the submission of statutory accounts in the case of a company in liquidation. Annual returns, along with tax computations and supporting schedules, will suffice. The only liquidation expenses that had been deducted as expenses up to that date were liquidator's fees of £30,000 and professional fees of £24,093. If, contrary to the Noters' position, there had been any overpayment of Corporation Tax, a claim to recover such overpayments could be made at any time within 4 years of the end of the relevant accounting period.

[130] Mr Connal then dealt with a number of miscellaneous points raised by the respondents.

(i) A committee of creditors had been established. However, since this was an "insolvent" liquidation, it was not necessary for a committee of contributories to be formed: s.138(4) Insolvency Act 1986

(ii) As to Mr McNamara's claims to be a creditor of the Company, he submitted his first claim in the liquidation on 1 December 2004. This was in respect of a director's loan. On 12 May 2005 the Noters paid £30,113 in respect of that claim. They paid a further £5,021 at the end of January 2006 after further evidence had been produced. However, they rejected the remainder of the claim put forward by Mr McNamara, which included a claim for £120,000 in respect of his alleged liability for legal expenses in defending various actions brought against the Company by law firms previously instructed by it. As I understand it, Mr McNamara's claim was originally based upon the terms of an assignation dated 6 April 2000, the evidential value of which was deemed by the Noters to be insufficient to substantiate the claim. In June 2006 Mr McNamara sought to pursue this claim under reference to a copy of a back letter bearing the date 6 April 2000, a document which had not been presented to the Noters until 2006. The Noters again rejected that claim. They were not satisfied as to the authenticity of the back letter. In March 2007 Mr McNamara wrote to the Noters saying that he would not be appealing their adjudication. He explained that any claims that members of the McNamara family might have as creditors would be waived until the return of the Company to the control of its directors and shareholders. This did not in fact occur. Mr McNamara did submit further claims. On 5 July 2007, he submitted a claim for £101,334.26 largely in respect of a sum required to be consigned into court in another case involving the Company and one of its former solicitors. That claim was rejected by the Noters and there was no appeal. A further claim was submitted by Mr McNamara on 29 October 2007 in the sum of £48,869. That was for legal expenses incurred in further litigation, allegedly on behalf of the Company. That claim too was rejected by the Noters. An appeal against that rejection was lodged and would have been heard in June 2008 had it not been for the decision to sist the liquidation and return the Company to its shareholders and directors, after which point any question of whether Mr McNamara was or was not a creditor of the Company became entirely academic. Mr Connal argued that, by submitting these various claims, Mr McNamara considerably delayed and disrupted the progress of the liquidation. Each claim had to be properly considered by the Noters and either paid or rejected. The purpose of making the claims appears to have been the desire by Mr McNamara to have some locus as a creditor, enabling him to participate in the liquidation and to make applications to court in respect of the conduct of the Noters, but this was entirely futile since if it were ever established that Mr McNamara was a creditor, his claim would have been paid in full immediately.

(iii) The respondents had carried out an analysis of the hours claimed in the Noters' time and trouble account. Mr Connal informed the court that the figures as figures were not in issue, though he did not accept the conclusions which the respondents sought to draw from them.

(iv) As to the difference between the versions of the Income and Expenditure Account submitted by the Noters to the Reporter, and appended by the Reporter as Appendix 3 to his draft and his final Reports, Mr Connal said that the materials supporting the revised version (and explaining why there were differences and what they were) had all been provided to the Reporter and, subsequently, to the respondents. The matter was explained by Ms Crangle in her evidence.

[131] Mr Connal then proceeded to make the general point that this was a sad case, particularly, he said, for the next McNamara generation, who would be out of pocket as a result of the conduct of this litigation by the respondents. If following the decision of the Inner House in Andrew McNamara v Alexander Stone & Co in April 2004, to which I have referred earlier in this Opinion, advice had been taken that the claim for payment could no longer be challenged, none of this need have happened. The judgment debt would have been paid and there would have been no need for a winding up petition to be presented. Instead, Mr McNamara had continued to seek to contest the claim put forward by Alexander Stone on the basis of the lack of a VAT invoice. Even at this Hearing, Mr Sleigh had been asked about the Alexander Stone debt. Mr McNamara simply would not let the point drop. His conduct in relation to that and other litigation was described in detail in the Opinion of the Court delivered by Lord Reed in The Lord Advocate v Andrew McNamara 2009 SCLR 551, as a result of which Mr McNamara was declared a vexatious litigant.

[132] The Reporter, Mr Hastings, submitted his final report on 11 May 2009. He made certain criticisms of the Noters' conduct of the liquidation. As regards the appropriate figure for remuneration, the Reporter suggested a figure of £265,000, as against the figure claimed by the Noters of £358,339.25, both figures exclusive of VAT. He recommended that the Noters' claim for Category 1 Disbursements in the sum of £1,025 be accepted. Mr Connal submitted that the primary role of the Reporter was an accounting role. He was there to confirm and audit the figures. In so far as he moved into an expression of views on broader issues, where he had made criticisms of the Noters' conduct, his views were entitled to respect, but they were only views and the court should pay them such regard as it thought fit having regard to all the evidence and documentation in the case.

[133] Mr Connal took as the agenda for the issues to be resolved at this hearing the "Note for Future Procedure" lodged by the respondents in September 2009 (No.213 of Process). Some of the matters listed there had been resolved at the hearing leading to my Opinion of 22 December 2009 (unreported, [2009] CSOH 175). Items 1-4 were no longer live. Item 7 too fell away. Item 8 concerned the question of whether Mr Goodfellow was, as the Noters contended, the Company's pre-existing property agent. As to that, Mr Connal submitted that the evidence given by Mr Goodfellow was entirely consistent with the correspondence before the court and confirmed the Noters' position. Item 9 concerned the respondents' contention that the second version of the Income and Expenditure Account, submitted by the Noters and appended as Appendix 3 to the final Report of the Reporter, showed, when compared with the earlier version, "unvouched intromissions by the Noters in respect of £145,000 (Expenditure) and £116,000 (Income) res novitur exposed by the Reporter". The short answer to this, as Ms Crangle's evidence made clear, was that there were no such additional amounts by way of expenditure and income - the apparent difference in the figures was one of presentation and arose out of a mistake made in the original presentation when sums were netted off against each other. The point was without substance. That left items 5-6 and 10-12 which were concerned with the Noters' conduct of the liquidation.

[134] In Item 5, the respondents challenge "the veracity of the Noters' statement" that they could not seek a sist of the liquidation in June 2005 because they were required to wait for a claim from HMRC; and also maintain that the Noters were in fact in breach of their statutory accounting obligations to maintain a VAT account and to account for corporation tax on behalf of the Company, in circumstances where the Company continued to trade profitably and thus continued to incur liability in respect of both VAT and corporation tax. The complaint in Item 6 that the Noters were "improperly motivated, in breach of their fiduciary/ trust duties and obligations owed to the respondents' interests" appeared to be another way of putting forward the same complaints about delay and the alleged failure to act properly in respect of VAT and corporation tax. Items 10 and 11 raised the question of what losses had been caused to the Company by any such breaches of duty as might be established, and whether a finding of breach of duty in the respects complained of would have the effect of striking out large parts of the Noters' claim for outlays and remuneration. The respondents prayed in aid the fiduciary principle that a "trustee must not make a profit out of his trust" and also argued that a person is not entitled to be paid for incompetent work. A related matter was raised in item 12, in which the respondents argued, under reference to the same fiduciary principle, that the hourly rate sought to be charged by the Noters for their handling of the winding up was excessive having regard to the fact that it was a small family company which was manifestly solvent and that it had sufficient cash on deposit to pay all creditor claims from the outset.

[135] Mr Connal sought to address these issues by summarising the sequence of events in the liquidation. In the earlier stages, until about February - April 2006, the dominating feature was the insistence by Mr McNamara on attempting to reduce the Alexander Stone debt and the winding up order based upon it. This was linked to the issue of the alleged assignation through which Mr McNamara sought to achieve some locus. Mr Connal urged the court to reject as unfounded the impression which Mrs McNamara sought to give, in her cross-examination of Mr Reid in particular, that everything would have been fine if only he had spoken to them and addressed their concerns. Nothing could be further from the truth. He referred to the decision in The Lord Advocate v Andrew McNamara for the following description of Mr McNamara's conduct in relation to his refusal to accept the decision in the Alexander Stone case:

"persistence: determination, a willingness to continue in the face of difficulty, and a refusal to take no for an answer ... [justifying] the conclusion that the respondent [Mr McNamara] has instituted vexatious proceedings habitually and persistently."

He also referred to the constant abuse to which Mr Stephen spoke in his evidence, which caused him to move Judith Howson from the case. At the next stage, after early 2006, the question of the assignation continued to be an issue. There were repeated applications to the court by Mr McNamara, which were repeatedly rejected by the court. Mr McNamara appeared to be adopting the approach of seeking to have all issues resolved before the liquidation could be sisted. Mr Connal invited me to reject the argument that the Noters were responsible for delay. The idea of returning the company to its shareholders was identified at an early stage and was pursued. By early 2006, after the exchanges with West, the Noters were in court trying to achieve this. The unusual features which prevented it happening sooner were all matters instigated by Mr McNamara, including applications for the books and records of the company to be handed over, challenges to the Alexander Stone decree, the threat of proceedings against the Noters and other ill founded applications, usually to seek to establish his status as a creditor in order to give himself locus.

[136] As to the specific points raised by the respondents, Mr Connal said that the allegations of an "accounting rip-off" by the Noters - allegations that the Noters had "milked" the liquidation to charge enormous fees for work which was not necessary, all simply to make a profit for themselves - were completely unfounded. Mr McNamara's claim to be a creditor based upon the alleged assignation was unfounded; the assignation had been held to be invalid and the Noters, fulfilling their functions to adjudicate upon claims in the liquidation, had rejected it. Until the communications from West to which I have already referred, the Noters had proceeded upon the basis that the McNamara family were the shareholders, since this is what they had been told by Mr McNamara. The purported share transfer from West to members of the McNamara family was clearly invalid unless and until sanctioned by the court. The Noters had not been obstructive. The transfer was invalid when it was notified to them, and they were entitled to insist on that position unless and until the court made an order sanctioning the transfer. Mr Connal rejected the suggestion that the Noters ought to have assisted by pointing out to the McNamaras the necessity of making an application to the court - it was, in any case, clear from the documents that Mr McNamara knew full well that there had to be an application. There was nothing wrong with the strategy of seeking to have the liquidation sisted before the share transfer was registered. Admittedly the Noters were keen to see the process finished without Mr McNamara obtaining locus, as a shareholder, to intervene further. But they were not seeking to avoid proper scrutiny; indeed, the motion called for the appointment of a Reporter to report on their intromissions and their outlays and remuneration. West's interest was narrated in the Note (No.37 of Process). The Noters' objective throughout was to return the Company to its shareholders with the least possible delay and expense. The Noters' failures to make the appropriate applications under s.53 of the Bankruptcy (Scotland) Act 1985 were motivated by their desire to avoid expense and their perception that the liquidation was nearly at an end. Mr Connal denied that their motive was to avoid giving Mr McNamara an opportunity to cause trouble; but he insisted that if that had been their motive it would be a perfectly legitimate one having regard to the history of the matter.

Submissions for the respondents

[137] The respondents' submissions were made largely in writing. They commenced by making three short submissions of fact. They pointed out, first, that Mr Reid had accepted in evidence that the Noters had known from 7 December 2004 that West was the holder of the shares in the Company. Second, it was apparent from the Schedule of Creditors dated 29 July 2005 and from para.23 of the Note (No.37 of Process) that by July 2005, if not earlier, all creditor members of the liquidation committee had been paid in full. The only outstanding creditors at that time were HMRC. Third, the majority of the members of the liquidation committee had been paid in full by April 2005 and the liquidation committee was inquorate thereafter. Accordingly, when the Noters sought a resolution of the committee in favour of making an interim payment to them of £30,000, which interim payment was drawn down on 18 April 2005, the committee was no longer validly constituted and the payment was therefore unauthorised and should not have been made.

[138] The respondents moved on to deal with the question of VAT and accounting irregularities. They submitted that Ms Crangle had agreed that there had been VAT irregularities during the winding up. She had been asked to re-state the property management payments and receipts. It was clear from her work, they submitted, that there was a difference between the figures in her re-statement as compared with the original. The figures given by HMRC in their letter of 7 October 2008 showed that some £228,000 had been paid by way of VAT. They submitted that Ms Crangle had agreed that it did not appear that all the reclaimable VAT had been reclaimed, though they recognised that she had not been asked to recalculate the VAT position. There was still a discrepancy. According to Ms Crangle, a further £39,000 was owed by way of VAT. They criticised the way in which Ms Crangle had treated payments made by Atrium. They repeated their criticisms of the vouching. No invoices were attached to the reports from CBRE and Goodfellow. Mr Goodfellow had eventually supplied the invoices in response to a request from Deloittes in early December 2008. This failure to provide them earlier was a failure by the Noters. Had Mr Goodfellow been asked for them earlier he would have supplied them earlier. As a result, the Noters had failed to ensure that VAT was properly accounted for during the liquidation. A receipts and payments basis had been used by the Noters for keeping the accounts of the Company whilst in liquidation. There was no statutory basis for that. Whilst it might be the usual practice in the case of an insolvent winding up, it was not appropriate in a case, such as the present, of a company which was in fact solvent and a going concern. The switch to a receipts and payments basis without sufficient rigour in checking back on paid and unpaid invoices had caused a two-year "gap" in the VAT accounting. This had resulted in a new and unexpected VAT liability, according to Ms Crangle, of £39,000, despite having paid £228,000 VAT already and despite it appearing that reclaimable VAT had not in fact been reclaimed. At the very least, the way in which the Noters had dealt with the accounts had caused a great deal of confusion and the loss of the possibility of recovering a substantial amount of VAT.

[139] On the basis of an analysis lodged by them in process, the respondents criticised the Deloittes' time sheets. They complained that no witness could say what the initials "DM" referred to. There were great tracts of the entries, amounting to £204, 469, with no description of the work done. The entries for Mr Kris Keane, whose total time claimed came to £29,227.50, had task descriptions applied to them without any narrative of what he was doing. Ms Crangle identified him as having dealt with the paperwork before she was called in, and on that basis his time ought to be disallowed. It was apparent that at any one time the Noters employed a Senior Manager, an experienced Manager and three cashiers - which the respondents described as "a very high level of service indeed".

[140] Turning to the question of the waivers sought by the Noters for their failures to comply with the requirements of s.53 of the Bankruptcy (Scotland) Act 1985, the respondents suggested that the principal reasons advanced by the Noters for not having applied to the court as required were specious. The Noters talked about wanting to save costs, but all that was involved on Mr Milne's evidence was about £2,500 a time. The Noters said that they anticipated a quick closure of the liquidation, but this was untenable in light of their statement that they were awaiting finalisation of claims by HMRC. The real reason for their failures was their concern, expressed by Mr Reid, that any application under s.53 would trigger a flurry of motions. That was not a valid reason for failing to comply. Had the Noters complied with the requirements of the section, the Noters' accounts would have been audited every six months, errors would have been picked up earlier, the court would have had the opportunity at an early stage to rule on issues that had arisen - accounting practices, VAT and corporation tax issues, claimed rates of remuneration, etc. - rather than these matters all being left to be dealt with as part of a massive and confused hearing some years later covering the whole of the period of the liquidation. In short, the expense of the process which in fact occurred would have been avoided.

[141] On the question of delay, the respondents argued that the Noters should have moved the court for a sist of the winding up once the creditors were all paid in full, by 17 May 2005. The Noters' assertion that thereafter they were waiting for claims from HMRC was unfounded. HM Customs & Excise (as it was then) had issued a "disclaimer" on 20 April 2005; and, in any event, the onus was on the Noters to prepare quarterly VAT returns. The Inland Revenue required returns to be made on an annual basis. No claim was ever received from Mr Frost. There were therefore no creditors' claims awaited in the period June, July and August 2005. It followed that the Noters unreasonably delayed in moving for a sist.

[142] The respondents insisted that the Noters had acted unreasonably in refusing to recognise the share transfer from West to the members of the McNamara family. Their conduct in that respect showed a lack of good faith. They should have assisted in bringing the matter before the court. As it was, they delayed any discussion of the matter before the court when they failed to inform the court that they had in their possession the original share transfer document. Then they opposed the respondents' application to the court for sanction of the transfer, only dropping their opposition at the last moment, when the case came before the court on that application. Worse, they allowed this question to influence their conduct both in failing to apply under s.53 of the Bankruptcy (Scotland) Act 1985 and also in seeking to dispense with service on the respondents when they first moved their motion for a sist.

[143] The Noters' concern to avoid dealing with the respondents also manifested itself in their unjustified refusal to recognise that Mr McNamara was a creditor. Had his status as a creditor been recognised, Mr McNamara could have applied to the court for an order that the Noters comply with s.53 of the Bankruptcy (Scotland) Act 1985. Later, once the share transfer was recognised, the Noters still persisted for a long time in denying that the respondents had any locus as contributories.

[144] In summary, the respondents moved the court:

(i) to refuse the Noters' motion to have the Noters entitled to the outlays and remuneration recommended by the Reporter, Mr Hastings, alternatively to allow such lesser sum as the court thinks appropriate in light of all the circumstances;

(ii) to refuse the Noters' motion to recover their Law Agents' account of expenses already taxed by the Auditor, since the solicitors' fees were not incurred in the proper conduct of the winding up, failing which to allow such lesser sum as might be appropriate;

(iii) to refuse the motion for waiver of the Noters' failures to comply with s.53 of the Bankruptcy (Scotland) Act 1985, alternatively to refuse it until the court has made such order under s.63(1)(a) of the Act, restoring the Company to the position it would have been but for those failures, as the court considers appropriate; and, in particular

(a) in respect of the Noters' failure in not submitting their accounts and claims for outlays within two weeks of the end of an accounting period, and in particular 28 April 2005, 20 October 2005, 20 April 2006, 28 October 2006, 28 April 2007 and 28 October 2007;

(b) in respect of the Noters' failure under Rule 4.10(1) of the Insolvency (Scotland) Rules 1986 by not reporting to the creditors/contributories within six weeks of each accounting period, 20 April 2005, 20 April 2006 and 28 April 2007, having regard in particular to the fact that the Company "was manifestly a solvent going concern and all the accepted creditors' claims had been paid in full by end June 2005, which ought to have triggered issuance of a certificate under Rule 4.59 of the Insolvency (Scotland) Rules 1986 and prevented unnecessary delay in seeking the return of the Company which subsequently transpired";

(c) in respect of the Noters' failure timeously to comply with the requirements of Rule 4.42(6) of the Insolvency (Scotland) Rules 1986 in respect of the termination of membership of the committee of creditor members upon payment of their claim in full with interest under Rule 4.50(c), and the subsequent delay in concluding the winding up;

(iv) to withhold release and discharge until the matters in paragraphs (i)-(iii) above have been concluded;

(v) to find the Noters liable for the respondents' expenses incurred in and about this Note and Motion; and to find the Noters liable for the Reporter's expenses, particularly in light of the difficulties arising out of the Noters' failure to maintain proper and accurate records; and

(vi) to refuse to find the Noters entitled to their further outlays, remuneration and legal expenses incurred in respect of the further proceedings in, or in connection with, the liquidation since 2 May 2008, in light of all the difficulties arising out of the Noters' failure to maintain proper and accurate records, on grounds that such outlays, remuneration and legal expenses were not reasonably incurred and/or were in all the circumstances excessive, failing which to find them entitled to such lesser sum as the court considers appropriate.

Discussion

[145] Having set out in some detail a narrative of what occurred during the liquidation, and having recited at some length the main points of the evidence and the submissions of the parties, I can give my conclusions on the various issues requiring decision fairly briefly. In doing so, I should emphasise two points. First, lest it be overlooked, I am considering the complaints made by the respondents under two separate and distinct legal heads, namely (a) their objections to the Noters' claim for outlays and remuneration and a discharge from liabilities for their intromissions as liquidators, and (b) their complaint, which but for the sist they would have sought to make under s.212 of the Insolvency Act 1986, that the Noters have been in breach of fiduciary and other duties in the course of their conduct of the winding up. That application would have required leave of the court, and I am not to be taken as accepting that leave would have been granted. But since it raises the same issues as their challenge to the Noters' claim referred to at (a) above, nothing is to be gained by ignoring it. In the present case it is, in fact, possible to consider the evidence and arguments together, without drawing a precise line between them. The second point is one which is, or should be, obvious; but I make it in deference to the fact that the respondents have not been legally represented and may not fully appreciate the task of the court. The court's decisions on the issues in dispute have to be based on the evidence before it. It cannot generally speculate about whether there might have been other evidence which could have been led, which might have pointed to a different conclusion. I say this particularly because, even after the proof, the respondents, in arguing another motion before the court, made submissions which both asserted and assumed that the Noters were obviously in default in doing or failing to do various things which are in issue here. I can make no such assumptions, and I cannot accept assertions without evidence. If the evidence supports a finding of some failure on the part of the Noters, I have no difficulty in making that finding. But if the evidence is insufficient for that, I cannot make a finding, however much the respondents might protest to the contrary.

(a) Delay

[146] I begin by considering the question of delay. The criticisms of the Noters' conduct in this respect involve allegations of a breach of duty. For reasons which I sought to express in my Opinion of 22 December 2009, I do not think it matters in the circumstances of this case whether one adds the word "fiduciary" to this. For present purposes it is sufficient to note that the thrust of the allegation is that the Noters failed to carry out their duties as liquidators in a manner consistent with the proper conduct of a winding up by competent qualified liquidators. The complaint goes beyond one of mere professional negligence, where a test equivalent to that put forward in countless litigations against professional advisers can readily be articulated. The complaint is, at least in part, that they deliberately delayed concluding the liquidation so as to continue to rake in fees.

[147] There is, to my mind, absolutely no basis for this allegation. Such an allegation ought to be supported by evidence, both factual evidence directed to the particular acts and omissions of the Noters and also expert evidence directed to a comparison between what they did in the conduct of the liquidation and what an ordinary competent conscientious liquidator ought to have done. Except in the most extreme case, the court is simply not in a position to judge allegations of professional failure without having the assistance of expert evidence to lay the basis for identifying departures from the competent norm. That is as true of allegations of professional misconduct as it is of allegations of professional negligence. This is, to my mind, self-evident, but if support for that proposition be needed it can be found in the recent decision of Lord Woolman in Tods Murray v. Arakin Ltd ([2010] CSOH 90) at paras.[90]-[93], and his subsequent reference to para.[54] of the Opinion of the Court, delivered by Lord Reed, in Lord Advocate v Andrew McNamara. In the present case, there was no expert evidence led by the respondents. Nor was there any factual evidence led which might have raised even a prima facie case against the Noters in this regard.

[148] However, in fairness to the Noters, I should make it clear that it is not only on this basis that I reject this aspect of the case against them. At the invitation of Mr Connal QC, and without opposition from the respondents, I have read through the files of correspondence between the Noters and the respondents from the beginning of the liquidation until its conclusion. I have already made it clear that I accept the evidence of Mr Reid and Mr Stephen. They were both impressive witnesses. I have read through the files both because they form part of the evidence in the case and also in order to provide myself with a cross-reference to evidence given by Mr Reid and Mr Stephen and their questioning by Mr and Mrs McNamara. In listening to their evidence I was made acutely aware that, in many respects, this was a liquidation like no other. From the start, the Noters were harried - I do not think that too strong a word - by Mr McNamara, who persisted not only in continuing to challenge the basis upon which the winding up order had been made, long after there was any legal basis for that challenge or possibility of success, but also in raising other challenges to the orderly conduct of the liquidation. It is unnecessary to repeat here in detail what appears from the Narrative earlier in this Opinion. It is now apparent that at the commencement of the liquidation Mr McNamara was not a shareholder - the shares were held by West - though he insisted on acting as though he was, to the extent of complaining that the Noters had not convened a committee of contributories and even attempting to convene meetings of contributories himself. In so acting he appears to have overlooked the fact that this was, whatever the actual financial position of the Company, an insolvent winding up in which it was neither necessary for the Noters to convene a meeting of contributories (c.f. s.138(4) of the Insolvency Act 1986) or, indeed, competent for them to include contributories as members of the liquidation committee (c.f. Rule 4.41 of the Insolvency (Scotland) Rules 1986). From time to time during the course of the liquidation Mr McNamara corresponded with others as though he continued to represent the Company and, indeed, as though he had some right to tell the Noters how to conduct the liquidation. It is true, of course, that he was a member of the liquidation committee in his capacity as a creditor but he went far beyond the proper scope of that role in his dealings with the Noters. He constantly sought to put forward additional claims, so as to give himself locus as a creditor to intervene in the liquidation, even though it was disruptive to the conduct of the liquidation and even though the exercise was futile - had the claims been accepted, they would have been paid, and he would no longer have been a creditor. At a later stage he constantly made applications to the court rather than allowing the liquidation to be brought to an end. The correspondence in the files exemplifies a course of constant harrying by Mr McNamara on a number of fronts, all of which was calculated to make the conduct of the liquidation difficult if not, at times, virtually impossible. In saying this I refer not only to the constant insistence on taking points which were clearly bad in law (e.g. the refusal to give up the point about the validity of the Alexander Stone debt and the legitimacy of the winding up order, which points had been decided against him) but also the constant threats to report the Noters and others to any number of third parties (including the police and the Chancellor of the Exchequer) and the stream of abusive and, at times, foul-mouthed telephone calls spoken to by Mr Stephen. In face of this conduct, it would not be surprising if the Noters occasionally took a wrong decision or took their eyes off the ball. I consider that they did, in one respect, allow the difficulties of the situation to divert them from the proper conduct of their duties as liquidators. I deal with this below. However, I do not accept that they continued the liquidation for a moment longer than they considered necessary. Certainly I do not accept the allegation that they deliberately continued it longer than was necessary or so as to inflate their fees.

(b) The Noters' use of the services of Goodfellow/ GPM

[149] Complaints were made about the use of Mr Goodfellow and GPM. In dealing with the evidence of Mr Goodfellow I have already made it clear that these complaints are unfounded.

(c) Corporation tax and VAT returns

[150] At the time the winding up order was made, the business of the Company involved the letting of four commercial properties. They were managed by managing agents. Whilst the Company was in liquidation, this business continued and the Company continued to receive income from these properties. With the sanction of the liquidation committee, the Noters continued the running of the business through the same managing agents. Since the business was relatively straightforward, the running of the business during the liquidation did not account for a large proportion of the Noters' fees in the liquidation, though they had to comply with the statutory requirements, including the filing with Companies House of the statutory returns. Nonetheless, it has given rise to disputes concerning the way in which corporation tax and VAT issues have been dealt with.

[151] It has been the McNamaras' perennial complaint that the Noters have failed to prepare and lodge statutory accounts for the Company for the time it was trading whilst in liquidation, and have failed properly to deal with corporation tax and VAT. In particular, they say that they have made overpayments of corporation tax, in circumstances where it is now too late to recover such overpayments; and that, as regards VAT, they have not only overpaid but have failed variously to obtain or keep (or hand on to the McNamaras when the liquidation was sisted) a considerable number of VAT receipts.

[152] On the evidence before me I am not persuaded that the respondents have made good this part of their case. The onus is on them to establish any breach of duty in this regard and, in my opinion, they have not discharged this onus.

[153] Dealing first with the question of corporation tax, it is clear that the commencement of liquidation brings a company's current accounting period to an end and a new one then begins: Corporation Tax Act 2009, s.12(2) and (3). When the winding up is completed, that accounting period ends: Corporation Tax Act 2009, s.12(4). No doubt when the winding up is brought to an end by a sist, and the company is returned to its shareholders and directors, a new accounting period begins at the date of the sist. What appears to have complicated matters here is the switch, once the liquidation commenced, to a different method of assessment to tax. It is stated in Tolley's Company Law, Issue 108 (December 2009) at para.I7504 that, subject to particular rules, "trading and other income of a company in liquidation is generally computed and taxed in the same way as any other company". However, Mr Milne gave evidence that, during the course of the liquidation, HMRC were prepared to accept accounts and corporation tax assessments on a different basis. It appears that the Noters submitted tax returns on a receipts and payments basis. Whether this was based upon an extra statutory concession or on some other footing was not explored in evidence. No evidence was led to suggest that Mr Milne was wrong about this all, nor that this was an unreasonable approach for the Noters to take. Indeed his evidence appears to be consistent with the letter from HMRC dated 7 October 2008 to which I have referred earlier. Such a change in the basis of assessment for the period of the liquidation will almost inevitably lead to complications, particularly at the end of the liquidation if the company is restored to its shareholders and directors as a going concern, enters a new accounting period at the date of the sist and is assessed for tax on an earnings basis for that and subsequent periods. There will be a difficult transitional period. However, unless it can be shown that the Noters proceeded upon a basis which was wrong in law, or which was unreasonable having regard to the likely outcome of the liquidation, there is no basis upon which they can properly be criticised. It was not suggested that the Noters acted in a manner which was legally incorrect, nor was it suggested that HMRC did not in fact accept corporation tax returns on that basis. Although the criticism was made by the respondents that, having regard to the likely outcome, the Noters ought not to have adopted a receipts and payments basis for assessment, this was not supported by any evidence, expert or otherwise, and I do not accept it.

[154] The respondents' case was, in part at least, to the effect that there had been significant overpayments of corporation tax caused by a failure on the part of the Noters to claim for allowable expenses. The problem with such a case is that it requires to be supported by clear evidence, usually expert evidence. It is well-established that the liquidators' expenses are deductible for the purposes of corporation tax only if they constitute trading expenses, in the case of a company carrying on any trade, or management expenses if the company has investment business: Tolley para.I7510. Although the respondents asked Ms Crangle about whether certain expenses shown in Appendix 3 were deductible, and pointed to the fact that only limited sums had been deducted as set out in HMRC's letter of 7 October 2008, they did not seek to adduce clear evidence in support of a coherent case that the Noters had failed to make the proper deductions. No expert evidence was put forward. No precise figures were put forward in any set of calculations. It may be the case, for all I know, that insufficient deductions have been made, but that is not established on the evidence.

[155] Having said that, I would not wish to give the impression that I believe that there is necessarily a case which could have been made out. Having heard the evidence given by Ms Crangle, I see no reason to take that view.

[156] Turning to the question of VAT, the difficulty for the respondents is similar. They adduced no expert evidence. They put forward no precise calculations beyond showing what amounts of VAT had been paid. They asserted, in cross-examining Ms Crangle, that further amounts ought to have been deducted. At one point it seemed that Ms Crangle had some sympathy with this, but no figures were established in the evidence to support the respondents' case. Ms Crangle's evidence was that far from their having been an overpayment of VAT, there was a further liability of some £39,000. I do not need to go this far. It is sufficient for me to conclude that the respondents have not made out their case on the evidence.

[157] One complaint that has been constant throughout the proceedings is that the Noters have failed to provide the respondents, or more accurately the Company, with a full set of VAT invoices. This was hotly disputed. The Noters have insisted that they have provided all the VAT invoices. Insofar as the property management side is concerned, their case was supported by Mr Goodfellow. I have an uncomfortable feeling that some invoices may have gone astray, but it is no more than that. I have to decide the case on the evidence, and on the evidence I do not find this allegation proved.

(d) Failure to appoint a committee of contributories

[158] The winding up order was made on the basis that the Company was unable to pay its debts as they fell due. This was proved by the deeming provision in section 123(1)(c) of the Insolvency Act 1986, the induciae of a charge for payment on an extract decree in favour of Alexander Stone having expired without payment being made. The fact that the Company was in fact solvent, in that it had sufficient assets to pay its debts, is irrelevant for these purposes. That being the case, there was no obligation on the Noters to appoint a committee of contributories: s.138(4) of the Insolvency Act 1986. This complaint must fail.

(e) Undue use of McGrigors

[159] Complaint was made by the respondents of the undue use by the Noters of the services of their solicitors, McGrigors, and of the fees charged by McGrigors to the Noters and sought to be passed on by the Noters as part of their expenses in the liquidation.

[160] This complaint covers three separate issues. The first is the question of whether it was appropriate to use McGrigors rather than some other firm of solicitors. The criticism by the respondents was that McGrigors had a conflict of interest, having acted for Alexander Stone both in the litigation against the Company and in the winding up petition. I rejected this argument in my Opinion of 22 December 2009 and I say no more about it here.

[161] The second point goes to their rates. These have been taxed by the Auditor of Court. The Noters seek to recover McGrigors' fees as part of their outlays. There is no reason in principle why they should not recover a full indemnity for the fees they have had to pay.

[162] The third issue goes to the extensive use made of their services. It is said, for example, that McGrigors were consulted much more than was appropriate, that the Noters use them when they should have been carrying on the work themselves. It is said also that they advised the Noters on issues which went beyond the scope of the proper conduct of the liquidation. A number of similar points are made. I refer to them in some more detail in my opinion of 22 December 2009. There was a difficulty in exploring this point, since some of the correspondence was obviously addressed to issues relating to the response to be made by the Noters to some of the attacks on them by Mr McNamara and would, on the face of it, attract legal professional privilege. I appointed Mr James Mure QC as a reporter to go through the files and report on what, if any, items of the fees charged should be deducted having regard to these and other criticisms. His terms of reference were set out fully in an interlocutor issued after my Opinion of 22 December 2009. He reported on16 July 2010. His Report is lodged in process. Parties were given the opportunity of commenting on his Report. I accept the terms of that Report and the conclusions reached in it by Mr Mure. He identifies only a few small sums which, in his opinion, ought not to be recovered. In all but two instances he identifies specific sums. In the other two, he suggests that the court might wish to consider making an apportionment of certain expenses. I have done that, by adopting the 25% apportionment suggested in para.14 of his Report and applying 50% to the sums referred to in para.12. These deductions total £2,840, to the nearest round figure. It seems to me that I should deduct this amount from the taxed legal expenses of £206,317.14. I shall allow recovery under this head in the sum of £203,477.14.

(f) The Noters' outlays and remuneration

[163] In accordance with para.(2) of the interlocutor of 6 April 2008, the Noters submitted an account of their intromissions and a claim for outlays and remuneration. The sum claimed was £358,339.25 plus VAT together with a claim for Category 1 Disbursements of £1,025. The Reporter, Mr Hastings, gave this very careful consideration. At the request of the court, he issued an Interim Report, and parties were given the opportunity of commenting on it and making further submissions to him. Finally, and having conferred with the Auditor of Court as he was required to do in terms of para.(5) of the interlocutor, the Reporter issued his final Report, suggesting a figure for remuneration of £265,000 plus VAT and recommending payment of the Category 1 Disbursements of £1,025. That report contained detailed reasons for his recommendations. The report of the Auditor of Court, which did not contain reasons, recommended payment of the same sum for remuneration, though in his case the figure was expressed as a figure inclusive of VAT.

[164] Mr Connal QC maintained a challenge to the findings of the Reporter in his final Report, but he did not press it hard. I took from him the concern that the figure recommended by the Reporter should not be used as the starting point for further reductions in the Noters' outlays and remuneration. I certainly do not intend to treat it as such. However, nothing that I have said earlier about delay and other matters, where I have found that the allegations about the Noters' conduct have not been made out, undermines the points made by Mr Hastings. Equally, I did not understand the respondents to challenge his report, save on the basis of the allegations which I have already considered. In those circumstances it is unnecessary to consider precisely what criteria should be used in determining what weight to give to a Report by a court appointed Reporter in a case such as this. I accept the figures put forward by Mr Hastings in his final Report and allow the Noters a sum of £265,000 plus VAT for their remuneration and, in addition to the McGrigors taxed account (as adjusted) to which I have referred, to allow them the sum of £1,025 for Category 1 Disbursements.

(g) Waiver

[165] There have been a number of failures by the Noters to comply with the requirements of the Bankruptcy (Scotland) Act 1985 ("the Act"), as applied to corporate insolvency by the Insolvency (Scotland) Rules 1986 ("the Insolvency (Scotland) Rules 1986"), and/or with the requirements of the Insolvency (Scotland) Rules 1986 themselves. The Noters ask that their non-compliance be waived. Some of these matters have already been dealt with, but most have not.

[166] In my Opinion issued in re Ben Line Steamers Limited (in liquidation) (unreported, [2008] CSOH 75) I considered the provisions relevant to the determination of a liquidator's outlays and remuneration. It is convenient to set them out again here. The principal provision in the Insolvency (Scotland) Rules 1986 is Rule 4.32. This provides that

"Subject to the provisions of Insolvency (Scotland) Rules 1986 4.33 to 4.35, claims by the liquidator for the outlays reasonably incurred by him and for his remuneration shall be made in accordance with section 53 of the Bankruptcy (Scotland) Act 1985 as applied by Rule 4.68 and as further modified by paragraphs (2) and (3) below."

Paragraph (2) of Rule 4.32 inserts a new sub-section (1A) into section 53 of the Bankruptcy (Scotland) Act 1985 in so far as that section is applied to liquidations. I refer to that new sub-section later. Paragraph (3) makes a consequential modification to section 53(6) of the Bankruptcy (Scotland) Act 1985.

[167] Rule 4.68 provides that:

"Sections 52, 53 and 58 of the Bankruptcy (Scotland) Act 1985 shall apply in relation to the liquidation of a company as they apply in relation to a sequestration of a debtor's estate, subject to the modifications specified in Insolvency (Scotland) Rules 1986 4.16(2) and Rule 4.32(2) and (3) and the following paragraph and to any other necessary modifications."

Rule 4.16(2) effects changes to the language of the provisions of the Bankruptcy (Scotland) Act 1985 so as to make it applicable to liquidations, for example "liquidator" for interim and permanent trustees and "liquidation" for "sequestration".

[168] Sections 52 and 53 of the Bankruptcy (Scotland) Act 1985 (as amended) provide, so far as relevant, as follows (with the necessary insertions and linguistic substitutions appropriate to liquidations identified in italics):

"52 Assets to be distributed in respect of accounting periods

(1) The liquidator shall make up accounts of his intromissions with the company's assets in respect of each accounting period.

(2) In this Act 'accounting period' shall be construed as follows -

(a) ... the first accounting period shall be the period of 6 months beginning with the date of commencement of winding up ...

(b) any subsequent accounting period shall be the period of 6 months beginning with the end of the last accounting period; except that -

(i) ...the liquidator and the liquidation committee or, if there [is] no liquidation committee, the court agree; or

(ii) ...

that the accounting period shall be such other period beginning with the end of the last accounting period as may be agreed ..., it shall be that other period.

(2ZA) ...

(2A) An agreement ... under subsection (2)(b)(i) ... above -

(a) may be made in respect of one or more than one accounting period;

(b) may be made before the beginning of the accounting period in relation to which it has effect and, in any event, shall not have effect unless made before the day on which such accounting period would, but for the agreement ..., have ended;

(c) may provide for different accounting periods to be of different durations, and shall be recorded in the sederunt book by the liquidator.

...

53 Procedure after end of accounting period

(1) Within 2 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 sub-section (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

(c) the liquidation committee [has] not determined that the account should be submitted for taxation,

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

(3) Within 6 weeks after the end of an accounting period -

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

(i) may audit the accounts; and

(ii) shall issue a determination fixing the amount of the outlays and 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."

A liquidation committee was formed in the present case. It became inquorate by about April 2005.

[169] In a case where there is no liquidation committee, the current practice in the Court of Session, which has developed to give effect to these provisions, is for the liquidator to lodge a Note with the court seeking to have a court Reporter appointed for the relevant accounting period. The Reporter advises the court as to the intromissions with the company's assets shown in the account submitted by the liquidator. The Reporter also considers the liquidator's claim for outlays and remuneration and confers with the Auditor of the Court of Session. Thereafter both the Reporter and the Auditor issue their own reports which provide the basis upon which the Court will consider the matter and issue an interlocutor fixing the same.

[170] The requirement put on the liquidator to make up accounts of his intromissions with the company's assets and to submit those accounts, together with his claim for his outlays and remuneration, to the court every six months, imposes a burden on the liquidator which is in most cases not only unnecessary for, but also a distraction from, the proper conduct of the liquidation. Not only that, but the preparation of such accounts and the claim for outlays and remuneration in the detail required for their submission for taxation, coupled with the process of taxation and the preparation of a report by an independent Reporter appointed by the court, involves the incurring of some expense in the liquidation and a corresponding depletion of the funds available for distribution. To that extent it does not appear to be in the interest of the creditors. But too much can be made of this concern. The evidence in this case was that the likely cost of the exercise on each occasion was no more than about £2,500 at the outside.

[171] Because of the cost and inconvenience, it has been commonplace for a liquidator to wait until the end of the liquidation, or at least for periods significantly longer than six months, before applying to the court for an audit of his accounts and for a remit to the Auditor of Court and a Reporter in respect of his outlays and remuneration over a number of accounting periods. In such a case, when making an application to the court, a liquidator will require to seek a waiver of his failure to comply with the time limits under section 53 (and, in some cases, those under section 52). Because of the benefit to the creditors of such a course being adopted, the court has in the past looked sympathetically on such applications.

[172] Rule 7.32 of the Insolvency (Scotland) Insolvency (Scotland) Rules 1986 confers power on the court to cure defects in procedure by applying section 63 of the Bankruptcy (Scotland) Act 1985 with certain modifications. So far as relevant, this provides as follows (with the modifications again shown in italics):

"63 Power to cure defects in procedure

(1) The court may, on the application of any person having an interest:

(a) if there has been a failure to comply with any requirement of the Act or the Insolvency (Scotland) Rules 1986, make an order waiving any such failure and, so far as practicable, restoring any person prejudiced by the failure to the position he would have been in but for the failure;

(b) if for any reason anything required or authorised to be done in, or in connection with, the insolvency proceedings cannot be done, make such order as may be necessary to enable that thing to be done.

(2) The court, in an order under subsection (1) above, may impose such conditions, including conditions as to expenses, as he thinks fit and may -

(a) authorise or dispense with the performance of any act in the insolvency proceedings;

(b) ...

(c) extend or waive any time limit specified in or under this Act."

[173] In the present case the Noters seek a waiver of their failures to comply with the requirements of sections 53(1) and 53(3)(b) of the Bankruptcy (Scotland) Act 1985 as applied to liquidations in respect of a number of accounting periods.

(1) The first accounting period began with the date of the presentation of the petition on 29 April 2004 and ended on 28 October 2004. In respect of this period, the Noters point out that they were only appointed interim liquidator is on 14 October 2004 and the reclaiming motion was marked before the end of the two weeks following the end of the period during which the Noters were required to submit their accounts of their intromissions and their claim for outlays and remuneration. They were therefore not in any position to be able to submit such accounts and claims within the required period.

(2) The second accounting period ran from 29 October 2004 until 28 April 2005. The Noters submitted an interim claim to the liquidation committee and, at a meeting of 4 February 2005, the liquidation committee approved interim remuneration of £30,000 plus VAT in respect of the period from 14 October 2004 until 31 January 2005. By the end of the second accounting period the liquidation committee was inquorate, since a number of the company's creditors, including some on the liquidation committee, had been paid and were therefore ineligible to serve. They should, therefore, have submitted their accounts and claims to the court. The Noters never submitted their accounts and claims in respect of this period. They say in para.59 of the Note that they "considered they were close to completing the liquidation and had received the approval of the liquidation committee of their interim claim shortly before." A further creditor was paid off on 17 May 2005, leaving only the Inland Revenue and HM Customs and Excise with outstanding claims.

(3) The third accounting period ran from 29 April 2005 until 28 October 2005. As from 17 May 2005 there were only the two creditors mentioned above and the liquidation committee had no members, since all it is creditor members had ceased to be creditors. Again, therefore, the Noters should have submitted their accounts and claims to the court. They did not do so. The reason given, again, is that they considered that they were close to completing the liquidation "and that such a submission would incur expense and serve no practical purpose".

(4) Finally, the Noters seek their outlays and remuneration for the period from 29 October 2005 until the date of the sist, 2 May 2008. The Note was presented on 6 April 2006, before the end of another accounting period, and therefore does not include any specific reference to the need for a waiver in respect of that period or any subsequent time until the sist was granted. Nonetheless, it is necessary to deal with this extended period on the same basis as the others.

[174] Section 105 of the Insolvency Act 1986 provides that if the winding up continues for more than one year, the liquidator must summon a general meeting of the company and the meeting of creditors within three months of the end of the first year from the commencement of the winding up and of the end of each succeeding year, and shall lay before each of the meetings an account of his acts and dealings and of the conduct of the winding up during the preceding year. Rule 4.13(1) of the Insolvency (Scotland) Rules 1986 requires the liquidator to summon a meeting of creditors in each year during which the liquidation is in force.

[175] As I have said, the liquidations commenced with the presentation of the petition on 28 April 2004. The Noters should therefore have held a meeting of the creditors within three months of 28 April 2005. By 20 April 2005 they had, in fact, only been in office for just over six months, and that date was only just over five months from the date on which the reclaiming motion was refused as incompetent. The Noters overlooked the requirement to hold the annual meeting then and did not in fact hold it until 25 November 2005. They seek a waiver of this failure to comply with the Insolvency (Scotland) Rules 1986 by not holding the meeting of creditors within the required time.

[176] In principle it seems to me to be appropriate to grant a waiver of the various failures outlined above. I have a concern, however, that in failing to submit their accounts for the third accounting period, which ended in October 2005, the Noters may have been influenced by an additional consideration. By this stage it was clear that the liquidation had run into difficulties. So far as the Noters were concerned, the conduct of Mr McNamara was not assisting. I have set out passages from the evidence given by Mr Reid in relation to the share transfer from West to the McNamara family. In connection with that share transfer it is perfectly clear that the Noters preferred to deal with West. By April 2006 they were anxious to bring the liquidation to an end before the share transfer went through. This was in the hope that Mr McNamara would not be in a position to oppose the order which they sought. Equally, Mr Reid was candid in saying that these considerations influenced them to some extent in not wishing to apply to the court under s.53 of the Bankruptcy (Scotland) Act 1985. There was the danger that any such application would give an opportunity for Mr McNamara to cause trouble. It is not clear to me that this was the main or decisive consideration. To the extent that it played a part in the decision by the Noters not to comply with their obligations under the Act, it should not have done so. There can be no proper justification for failing to bring matters before the court as required by the terms of the Act simply to avoid a potentially difficult argument or to avoid giving another party an opportunity of having his say.

[177] There is a broader point here. The requirement to make an application every six months, to have the claim for remuneration and outlays and an account of the intromissions with the estate considered by a Reporter, and the claim to remuneration considered also by the Auditor, not only imposes a discipline on the Noters to get their accounts up to date and their books in order, but it also gives an opportunity for any problems which have arisen in the liquidation to be addressed on a piecemeal basis. I accept that this is not its prime purpose, but nonetheless it has this effect. One of the problems faced by the court in this case it is that it is faced with an expanded s.53 application covering the whole period of the liquidation. I have already identified the issues with which the court has had to deal. There have been complaints that corporation tax and VAT have not been properly handled. There have been complaints that the Noters have not kept proper records, and in particular have not kept full VAT invoices. There have been complaints that the Noters have failed properly to claim in respect of amounts which are said to be deductible from VAT and corporation tax. There have been complaints that the Noters have adopted a system of accounting for the period of the liquidation which is inappropriate having regard to the fact that it was obvious from the start that the Company would be returned as a going concern to its shareholders and directors. In addition, there have been complaints about the level of solicitors fees incurred by the Noters, and about the level of the Noters' own fees. It seems to me that there is at least a possibility that had the Noters brought these matters before the court, or originally the liquidation committee, as they were required to do every six months, some of the difficulties might have been resolved at an earlier stage.

[178] Had I been persuaded that this possibility was in fact a probability, I would have had to consider whether in the unusual circumstances of this case I should refuse one or more of the waivers sought by the Noters. But I am not so persuaded. Having regard to the conduct of Mr McNamara to which I have referred earlier in this Opinion, I am not satisfied that it would have made any difference. Had decisions been made by the Reporter or even the court with which he was dissatisfied, I have little doubt that he would have continued to insist on his points. His track history in this case does not suggest that he would be put off by a ruling against him.

[179] It does seem to me, however, that as a result of these failures to submit accounts every six months, the exercise presently before the court has not only been made more difficult but is likely to prove more expensive. The remit to the Reporter was a huge undertaking. The Hearing before me was lengthy and, no doubt, expensive. There have been countless incidental hearings between the grant of the sist in April 2008 and the main Hearing leading to this Opinion. Many of those hearings have been to do with the existence or otherwise of documents, particularly VAT invoices. Much of this might not have been necessary had the proper procedures being carried out. The remedy, in my opinion, however, is not to refuse the waivers sought by the Noters. That would be to punish them disproportionately. It seems to me that the proper course is to take account of these matters when it comes to a decision as to how the costs of the proceedings since April/May 2008 should be borne between the parties.

[180] I propose therefore to grant the waivers sought by the Noters. I should say that I regard the mistake which occurred during the second accounting period, when an interim payment of £30,000 was made despite the liquidation committee by then being inquorate, as just that, a mistake, and not a deliberate act on the part of the Noters. I am prepared to grant a waiver in respect of this error. I shall also grant a waiver of the other failures to comply with the terms of the Insolvency (Scotland) Rules 1986 to which I have referred.

(h) Release and discharge

[181] Having considered all the matters which I understand to be in dispute between the parties, I am satisfied that the Noters should be given their release and discharge.

Decision

[182] I am minded therefore to pronounce an interlocutor to give effect to these conclusions. The question of legal expenses will require to be dealt with. I shall also have to determine how the expenses of Mr Hastings and Mr Mure are to be dealt with. In addition, there is the possibility that the Noters may wish to claim further outlays and remuneration under para.(1)) of the interlocutor of 2 April 2008. It is not clear to me whether such a claim is likely, or whether in fact the bulk of any further claim is really one for legal expenses. If there is a claim for further outlays and remuneration, it will need to be remitted to a Reporter, a process which is likely to be contentious and expensive and which will prevent a final interlocutor at this stage. If there is no such claim, however, I can proceed to pronounce a final interlocutor. Accordingly, contrary to the indications which I gave to parties when we last met, I shall at this stage simply put the case out By Order, to hear parties as to the form and content of the interlocutor, and to discuss whether any further substantive procedure is necessary.

Postscript

[183] I noted, when considering his evidence, that in early 2006 Mr Stephen, one of the joint liquidators, retired from Deloitte's and moved to another firm. He did not seek to demit office as a joint liquidator. There was, of course, no compulsion for him to do so, since his appointment is in his own name and not as a member of a particular firm of accountants. Having said that, however, it seems to me that it is unsatisfactory for a person to continue in office as a joint liquidator without having any involvement in the liquidation. Mr Stephen very properly accepted that he remained responsible for whatever was done in the liquidation in his name. However, this does not really address the problem. In appointing a liquidator, the court expects that that person or, in the case of joint liquidators, those persons, will exercise a level of supervision over the work that is carried on. Inevitably they will use other employees in the firm, but they will be at hand to take strategic and other decisions where necessary. On his own admission, Mr Stephen did not do this once he left Deloitte's. It seems to me that he ought either to have continued to play a role in the liquidation from his new firm or to have applied to the court to be discharged from his duties and replaced by someone else.