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Scottish Court of Session Decisions
You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> EQUAL EXCHANGE TRADING LIMITED, NOTE OF & THE PROVISIONAL/INTERIM LIQUIDATOR OF FOR INTERIM APPROVAL OF ACCOUNTS OF INTERMISSIONS [2018] ScotCS CSOH_35 (11 April 2018)
URL: http://www.bailii.org/scot/cases/ScotCS/2018/[2018]_CSOH_35.html
Cite as: [2018] ScotCS CSOH_35, [2018] CSOH 35
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Page 1 ⇓
OUTER HOUSE, COURT OF SESSION
P1012/17
[2018] CSOH 35
OPINION BY LORD BANNATYNE
In the Note of
THE PROVISIONAL/INTERIM LIQUIDATOR OF EQUAL EXCHANGE TRADING
LIMITED
Noter
for
interim approval of accounts of intermissions
Noter: Ms Roxburgh; Shepherd & Wedderburn LLP
11 April 2018
Background
[1] The noter is the interim liquidator and previously was the provisional liquidator of
Equal Exchange Trading Limited (“the Company”).
[2] That the noter having prepared accounts of her intromissions presented a note
seeking that the accounts should be audited and a payment in respect of her remuneration
fixed for her period of appointment as provisional liquidator and the period of her
appointment as interim liquidator from 4 July 2017 to 7 August 2017.
[3] The court, following its usual practice on the presentation of such a note, appointed a
court reporter.
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2
[4] The material part of the interlocutor appointing the court reporter was in the
following terms:
“remits to examine and audit the accounts of the noter’s intromissions as provisional
liquidator and interim liquidator of Equal Exchange Trading Limited (in liquidation)
(company number SC127205) for the periods from 25 May 2017 to 3 July 2017 and 4
July 2017 to 7 August 2017 and to report, and to report what in his opinion is a
suitable sum to fix in respect of the noter’s remuneration and outlays for said
periods;”
[5] The court reporter in his report to the court raised a number of concerns in respect to
the actings of the noter and in light of these concerns recommended as follows:
“Given the circumstances set out at point 1.2 supra, I believe that it would be best to
suggest to the Court that the Court declines to fix remuneration for the Noter at this
time relative to her period in office as either Provisional Liquidator or Interim
Liquidator for the consolidated period 25 May 2017 to 7 August 2017 subject to a
later consideration of this matter when the Court is considering any subsequent
claim to Remuneration, at which time the Reporter can confirm what steps have
subsequently been taken by the Noter to rectify deficiencies such that the position of
the general body of creditors has not been affected by the Noter’s earlier failures.”
[6] The noter lodged a written response in respect to the concerns raised in the report.
In addition to the written response which included a statement from the noter herself the
court heard oral submissions by counsel for the noter. It was also very briefly addressed by
the court reporter himself.
[7] I would at this stage wish to thank, Ms Roxburgh, the counsel for the noter, for her
very clear and detailed submissions, which were of considerable assistance in the
preparation of this opinion.
The regulatory framework
[8] Rule 4.5 of the insolvency (Scotland) Rules 1986 (“the Rules”) makes provision for
the remuneration of a provisional liquidator. Rule 4.5 provides, inter alia:
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“(1) remuneration of the provisional liquidator shall be fixed by the court from time
to time.
(2) The basis for the court fixing the amount of the remuneration payable to the
provisional liquidator may be a commission calculated by reference to the value of
the company’s assets with which the provisional liquidator has had to deal but there
shall in any event be taken into account –
(a) the work which, having regard to that value, was reasonably undertaken
by the provisional liquidator; and
(b) the extent of the provisional liquidator’s responsibilities in administering
the company’s assets.”
[9] Rule 4.32 of the Rules makes provision for the remuneration of a liquidator,
including an interim liquidator. It provides inter alia:
“(7) 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 account; and
(ii) shall issue a determination fixing the amount of the outlays and the
remuneration payable to the liquidator; and
(b) the liquidator shall make the audited accounts, scheme of division and the
said determination available for inspection by the creditors and the
contributories.
(8) the basis of remuneration must be fixed –
(a) as a percentage of the value of the company’s assets which are realised by
the liquidator;
(b) by reference to the work which was reasonably undertaken by the
liquidator and liquidator’s staff in attending to matters arising in the winding
up; or
(c) as a set amount.
(9) the basis of remuneration may be fixed as any one or more of the bases set out in
paragraph (8)(a) to (c), and different bases may be fixed in respect of different things
done by the liquidator.”
The submissions for the noter
[10] Given the reasons for the court reporter’s recommendation a considerable amount of
the discussion before me related to the issue of the role of a court reporter. It was
Ms Roxburgh’s position that the criticisms made by the court reporter contained a common
theme. In each case the court reporter identifies work which he would have done had he
been appointed as provisional or interim liquidator to the Company. It was her general
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position that the reporter’s concerns amounted to a criticism of the strategy in the conduct of
the liquidation which the noter had adopted. In so doing it was her position that the court
reporter had stepped outwith the ambit of his role as a court reporter.
[11] Ms Roxburgh defined the role of the court reporter as being this: to provide the
court with guidance in respect of the appropriateness of accountancy fees. In doing so a
court reporter is required to consider whether the work done was necessary and
appropriate. He must also consider whether the work was done at an appropriate level.
This enables a view to be given to the court on what is an appropriate level of remuneration
for the liquidator.
[12] In support of her position she referred me to a decision in the sheriff court S & M
Livestock Limited (in liquidation) 2017 SC DUMF 78 in which the extent of a reporter’s remit
had been considered.
[13] The background to the sheriff’s judgment in so far as material was this:
[14] The joint liquidators of the insolvent company had sought approval of their
remuneration from the liquidation committee. They were not satisfied with the level of
remuneration awarded and so made an application to the court in terms of Rule 4.34(1) of
the Rules seeking to increase the fee from £25,000 to circa £91,767.90. On receipt of the
application, the Sheriff remitted the joint liquidators’ accounts to a court reporter for
examination and audit. The reporter was concerned about the duration of the liquidation
and the amount claimed by the liquidators. He therefore conducted an “extensive review”
of their files “to establish whether same was reasonable at all relevant times”. In his report
the reporter criticised the joint liquidators’ conduct of the liquidation, including what the
reporter considered to be their “strategy failures”. He went on to suggest an alternative
strategy that could have been adopted and his opinion on the consequences of adopting that
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alternative strategy. He recommended that a fee of £70,000 plus VAT be paid to the joint
liquidators. The joint liquidators argued that the Court reporter had exceeded his remit.
[15] The sheriff held that the reporter had exceeded his remit. The reasons for his
decision are set out at paragraphs 12 to 14 of his judgment:
“[12] While I understand the reporter’s desire to restrict the remuneration to work
‘reasonably incurred’ by the joint liquidators, I do not agree that the reporter had to
carry out the extensive review carried out in this case. The reporter was to ‘audit’ the
accounts and, in my opinion, that meant seeing that the time charges were justified
by file entries and records.
[13] In my opinion, neither the reporter nor the court in this kind of process
should seek to second guess the actings of the liquidators. They were appointed by
the court and exercise judgement and discretion in matters relating to the winding
up of a company. The law presumes that all things are done duly and in the usual
manner (Trayner’s Latin Maxims, page 419).
[14] While the reporter may well, if acting as liquidator, have carried out a
different strategy and done better, the court would be faced with endless litigation
over such collateral matters in liquidations if it were to carry out investigations of
this kind. That would not be in the public interest as it would increase litigation
costs over such issues, to no particular party’s advantage.”
[16] Ms Roxburgh submitted that the foregoing correctly narrated the role of the court
reporter. She said this: the court reporter is given a specific task and is not appointed to
oversee the conduct of the liquidation in a general sense. The court reporter is entitled,
however, to bring any concerns that he has regarding the conduct of the liquidation to the
attention of the court.
Discussion of the role of the court reporter
[17] Before turning to the detailed concerns outlined by the court reporter in the present
case I think it is helpful to set out my views in respect to the ambit of the role of the court
reporter.
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[18] The background to the practice of the court, in referring such matters to a court
reporter where an insolvency practitioner seeks to have his remuneration set is conveniently
“[2] In a case, such as the present, where there is no liquidation committee, the task
of auditing the accounts and fixing the amount of the outlays and remuneration
payable to the liquidator falls on the court. The practice of the court in such
circumstances has been (a) to remit to a reporter, normally a chartered accountant, to
audit the accounts and to report to the court his views on the amount which should
be paid to the liquidator in respect his outlays and remuneration, and also (b) to
remit the question of remuneration to the Auditor of Court for him to report on what
would be a suitable figure. Typically, the reporter and the auditor are required to
confer before finalising their respective reports. The court will then consider their
reports before issuing a determination.
[3] The practice of remitting to a reporter has no statutory basis. It appears to have
emerged at the end of the nineteenth century and, so far as can be ascertained, has
been followed fairly consistently since then.”
[19] In deciding the question of the ambit of the court reporter’s role an appropriate
starting place is to consider the purpose of the remit by the court to the reporter. In
Dempster, Lord Glennie, after considering the background to the remitting of matters to a
reporter, considers the reason for the remit and observes at paragraph 3:
“The remit to the reporter no doubt arose as a practical means by which the court
could be properly informed before exercising its judgment as to the appropriate
remuneration to be awarded.”
[20] Given the purpose of the remit what matters properly fall within the remit of the
court reporter?
[21] In order to answer that question I first turn to consider the judgment of the sheriff in
S & M Livestock Limited. I consider the sheriff’s view as to the extent of the court reporter’s
remit as too narrow for the following reasons:
[22] The sheriff at paragraph 12 observes:
“The reporter was to ‘audit’ the accounts and, in my opinion, that meant seeing that
the time charges were justified by file entries and records.”
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[23] The sheriff repeats this view, in a slightly different form, at paragraph 16 where he
opines:
“On the principle that the labourer is worthy of hire, it is my opinion that the only
reasonable and reliable basis for assessing the joint liquidator’s remuneration is the
time spent by them and their staff on this liquidation.”
The above two observations appear to suggest that the extent of the court reporter’s task is
confined to a merely paper exercise of checking that there are file entries and records which
evidence that the work claimed to have been carried out has been carried out. Clearly that is
one part of the court reporter’s function. However, that is not the limit of his remit.
[24] The court in terms of rule 4.5 (2) (a) and 4.32 (8) is required to fix the amount of the
remuneration by reference to the question of whether the work was “reasonably
undertaken”. That is on a sound construction a wider question than merely whether there is
documentary evidence supporting the work claimed for has been carried out. Thus when
the court remits to a court reporter it is expecting the reporter to apply his experience and
expertise to among other things the wider question of whether work was “reasonably
undertaken”. Thus the reporter may quite properly report to the court that although there
were entries and records to support the work claimed having been carried out nevertheless
it is the court reporter’s opinion having regard to the whole circumstances of the case that
that work was unnecessary and inappropriate. I do not believe that the limitation placed
upon the extent of the reporter’s remit as set out by the sheriff in S & M Livestock is justified
on a sound construction of the phrase “reasonably incurred”.
[25] In addition it is clearly part of the reporter’s remit to consider issues of technical
difficulty and complexity faced by the provisional liquidator or liquidator in the conduct of
liquidation. Against that background it is for the reporter to express his opinion as to the
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level of seniority of staff used by the provisional liquidator or liquidator in carrying out the
various tasks in the conduct of the liquidation. It is for the reporter to advise the court using
his experience and expertise that the appropriate level of staff seniority has been applied to
the various tasks.
[26] The sheriff in S & M Livestock seeks to justify his views regarding the ambit of
reporter’s role by first observing: “the law presumes that all things are done duly and in the
usual manner (Trayner’s Latin Maxims, page 419).” I am unable to understand the relevance
of this reference in respect of the issue before the sheriff, namely: the extent of the reporter’s
remit. The reference does not I believe inform a proper understanding of the extent of the
reporter’s remit. It is a statement in the most general of terms and in any event it is only a
presumption and therefore by definition rebuttable.
[27] The second basis for the sheriff’s views as to the extent of the court reporter’s remit is
this: “The principle that the labourer is worthy of his hire.”
[28] I consider that the comments which I have made regarding the first basis for the
sheriff’s views are with equal force applicable to this second basis.
[29] Moreover, in expressing these views and in setting out what he understands to be
the extent of a reporter’s remit the sheriff makes no reference to the entitlement of the court
reporter to raise with the court wider concerns regarding the conduct of the liquidation.
This clearly forms part of the reporter’s remit. In Re Quantum Distribution (UK) Limited (in
liquidation) 2013 SLT 211: a court reporter was appointed, and in his report was critical of
and raised concerns about the manner in which the liquidator had conducted the winding
up, including the negotiation of the agreement of a settlement between the petitioning
creditor and the company’s parent corporation, during which one solicitor’s firm had acted
for the liquidator and the petitioning creditor. As a result of the concerns which he
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expressed he advised the court that he was unable to express an opinion as to what was
suitable remuneration for the liquidator.
Against the above background Lord Hodge at paragraph 38 observes:
“It appears from counsel for the former liquidator’s submissions that the liquidator
had satisfactory answers to several of Mr Crampsey’s criticisms, which did not take
account of the difficulties of pursing the claims against CI’s directors and QC. But
Mr Crampsey was correct to call into question both the deal which was reached with
QC and Mr Pattullo’s failure to disclose the full terms of the settlement to the
creditors which eventually approved his accounts in remuneration. He was also
justified in raising the problem of Brodie’s actual or potential conflicts of interest.”
At paragraph 39 Lord Hodge criticises the liquidator and the liquidator’s agents for failing
to bring the reporters concerns to the attention of the court in order to allow the court to
consider “whether and to what extent these concerns were valid and what the consequences
should be”.
[30] As regards to what the court would expect to be reported as “concerns” by a court
reporter I would make the following observations:
[31] It is not possible to list the whole range of concerns which may properly be brought
to the attention of the court by the reporter. However, without being prescriptive, the
following would be the type of concerns I think should be brought to the attention of the
court:
Potential compliance issues: has the liquidator complied with the various duties
incumbent upon him in the conduct of the litigation?
Potential fraud or bad faith in the conduct of the liquidation
Potential issues regarding the way in which the liquidation has been progressed.
Has the liquidation been progressed with reasonable efficiency?
Where there have been actings by the liquidator which potentially are so
unreasonable and absurd that no reasonable insolvency practitioner would have
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acted in this way (the test for setting aside the actings of an insolvency
practitioner, see: Re Edennote Limited 1996 [BCC] 718 at 722).
If a reporter were not to report such concerns to the court I am satisfied that the court could
not fulfil its duties in relation to the fixing of a liquidator’s remuneration.
[32] Overall I am persuaded that Ms Roxburgh is correct in saying that the reporter is
given a specific task by the court and is not appointed to oversee the conduct of the
liquidation in general. However, he is importantly also entitled to report his concerns to the
court.
[33] I would make one final observation regarding the issue of concerns being brought to
the attention of the court by the court reporter. It needs to be borne in mind by reporters
that the ambit of the remit of the reporter is not such that mere disagreements between
reporter and liquidator in respect of a course of action followed by the liquidator should be
raised as concerns. I would agree with the sheriff in S & M Livestock that a liquidator in the
course of the liquidation has to be able to “exercise his judgment and discretion”. A reporter
may disagree with the course of action followed by a liquidator but that does not of itself
make the acting unreasonable and therefore something which should be raised with the
court as a concern.
The detailed concerns of the reporter in the present case
[34] It was Ms Roxburgh’s position that the concerns raised by the court reporter related
to issues of the strategy followed by the noter and accordingly fell outwith his remit.
[35] I do not agree with the above submission. Rather it appears to me that the concerns
raised by the court reporter related to whether the noter was properly performing her duties
as provisional liquidator and interim liquidator. His concerns went beyond the issue of a
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mere dispute about the strategy adopted by the noter. Accordingly I do not believe that the
concerns raised by the reporter can be swept aside by simply saying that they raised matters
which fall outwith his remit.
[36] Secondly Ms Roxburgh argued that many of the concerns raised by the reporter
related to further work the noter might have done. The remuneration being fixed was based
on work she had done and this concern was accordingly an irrelevant consideration. In
support of this submission she directed by attention to Hyndman v Readman 2004 SLT 959 at
962 D-E. I do not believe that it is the core of the reporter’s concerns that other things might
have been done. Rather his concern is that in complying with her duties as provisional and
interim liquidator other things should have been done. Such concerns I believe do inform
the setting of remuneration and accordingly the reporter’s concerns cannot be rejected on
the basis of this argument.
[37] The first concern of the court reporter related to a failure by the noter to obtain an
independent valuation in relation to a pre-liquidation assets sale by the Company.
The noter accepted in her statement that:
“one of my duties following my appointment as liquidator is to ascertain whether
the value for the assets obtained by the directors for the assets sold prior to the
liquidation was appropriate in all the circumstances and to satisfy myself that the
transaction was not entered into to the detriment of the interests of the creditors of
the Company.”
The noter in her statement gave a detailed explanation between paragraphs 18 and 22 and
33-35 as to how she had approached the issue of whether in light of that duty she required to
obtain an independent valuation. Further within those paragraphs she explained her
position regarding whether any such independent valuation should have covered the issue
of the value of intellectual property.
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[38] I am persuaded in light of the explanation which is tendered by the noter that the
course she followed was an acceptable one and in conformity with the foregoing duty.
[39] However, I also believe, in the whole circumstances of the case it was appropriate for
the court reporter to bring this matter to the court’s attention in order for the court to
consider the matter.
[40] The second concern was in relation to a sale of assets by the noter when she was
provisional liquidator and her failure to obtain an independent valuation in relation to that
sale.
[41] The noter again gave a detailed explanation in her statement at paragraphs 23 to 25
and 26 to 38 as to why she did not obtain such a valuation. I have decided that in light of
that explanation she cannot be properly criticised as having breached any duty which she
had as provisional liquidator.
[42] I also observe that following the issue being raised by the court reporter she had an
independent valuation carried out, which confirmed the view which she had formed that
the sale price offered was in all the circumstances one which she should have accepted. The
sale I am persuaded was not to the detriment of creditors.
[43] Again, having regard to the nature of the concern raised, I believe it was correct for
the reporter to bring this concern to the attention of the court.
[44] I believe it was appropriate for the court reporter to raise these concerns given the
whole circumstances to which he refers in his report and in particular given that both sales
were made to a connected company being a company having a number of directors who had
been directors of the Company.
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[45] The next concern related to a failure to make enquiries into payments made as fees
by the Company to a firm of solicitors who acted for the Company and the connected
purchasing company in relation to the pre-liquidation asset sale.
[46] In particular the court reporter raises a concern as to why the noter did not
investigate whether said legal firm’s fees were paid on 19 May as set out in their statement
for settlement.
[47] The noter’s short answer to this point is that she had no reason to believe what was
said in the statement for settlement was incorrect. Thus she had no reason to carry out an
investigation.
[48] On the above issue I believe two liquidators acting reasonably could take different
views as to whether this matter should be investigated. The decision depended on the view
formed as regards the whole circumstances of the case.
[49] Again, I believe in the whole circumstances it was appropriate for it to be raised as a
concern by the court reporter, however, in the whole circumstances I do not believe that it
can be said that the noter acted in breach of any duty.
[50] The next concern was the failure of the noter to obtain a statement of affairs in terms
of section 131 of the Insolvency Act 1986. That section confers a discretion on the noter
whether to require such a statement. The issue of whether such a statement should have
been required in the circumstances of the present case appears given the explanation of the
noter to be a matter on which two liquidators acting reasonably could disagree. I am not
prepared to hold that there was a failure by the noter which could in the whole
circumstances properly be the subject of criticism. However, I do think in the context of the
case as a whole it was appropriate for the reporter to raise his concern.
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[51] A further concern related to failures by the noter to comply with Statement of
Insolvency 13. The noter accepted that there were certain failures in terms of the
requirements of SIP 13. She explained in her statement the circumstances as to how these
had arisen, and put certain factors forward in mitigation regarding these failures. She also
explained how she intended to deal with these matters in terms of the present case and in
the future when she is acting as a liquidator. I believe it was appropriate for these concerns
to be brought to the attention of the court. However, I accept the points made by the noter
in response thereto.
[52] Beyond that the reporter raised an issue regarding the payment of a fee to Mr Eric
Nisbet. The noter admitted that this was an error and advised that she would deal with this
matter.
[53] The final concern raised by the court reporter related not to the noter but to the
solicitors who had prepared the petition and whether certain averments made within the
petition regarding the necessity for appointment of a provisional liquidator were not
justified.
[54] The noter in her statement, made it clear that she was not responsible for these
averments, and I of course accept that that is the position. However, it was in my view
correct for the court reporter to bring this matter to the court’s attention. It is clear that it is
not solely the actings of the liquidator that can be brought to the attention of the court but
the wider actings generally in respect to the liquidation process (see: Quantum Distribution).
Again, I feel it was proper for this concern to be raised by the court reporter, however, I am
persuaded on the information now provided to the court that the averments were justified
and thus the appointment of a provisional liquidator was justified.
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Decision
[55] Accordingly in summary for the foregoing reasons I am of the view that all of the
concerns brought to the attention of the court by the court reporter fell within his remit and
were properly matters which should be brought to the attention of the court. However, in
relation to a number of these concerns I have been prepared to accept the noter’s
explanations as now tendered. I have also noted that in respect to certain matters the noter
is going to take further steps.
Disposal
[56] In light of my said decision and having regard to the whole terms of the reporter’s
report I will approve the noter’s remuneration at the level sought. However, I will order
that the expenses of the preparation of the written response to the reporter’s concerns
together with the expenses of the hearing before me in respect to the issue of the reporter’s
concerns should not form expenses in the liquidation but rather that these expenses should
be borne by the noter personally.