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Scottish Sheriff Court Decisions
You are here: BAILII >> Databases >> Scottish Sheriff Court Decisions >> Fire Logistics Ltd, Re Petition of [2004] ScotSC 27 (05 April 2004)
URL: http://www.bailii.org/scot/cases/ScotSC/2004/27.html
Cite as: [2004] ScotSC 27
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L5420
NOTE
by
Sheriff C. A. L. Scott, Advocate
in the petition of
FIRE LOGISTICS LIMITED
for an order to wind up
SPRINKLER SPECIALISTS LIMITED
On 12 February 2004, Hire Station Limited (hereinafter referred to as "Hire Station") lodged a petition craving, inter-alia, that Sprinkler Specialists Limited (hereinafter referred to as "Sprinkler Specialists") be wound up. On 24 February 2004, the court granted a first deliverance but refused Hire Station's motion for the appointment of a provisional liquidator.
Thereafter, on 25 February 2004, a separate petition for the winding up of Sprinkler Specialists was lodged on behalf of Fire Logistics Limited (hereinafter referred to as "Fire Logistics"). In respect of that petition, having been addressed on the petitioner's averments and being satisfied that sufficient grounds existed, the court granted a first deliverance on 25 February 2004 and, at the same time, appointed Mr Ian Wright to be provisional liquidator of Sprinkler Specialists.
Solicitors acting on behalf of both petitioning companies placed the usual notices in the Glasgow Herald newspaper and Edinburgh Gazette. As it happens, the notices appeared together, on the same day.
Having become aware of the existence of the Fire Logistics petition, solicitors acting on behalf of Hire Station presented Notes in each process. In relation to the petition at the instance of Fire Logistics, the Note sought a recall of Mr Wright's appointment as provisional liquidator and dismissal of the petition. As far as the Hire Station petition was concerned, the Note presented moved the court:
"(1) to order that the petitioners may proceed with the petition for liquidation, all in terms of section 130 (2) of the Insolvency Act 1986; and
(2) to appoint Blair Carnegie Nimmo, chartered accountant, 24 Blythswood Square, Glasgow as provisional liquidator."
A hearing on the Notes took place on 23 March 2004. The Noters, Hire Station, were represented by Mrs Buchanan, solicitor, and Miss Morrison, solicitor, appeared on behalf of the provisional liquidator of Sprinkler Specialists, Mr Wright. At the outset, having regard to the passage of time, Mrs Buchanan sought to amend the Note lodged in the Hire Station petition to allow for the appointment of Blair Carnegie Nimmo as interim liquidator. There was no objection to the amendment per se and, accordingly, it was allowed.
The main thrust of the Noters' argument centred upon the proposition that because the Hire Station petition had been lodged some 12 days prior to the Fire Logistics petition, the former took precedence over the latter and, therefore, ought to prevail. In that regard, Mrs Buchanan founded upon the terms of section 129(2) of the Insolvency Act 1986. Section 129(1) is concerned with cases where a company has passed a resolution for voluntary winding up. However, sub-section (2) reads as follows:
"In any other case, the winding up of a company by the court is deemed to commence at the time of the presentation of the petition for winding up."
It was also submitted on behalf of the Noters that, where one petitioning creditor had already lodged a petition with the court, the scope for action on behalf of any other creditor was procedurally restricted, having regard to Rule 21 of the Sheriff Court Company Insolvency Rules 1986 (S.I. 1986 No 2297). Mrs Buchanan contended that Rule 21(2) ought to apply in such circumstances and that instead of lodging a fresh petition, the creditor was required to sist themselves in lieu of the existing petitioner. She submitted that Rule 21 did not require to be read as a whole and that effect might be given to Rule 21(2) on its own. Esto she was wrong about that, Mrs Buchanan argued that Rule 21(1)(b) was applicable in the present case, with the result that Rule 21(2) was, indeed, relevant.
Additionally, Mrs Buchanan's submission relied upon Rule 23(1) of the 1986 Rules which is in the following terms:
"An application to appoint a provisional liquidator under section 135 of the Act of 1986 may be made -
(a) by the petitioner, in the crave of the petition or subsequently by note in the process of the petition; or
(b) by a creditor or contributory of the company, the company, Secretary of State or a person entitled under any enactment to present a petition to wind up the company, in a note in the process of the petition."
Mrs Buchanan characterised the present situation as being unique in her experience as a practitioner. She argued that Fire Logistics ought to have presented a note in the Hire Station liquidation process. Were the Fire Logistics petition to prevail, an unhappy precedent would be established. The door would be opened to a multiplicity of liquidation petitions. That, in Mrs Buchanan's submission, was not something which the court ought to encourage.
It was acknowledged that the provisional liquidator had been in office for the best part of a month but Mrs Buchanan was at pains to minimise what might be achieved by the holder of such an appointment. She suggested to the court that, in the normal course, very little could be done by a provisional liquidator. With that in mind, the court was invited to take the view that little or no prejudice would arise were Mr Wright to be replaced when it came to the appointment of the interim liquidator.
Mrs Buchanan also advised the court that both Notes were presented in the face of support for the Hire Station petition from a number of other creditors.
In reply, Miss Morrison resisted the contentions put forward on behalf of Hire Station. She maintained that there was nothing incompetent about the Fire Logistics petition and that it was in the interests of the creditors of the company to have Mr Wright appointed as the interim liquidator, following upon his appointment as provisional liquidator. A schedule detailing the work carried out by Mr Wright since 25 February 2004, had been lodged.
With regard to Rule 21, Miss Morrison maintained that its terms were permissive rather than mandatory and that a creditor could not be forced to sist themselves into another liquidation process. There might be circumstances in which a creditor would, for good reason, decline to make use of an existing petition. For example, the petition may have been brought solely with a view to its being used as a debt recovery tool.
Moreover, Miss Morrison observed that the operative word in Rule 23(1) was "may" rather than "should". Accordingly, the terms of that Rule were also permissive rather than mandatory.
The existence of supporting creditors for the Hire Station petition was irrelevant and the prospect of the court, in the future, being "flooded" with liquidation petitions at the instance of a number of creditors was very unlikely. After all, the court retained a residual power to regulate such proceedings by declining to award expenses.
Fundamentally, however, the argument based upon section 129(2) of the 1986 Act was, submitted Miss Morrison, ill founded. The court had yet to pronounce an order winding up Sprinkler Specialists with the result that the foregoing subsection could have no application.
The possibility of conjoining the two processes was raised in the course of Miss Morrison's submission. However, to my mind, such a course would serve little purpose, particularly having regard to the interests of the creditors of Sprinkler Specialists. It would merely add to the expenses of the liquidation of the company. In any event, the Note presented in the Hire Station process proceeds, correctly in my view, upon the basis that, for that liquidation to continue, the leave of the court is required. Accordingly, in real terms, there was an acceptance on both sides that one or other of the petitions fell to be dismissed, subject to the court's ruling on the Notes presented.
In my opinion, the Notes presented on behalf of Hire Station are ill-conceived. In the course of the debate, Mrs Buchanan accepted that the interpretation to be placed upon the terms of section 129(2) of the 1986 Act was pivotal to both Notes. To my mind, the flaw in the Noters' argument is quite straightforward. Section 129(2) is subject to a significant presupposition; the company under consideration must have been wound up before the sub-section can have any effect. Quite obviously, that is not the position with Sprinkler Specialists. In any event, I do not believe that section 129(2) constitutes anything other than a specific statutory mechanism designed to provide an unambiguous commencement date for the winding up of a company. That being so, it does not, in any sense, avail the Noters by giving them some sort of chronological priority as against other petitioners.
My opinion regarding section 129(2) is probably sufficient to dispose of both the Notes. However, out of deference to Mrs Buchanan's submissions, it is right that I deal with the other points raised.
The Noters' reliance upon Rules 21 and 23 cannot, in my view, yield the conclusion which they invite the court to reach. Rule 21 ought to be read as a whole and it only applies where one or more of the pre-requisites listed in 21(1) pertain. On that hypothesis, Mrs Buchanan's subsidiary argument was that 21(1)(b) applied. Miss Morrison challenged that proposition and she was, I think, correct in doing so. Intimation had been effected upon Sprinkler Specialists. However, the overriding difficulty for the Noters is that Rule 21(2) is clearly permissive in its terms. It cannot be said that, in light of Rule 21(2), Fire Logistics were thereby precluded from lodging their own petition. In certain specified circumstances, it would be open to them to request that they be sisted "in room of the original petitioner". However, even then, it would be a matter for the discretion of the court as to whether and on what terms an application under Rule 21(2) ought to be granted. Prior to the existence of a winding up order or the appointment of a provisional liquidator (see section 130(2) of the 1986 Act), there is, in my opinion, nothing to prevent other petitioners bringing their own petitions for the winding up of a limited company, notwithstanding pre-existing petitions to the same effect.
Rule 23 of the 1986 Rules does not, in any way, impact upon the foregoing proposition. Once again, its terms are permissive as opposed to mandatory and, in any event, it relates specifically to an application to appoint a provisional liquidator. Accordingly, it has no direct bearing upon the competency of a separate winding up petition at the instance of an additional creditor of the company.
I conclude, therefore, that, with regard to the Note lodged in the Fire Logistics petition, the Noters' plea-in-law is bereft of legal foundation. Similarly, it follows that the first plea-in-law in the "Hire Station Note" ought not to be sustained. The terms of the second plea cause me some difficulty. In the petition at the instance of Hire Station, the court was originally urged to appoint a provisional liquidator. Consequently, it was somewhat disconcerting to hear Mrs Buchanan, in the course of her submission, effectively seek to minimise the role of a provisional appointee. That approach, in itself, rather contradicted the Note, as framed, which sought the appointment of Mr Nimmo qua provisional liquidator.
In any event, the presentation of these Notes seems to disclose a fundamental misapprehension as to the purpose of a liquidation. If merited, a limited company is wound up for the benefit of all its creditors. A provisional liquidator is appointed with the same aim in mind, provided such an appointment is justified in the circumstances. Having sought to persuade the court to make a provisional appointment and failed, one might have expected that the Noters would have been gratified to see that such an appointment had been made in another petition process. However, instead of accepting Mr Wright's appointment and realising its worth as far as the general body of creditors is concerned, the Noters have sought to have his appointment recalled. In principle and in practice, such an approach is difficult to understand and it calls into question the Noters' underlying motivation.
There was no dispute regarding Mr. Wright's professional competence and the statement of time and trouble produced for the purpose of the hearing disclosed that material steps had been taken in furtherance of his role as provisional liquidator. In particular, Mr Wright had overseen the completion of two outstanding contracts and continued to supervise the completion of a third. Likely realisations on these contracts were said to be in excess of £100,000. All that being so, the Noters were wholly unable, in practical terms, to put forward a cogent explanation as to why it was that Mr Wright should be summarily ousted from a position which he had, to date, occupied for the benefit of all the company's creditors. For instance, one wonders what the Noters' nominee for liquidator would do which Mr Wright could or would not do? I agree with Miss Morrison's observation to the effect that the existence of creditors who "support" the Hire Station petition is an irrelevant feature and is, in any event, at odds with the "interests of all creditors" principle.
Furthermore, in reality, the "floodgates" argument, as espoused by Mrs Buchanan, lends little or no weight to the Noters' position. As Miss Morrison pointed out, the court's discretionary powers in regard to expenses would render it well able to control the situation should there be a multitude of petitions quoad any particular company.
I have, therefore, seen fit to refuse both Notes and I have also dismissed the Hire Station petition, having appointed Mr Wright as interim liquidator in terms of the court's deliverance dated 23 March 2004. In relation to expenses, Miss Morrison was somewhat magnanimous even on the hypothesis of failure by the Noters. It was said that the court's decision might have a significant impact upon future liquidation procedure in the Sheriff Court and that expenses had been reasonably and necessarily incurred on behalf of the Noters. Nevertheless, questions of expenses are very much within the discretion of the court, as recognised above.
Having reached the view that both Notes are without any merit, I consider that all and any expenses flowing from their presentation in each liquidation process should be awarded against the Noters, in favour of Mr Wright qua liquidator. With regard to the Hire Station petition, and the dismissal thereof, aside from the aforementioned award regarding the Note, I make no award of expenses.
Sheriff
Glasgow 5 April 2004