Approving a liquidator's remuneration in advance?

Overview

In this case, the court considered a request by joint administrators to appoint them as joint liquidators of the company, and to fix - in advance - their remuneration as joint liquidators at 20% of the value of any assets realised by them. The court refused to grant the latter order on the basis that it was not competent to approve a liquidator’s remuneration before the work has been done and, even if it were, it would not grant the order in this case. The court found that there was no basis on which it could assess whether a 20% fee would represent fair remuneration for the degree of time and effort ultimately expended by the liquidators.

Background

The joint administrators of Alexander Inglis and Son Ltd sought orders: (1) terminating their appointment as joint administrators; (2) discharging them from liability in respect of their actions as joint administrations; (3) winding the company up under the Insolvency Act 1986 and appointing them as joint liquidators; and (4) fixing their remuneration as joint liquidators at 20% of the value of any assets realised by them.

The joint administrators sought the relief on the basis that it would enable them to make further distributions to creditors without delay, and would avoid the need to find creditors willing to form a liquidation committee, and the need and consequent expense of a further application to the court for approval of remuneration. A 20% fee was said to be appropriate because the joint liquidators would not be entitled to any remuneration for their time during the liquidation if a claim against the company’s auditors is unsuccessful.

The Court’s Decision

There is no doubt that the basis of a liquidator's remuneration may be fixed as a percentage of the value of the assets realised (rule 7.11(8) of the Insolvency (Scotland) (Receivership and Winding Up) Rules). However, rule 7.11 also makes clear that a liquidator's claim for remuneration must be made at the end of each accounting period (if made during an accounting period, in respect of that period, the claim is for an interim determination).

The court refused to fix the joint liquidators’ remuneration in advance for a number of reasons. First, the court found that it was not competent to do so, since the rules do not permit a claim for remuneration before the work in question has been done, let alone before the company has even been wound up.

Second, even if it were competent, the court did not consider it to be appropriate to fix the liquidators' remuneration in advance in this case, particularly not on a percentage basis. No real attempt, other than in the most general terms, had been made to predict the amount of work the liquidators would be required to carry out, and there was no basis on which the court could possibly assess whether a percentage fee of 20% would represent fair remuneration for the degree of time and effort ultimately expended by the liquidators. The court stated that, where the court is required to have regard to "all the circumstances" in fixing remuneration, “it is hard to see how that could ever be achieved in advance of the circumstances having occurred”.

Third, to the extent information was available, the court was not satisfied that a percentage fee of 20% would not result in disproportionately high remuneration. While the court accepted that the liquidators will be undertaking a degree of risk by acting on a speculative basis (inasmuch as they would be devoting resource to litigation without any guarantee of payment), they will not incur any risk in relation to the claim itself, which has been assumed by the litigation funders. The liquidators' role will be restricted to providing whatever assistance they can. They might devote a great deal of time and effort to assisting the progress of the claim to a successful conclusion; or they might not. At this stage, it simply is not clear.

Conclusion

As a result, the court granted the first three orders sought, but refused to grant the fourth order to fix the joint liquidators’ remuneration.

Judge: Lord Braid

Counsel: Fiona Tosh, Burness Paull LLP for the joint administrators