Can a liquidator charge for rectifying his own mistake?

Treasury Holdings (in Liquidation), Re [2022] IEHC 643Can a liquidator’s remuneration include charges for time spent rectifying his own mistake?

Overview

This case deals with an official liquidator’s application for approval of his remuneration in circumstances where the remuneration included payment for time and costs which were incurred by the liquidator in rectifying his own mistake.

The Court ultimately refused to approve the remuneration, even though the primary creditor in the liquidation had agreed the proposed sum. It did so on the basis that the primary creditor was the National Asset Management Association (“NAMA“), a taxpayer-funded entity, meaning that the taxpayer would have been out of pocket had the Court approved the proposed remuneration.

Background

In late October 2022, the joint liquidators (the “Liquidators“) of Treasury Holdings brought an application to substitute 14 Forms E4 which had been filed by the Liquidators over the previous seven years, for the years 2016 to 2022 inclusive. The need to file the amended Form E4s arose because of an error that had been made by the Liquidators, by the incorrect inclusion of information in those forms relating to solvent subsidiaries of Treasury Holdings.

The Liquidators also sought approval of their fees and the fees of their lawyers for the period 1 July, 2021 to 30 September, 2022. These fees included costs that were incurred by the Liquidators and their lawyers in discovering and then correcting the errors in the 14 incorrect Form E4s. The issue was whether these costs should be approved by the Court. Notably, NAMA, the largest creditor in this liquidation indicated that it had agreed to the amount of the Liquidators’ remuneration and legal costs.

The Court’s Decision

The Court began its analysis by noting that no criticism was being made of the Liquidators in relation to their error, since errors occur all the time and in all walks of life. The Court also noted that the amount attributable to the mistake (€8,536.20) was relatively small, and there was no suggestion that the Liquidators consciously decided to charge for time spent rectifying their own mistake.

However, the Court emphasized that an official liquidator is an officer of the court who owes fiduciary duties to the company in liquidation, including a duty not to profit from the office of liquidator. A liquidator and his lawyers have to be paid for their time in winding up the insolvent company. This means that for every euro that is paid to the liquidator and his lawyers, one less euro is available for the creditors of the company. All of this means that a liquidator, who is occupying this position of trust, is placed in an unavoidable position of conflict between his interests in receiving reasonable remuneration for his work and the interests of the company in liquidation (and so the interests of creditors, who are hoping to receive as much as possible of the debt owed to them from the company). For this reason, a court plays an important role in approving a liquidator’s remuneration. This important role is accentuated where the main creditor is a State agency, since the Court must also bear in mind the interests of the taxpayers who are funding that State agency.

Here, the Court did not think that it should approve fees payable to the Liquidators, or costs incurred by the Liquidators, for correcting errors that had been made by the Liquidators. The Court found that the oversight on the part of the Liquidators and the failure by NAMA to pick it up was a reflection of human nature in two ways. First, it illustrated that a person who is charging a fee (in this case the Liquidators) is unlikely to be as careful about checking the accuracy of that fee, as if he were the person paying a fee. Secondly, it illustrated that a person who is paying a fee out of his own pocket is more likely to be concerned about its accuracy, than if a State agency (in this case NAMA) is paying it – where it is the taxpayer who will ultimately be footing the bill. As a result, courts must have regard to the impact on the taxpayer, who is never represented in court.

On this basis, the Court refused to approve the Liquidators’ initial proposed remuneration despite the agreement of the primary creditor, NAMA. While the Court’s discharge of its obligation to bear in mind the interests of taxpayers led to a relatively small saving in this case, the Court noted that the principle is of general application and therefore may lead to significant savings in other cases.

The Liquidators’ costs and the legal costs were accordingly reduced by €8,536.20 and subsequently approved.

Judge: Mr. Justice Twomey