A recent Judgment by Sheriff Jamieson at Dumfries Sheriff Court has provided some guidance on the scope of the role of a Court Appointed Reporter in assessing the remuneration of liquidators.
The Sheriff found that the function of a report is to "audit" the accounts of the liquidator which has a restricted meaning of seeing that the time charges sought by the Liquidator are justified by file entries and records. The Sheriff opined that it was not the job of the reporter to carry out an extensive review of the work undertaken by the liquidator nor seek to "second guess" the actings of the liquidator.
There has been considerable dispute in recent years as to the proper scope of a Reporter in determining liquidation fees in Scotland. The starting point is Rule 4.32 of the Insolvency (Scotland) Rules 1986. Those rules require a liquidator to submit to the liquidation committee or the Court an account of his intromissions with the Company's assets for audit and to submit a claim in relation to outlays and for the liquidator's remuneration.
The basis of remuneration must be fixed in one of three ways. Fees may be based on a percentage of the value of assets realised. It may be by reference to the work which was "reasonably undertaken by the liquidator and the liquidator's staff" in dealing with the winding up. Remuneration may be fixed as a set amount. Different bases of remuneration may be applied to different aspects of work undertaken by the liquidator. In this case, Sheriff Jamieson's decision relates to remuneration being fixed by reference to work "reasonably undertaken" by the liquidator.
The liquidators had sought to have their remuneration fixed for the period 13 April 2012 to 20 September 2016 in the total sum of £142,653.60. There had been a dispute with the liquidation committee which had fixed the liquidators' remuneration for the period 13 April 2012 to 07 August 2014 at £25,000 and had not fixed any remuneration for the later period.
The Liquidators applied by Note to the Sheriff Court for the Court to fix their remuneration. In the normal way, the Court issued an Interlocutor authorising a Reporter to examine and audit the accounts and report what in the Reporter's Opinion was a suitable remuneration.
The Court Appointed Reporter, on examining the Joint Liquidators' accounts, expressed concern about the time it was taking to wind up the Company and the amount claimed by the Liquidators. The Reporter therefore conducted an extensive review of the liquidators' files to establish whether these were reasonable at all relevant times. The report went into great detail criticising the conduct of the liquidation, including what the reporter considered to be "strategy failures". The reporter also suggested an "alternative strategy and its implications". The Reporter opined that the case was "not one which would be characterised as complex". In the Reporter's view, had the liquidation been conducted differently then the total costs of the liquidation would have been about £70,000.
The Sheriff disagreed with the Reporter's approach. The Sheriff did not agree that the Reporter had to carry out an extensive review of the work carried out. In the Sheriff's view, the "audit" of the accounts meant "seeing that the time charges were justified by file entries and records". It was not appropriate for the Reporter to "second guess the actings of the liquidators". The Liquidators were appointed by the Court and were to exercise their judgment and discretion in matters relating to the winding up of the Company. While a reporter may have acted differently or carried out a different strategy and done better, the Sheriff opined that the Court would be faced with endless litigation if a Reporter carried out investigations of this kind. The Sheriff considered that would not be in the public interest as it would increase litigation costs to no particular party's advantage. Accordingly, the Sheriff found that the only reasonable and reliable basis for assessing liquidators' remuneration is the time spent by them and their staff on the liquidation.
In relation to the Reporter's remuneration, the Reporter claimed a fee of £15,000 for preparing the report. The Sheriff noted that reports of this kind usually attract a fee in the range of £1,500 to £2,000. However, the Sheriff considered that the Reporter construed his remit in good faith and, whilst the Sheriff disagreed with the Reporter's views, it was fair and proper that the Reporter be remunerated for the work carried out on the remit.
This case is a rare example of a reported decision on the proper basis for assessing a liquidator's remuneration. Abatements to accounts normally arise in relation to the seniority of staff carrying out particular tasks or where time spent on a particular matter is considered excessive. However, in this case the dispute appears to have been about the strategy adopted by the liquidators and whether or not certain work should have been undertaken at all. Whilst Sheriff Jamieson's decision is merely persuasive it is in keeping with a general legal proposition that professionals have a wide degree in latitude in how work is to be undertaken given a liquidator's position as an Officer of Court. It will be interesting to see whether or not the decision is relied upon in other Courts by liquidators facing criticism from a reporter as to their conduct of a case.This publication is intended for general guidance and represents our understanding of the relevant law and practice as at December 2017. Specific advice should be sought for specific cases. For more information see our terms & conditions.