When should a liquidator seek to waive his failure to lodge his accounts of intromissions on time?

Burton, Noter [2008] CSOH 75

Background
In a recent decision of Lord Glennie, the Court of Session has given some much needed guidance to Insolvency Practitioners on the application of the insolvency (and bankruptcy) Rules which require IPs to submit accounts and claims for remuneration within two weeks of the end of each accounting period. The Court has recognised the burden which this places on Liquidators, not just in the time taken in preparing the accounts for each six month accounting period but the subsequent costs of applying to the Court seeking the appointment of a Court Reporter, and has recognised that the corresponding depletion of funds will not always to be in the interests of creditors.

David Sellar, QC who appeared for the Liquidator in this case advised the Court that it was commonplace for a Liquidator to wait until the end of the liquidation or at least for periods significantly longer than six months before applying to the Court for an audit of his accounts. The applications were then accompanied with a request that the Court waive the Liquidator's failure to meet the requirements of section 53.

The Issues
The main issue for Lord Glennie was the stage at which the Court should be asked to waive the Liquidator's failure to comply with the Rules. There appeared to be two different practices currently in use in the Court of Session:

  1. To seek a waiver after the event but before the accounts were remitted to the Court Reporter and to the Auditor of Court, or
  2. To seek a waiver after the event but only once the Court had the Reports of both the Court Reporter and Auditor of Court – the idea being that the Court then had full information regarding the amounts claimed and the general conduct of the liquidation in order to make a decision on whether to waive the Liquidator's failure.

In the case before Lord Glennie, the second option had been followed and a question mark had been raised over its competency but the Court decided that there was no reason why this approach could not be followed. He did not consider the competence of the remit to the Reporter and the Auditor was dependent upon the waiver being granted. Lord Glennie also advised that the first option was equally competent provided the Court was given sufficient information upon which to exercise its discretion.

The following two points will be of interest to Liquidators:

  1. If the Liquidator has failed to comply with the Rules, a waiver will require to be sought and if this is sought before the remit to and appointment of the Court Reporter, there should be included in the Note to Court a statement as to the estimated amount intended to be claimed by way of outlays and remuneration and a brief account of the conduct of the liquidation.
  2. Lord Glennie, being aware of the problems caused by section 53, suggested that a Liquidator at an early stage in the liquidation could apply for a longer accounting period to be fixed. In an appropriate case this might be for a period lasting to the end of liquidation. This would in effect deal with the issue in advance. The application would need to be made by motion and supported by reasons. Lord Glennie observed that he did not see that such an application would prevent a Liquidator seeking an interim claim in respect of outlays and remuneration part way through this extended accounting period.

Comment
If the first option is the route to be adopted it will be necessary for Liquidators to provide information of the estimated costs and outlays to allow the application to be prepared and to persuade the Court that the failure to comply with the Rules is appropriate.

Dealing with the potential problem in advance by making an early application to extend the accounting period seems attractive at first sight, but it is thought that the Court will need quite cogent reasons why it is appropriate and it will certainly not agree to this in each and every case. Lord Glennie did not give any guidance on what would be a deserving case but we would suspect that only cases where the assets are limited and the liquidation is going to run for a number of years would qualify.

Finally, while this decision obviously relates to the practice in the Court of Session, we would expect that this approach will filter down into the Sheriff Courts.

Back to Search