Scottish Court of Session Decisions

 

OUTER HOUSE, COURT OF SESSION   [2009] CSOH 144
P1250/09	NOTE BY LORD HODGE   in the note   by   MARGARET MILLS AND OTHERS, Joint Administrators of Heritable Bank PLC (in administration)   Noters;   For an order restricting the accounting period of the administration of that company   ­­­­­­­­­­­­­­­­­________________

 

 

Noters: Sellar, QC; Shepherd & Wedderburn LLP

 

 

29 September 2009

 

[1] The Noters, who are the joint administrators of Heritable Bank PLC ("Heritable"), seek an order restricting the third accounting period of the administration of that company so that it ends on 4 December 2009 rather than on 16 January 2010.

[2] The Noters' purpose in making the application is to enable the prompt payment to Heritable's unsecured creditors of a further distribution out of funds received from Heritable's English subsidiaries. That appears to be unobjectionable.

[3] There is however, as the Noters aver, some uncertainty as to the meaning of the relevant statutory provisions. The Insolvency (Scotland) Rules 1986, as amended, ("the 1986 Rules") apply to companies, which are the subject of administration orders, certain provisions of the Bankruptcy (Scotland) Act 1985 ("the Bankruptcy Act"), which governs personal insolvencies. Those provisions are modified in their application to companies in administration but the application and modification has created uncertainty.

[4] Section 52(2) of the Bankruptcy Act defines "accounting period" in the context of personal bankruptcy, so far as relevant, as follows:

"In this Act "accounting period" shall be construed as follows:

....

(b) any subsequent accounting period shall be the period of six months beginning with the end of the last accounting period; except that -

(i) in a case where the Accountant in Bankruptcy is not the trustee, the trustee and the commissioners or, if there are no commissioners, the Accountant in Bankruptcy agree; or

(ii) in a case where the Accountant in Bankruptcy is the trustee, he determines,

that the accounting period shall be such other period beginning with the end of the last accounting period as may be agreed or, as the case may be determined, it shall be that other period."

[5] Thus the personal bankruptcy regime provides two circumstances in which it is competent to create an exception to the default six month period, namely where the Accountant in Bankruptcy is not the trustee and where he is the trustee. In the former case the trustee must agree the particular period with either the commissioners or, if there are no commissioners, with the Accountant in Bankruptcy; in the latter case the Accountant in Bankruptcy as trustee determines the period.

[6] Rules 2.41, 4.16 and 4.68 of the 1986 Rules apply and modify section 52 of the Bankruptcy Act to corporate insolvency. Rule 4.68(1), so far as relevant, provides:

"Sections 52, ... of the Bankruptcy Act shall apply in relation to the liquidation of a company as they apply in relation to a sequestration of a debtor's estate, subject to the modifications specified in Rules 4.16(2).... and the following paragraph and to any other necessary modifications."

The modifications in Rule 4.68(2) do not affect section 52(2) of the Bankruptcy Act. Thus it is to the concluding words of Rule 4.68(1) ("any other necessary modifications") and to Rule 4.16(2) that one must look for the transposition of the provisions of the personal insolvency regime into the rules for the liquidation of companies. Rule 4.16(2), so far as relevant, makes the following substitutions: for "interim trustee" and "permanent trustee" there is substituted "liquidator"; for Accountant in Bankruptcy" there is substituted "the court"; and for "commissioners" there is substituted "liquidation committee".

[7] Section 52 of the Bankruptcy Act 1985 as applied to the liquidation of companies, if applied literally, would have the following results. The Accountant in Bankruptcy would become the court; the trustee would become the liquidator; and the commissioners would become the liquidation committee. This would make no sense as the two circumstances in section 52(2), as so modified, would then be (i) where the court was not the liquidator and (ii) where it was. The section would also provide in the first circumstance for the liquidator to reach agreement with the court. That is not the role of the court. In order to give a practical meaning to the alternatives in section 52(2) in the context of a liquidation it is necessary to subject that provision to further modifications as the concluding words of Rule 4.68(1) permit.

[8] It appears to me that to preserve the structure of section 52(2) in the context of the liquidation of a company one must disregard the references to the Accountant in Bankruptcy in the first of the alternatives. Thus in that case where there are a liquidator and a liquidation committee, they can agree to a particular accounting period. Under the second alternative, the liquidator who seeks a particular accounting period may, and if there is no liquidation committee must, seek the determination of the court. Unless the court can determine the particular accounting period, it would be pointless to apply section 52(2)(b)(ii) to the liquidation of a company and I can see no justification for confining the court's power of determination to the circumstance where there is no liquidation committee.

[9] Those provisions as modified and applied to the winding up of companies are then, by Rule 2.41 of the 1986 Rules, further modified in their application to companies in administration. Rule 2.41(1) provides:

"Chapter 5 of Part 4 (claims in liquidation) and Chapter 9 of that Part (distribution of company's assets by liquidator) shall apply with regard to claims to a dividend out of the assets of a company in administration as they do to a company in liquidation, subject to the modifications specified below and to any other necessary modifications."

Rule 2.41(2), so far as relevant, provides that "in any provision of the Bankruptcy Act as applied by Rule 4.16 or 4.68 -

(a) for any reference to the liquidator, liquidation, and liquidation committee there shall be substituted a reference to the administrator, the administration and the creditors' committee in the administration ...."

[10] Applying the modifications in Rule 2.42 to section 52(2) of the Bankruptcy Act as modified in the context of a liquidation, there are alternatives where the administrator wishes to substitute a particular accounting period for the default six-month period. They are: (i) where there is a creditors' committee in the administration, the administrator and that committee may agree the particular accounting period and (ii) in any event the administrator may, and where there is no such committee must, apply to the court to determine the particular accounting period.

[11] I am therefore satisfied that the court can competently restrict the third accounting period in the administration of Heritable as the Noters request.