Scottish Court of Session Decisions

OUTER HOUSE, COURT OF SESSION [2012] CSOH 167
P277/09	OPINION OF LORD HODGE in the Note by THOMAS MERCHANT BURTON, LIQUIDATOR OF CALLANISH LIMITED (IN LIQUIDATION) Pursuer; for an order for audit of his accounts and intromissions, authorisation of payment of fees and extension of accounting period ________________

Noter: Brodies LLP

11 October 2012

[1] The noter is the liquidator of Callanish Limited. He was appointed interim liquidator on 20 November 2001. At a meeting of creditors on 20 December 2001 he was appointed liquidator of the company.

[2] The noter lodged accounts for each of the six-month accounting periods between 8 October 2001 and 7 October 2008 and obtained the court's approval of (i) his accounts after they had been audited by the court's reporter and (ii) his remuneration after the court's reporter and the Auditor of Court had reported. He has refrained for seeking the approval of the court for his accounts in each of accounting periods since 8 October 2008 and has taken no remuneration for his work since that date.

[3] He now applies for waiver of his failure to comply with his statutory duty to submit and seek approval of his accounts for those seven accounting periods. He seeks the authority of the court to produce accounts for those accounting periods but also requests a dispensation from the court's usual practice of remitting those accounts to the court's reporter until the close of the liquidation. He also asks the court to extend the current accounting period which commenced on 12 April 2012 so that it ends at the close of the liquidation. He proposes at the end of the liquidation to seek (i) the remit of the seven as yet unaudited accounts and also the accounts for the final extended accounting period to the court's reporter to examine and audit and (ii) the remit to the court reporter and the Auditor of Court to suggest suitable remuneration for his work as liquidator from 8 October 2008 until the end of the liquidation.

[4] He explains that the reason why he did not lodge his accounts in the previous accounting periods or seek remuneration for his work in those periods was because he had only limited funds. In his report to creditors dated 18 May 2012 he stated that he held funds of £18,962.52. The principal asset of the company which he has still to realise is an inter-company debt due from the company's parent company, Scotia Holdings plc (in administration) ("Scotia") and he expects to receive a final distribution from Scotia's administrator shortly after the end of 2014. This is because Scotia's principal asset is royalty payments which will continue to be paid until the end of 2014. Once all of those payments have been received Scotia's administrator intends to pay out a final dividend to its creditors, including the company.

[5] The noter has paid dividends to the company's creditors which total 64 pence in the pound. He has sought to minimise further expenditure until he receives the final dividend from Scotia. He submits that this is in the best interests of creditors in view of the limited work which he carried out in the seven previous accounting periods and in the current accounting period while he has waited for the final dividend from Scotia. He explains that he has kept the company's creditors informed by producing six-monthly reports for each of the previous accounting periods and by holding annual meetings of creditors.

[6] In support of his applications he founds on (a) the court's power under Rule 7.32 of the Insolvency (Scotland) Rules 1986 ("the 1986 Rules") and section 63 of the Bankruptcy (Scotland) Act 1985 ("the Bankruptcy Act") to cure defects in procedure and (b) the recent practice of the court in relation to the use of this power and also the extension of accounting periods.

[7] It has been a very common practice for a liquidator to ask the court to use the power under Rule 7.32 of the 1986 Rules and section 63 of the Bankruptcy Act to waive his failures to produce and submit for audit his accounts over several accounting periods. In many cases, as Lord Glennie observed in Thomas M Burton, Liquidator of Ben Line Steamers Ltd [2008] CSOH 75, this is done in the interests of creditors in order not to deplete the funds. In that case Lord Glennie suggested that in appropriate cases the insolvency practitioner could seek to have his accounts audited and his remuneration fixed before the court decided on the issue of waiver. He also drew attention to the court's power under section 52(2)(b)(i) of the Bankruptcy Act as applied to liquidators to fix in advance the length of an accounting period. He stated (in para [14] of his opinion):

"I see no difficulty in the liquidator making an application to the court at an early stage of the liquidation for a longer accounting period to be fixed. In an appropriate case, this might be for a period lasting until the end of the liquidation."

I also see no difficulty in principle. Having discussed the issue with my fellow insolvency judges, I would encourage liquidators to invoke the power under that section in suitable cases to avoid the need to seek the waiver of failures to comply with statutory obligations over prolonged periods.

[8] It is important that liquidators and other insolvency practitioners who act as officers of court are mindful not only of their obligations to keep a company's creditors properly informed about their work but also of their duty to allow the court to carry out its supervisory role. The requirement to have accounts audited by a reporter can serve the useful purpose of bringing to light mistakes or even malpractice. And there is a public interest in having the court's reporter and the Auditor of Court consider what is appropriate as a liquidator's remuneration. See Lord Glennie's decision in Dempster & Taylor, Joint Liquidators of Park Garden Investments Ltd [2010] CSOH 150 at para [10]. Those considerations should be kept in mind when invoking the court's power under section 52(2)(b) and when seeking approval for remuneration.

[9] But I see no problem in appropriate cases in fixing the accounting period as one year particularly once the liquidator has completed the bulk of the work of ingathering an insolvent company's assets or is receiving payment of a residual debt by instalments. In some cases longer periods may be justified where the liquidator reasonably envisages that it will take a long time to realise residual assets. In exceptional cases, it may be appropriate to fix the accounting period to run to the end of the liquidation. In this case there is one significant residual asset which will not be realised for some time and the noter has otherwise completed the substantive work of the winding up. I consider it appropriate to grant the extension which he seeks.

[10] I therefore (i) grant the waiver which the noter seeks in respect of the prior accounting periods, (ii) determine that the current accounting period which commenced on 8 April 2012 will run to the close of the liquidation and (iii) defer the remit to the court's reporter of the noter's accounts from 8 October 2008 and his application for approval of remuneration to the close of the liquidation.