In Fielding v The Burnden Group Limited (BGL) the English High Court dismissed an application for the liquidator to be held personally liable for the costs of a successful appeal against the rejection of a proof of debt.
The liquidator of BGL rejected the Fieldings' proof of debt on the basis that they had failed to prove that BGL was indebted to them. However, the Fieldings successfully appealed the liquidator's decision and then sought the costs of their appeal from the liquidator personally, given that BGL had no assets from which they could recover their costs.
The default position in the UK is that liquidators are not personally liable for the costs of an appeal against the rejection of a proof of debt, unless the Court orders otherwise.
The Fieldings contended that the default position should not apply as the liquidator had separately brought misfeasance applications against the Fieldings and BGL's former administrators challenging a payment of £1.3 million made to the Fieldings by the administrators. Those applications were not worth pursuing if BGL was indebted to the Fieldings in excess of £1.3 million. The Fieldings argued that the liquidator's defence of their appeal was not bona fide and was motivated to ensure that he could pursue the misfeasance applications. Given that the liquidator would be personally liable for costs if the misfeasance applications were unsuccessful, the Fieldings argued he should be liable for his unsuccessful defence of their appeal.
The Court held that the degree of connectedness between the liquidator's defence of the Fieldings' appeal and the pursuit of the misfeasance applications did not justify an order that the liquidator be personally liable for the Fieldings' costs. Accordingly, the Court held that their costs were to be treated as expenses of the liquidation, subject to a 20% reduction owing to their conduct which prolonged the appeal.
A copy of the decision can be found here.