In a recent case in relation to the liquidation of Echelon Wealth Management Limited ("E"), Lord Glennie has decided that upon removal as liquidator, a former liquidator may not retain from the assets of the liquidated company any sum as security for costs.
S&C were appointed joint liquidators of E at a creditors meeting on 16 December 2008. At a creditors meeting on 22 July 2009, they were then removed from office with new joint liquidators being appointed.
In terms of Rule 4.21(2) of the Insolvency (Scotland) Rules 1986, when a liquidator is succeeded by a new liquidator, the former liquidator is obliged to transfer all of the assets to the new liquidator. In this case, however, as a result of a dispute with the creditors about remuneration, the outgoing liquidators withheld a sum of just over £400,000 from the assets recovered by them, as security for their costs.
In reaching his decision, Lord Glennie distinguished the current situation from that of a provisional liquidator leaving office because in the latter case, no winding up order is made returning assets to the company (which leaves the provisional liquidator unsecured). In the current case, the former liquidator had the security of the assets remaining under the control of the court (through the new liquidators).
Lord Glennie therefore found that the former liquidators were obliged to hand over the whole assets of the company to their successors and had no right to retain. By the time the case was heard in court, the former liquidators had already handed the funds over to the new liquidators (with interest).
This decision confirms that there is no right of retention as security for costs for former liquidators as the court's control of the assets itself constitutes the necessary security. A transcript of the case can be found here.