Introduction

Against the backdrop of the recent sheriff court decisions regarding the need to appoint a Court Reporter even in cases where the assets are insufficient to meet the IPs' fees, the Court of Session has taken an innovative approach to approving IP fees without the need to appoint a court reporter.

Background

In terms of section 53 of the Bankruptcy (Scotland) Act 1985, as applied to liquidations by rule 4.32 of the Insolvency (Scotland) Rules 1986, a liquidator requires to have his or her remuneration approved every six months either by a liquidation committee or by the court. Where there is no committee and approval requires to be sought from the court, the court has traditionally appointed an independent accountant to carry out a report into the level of remuneration and outlays being sought (the "Court Reporter") who then liaises with the Auditor of Court and agrees a figure for the liquidator's remuneration. This is a costly process as the fees of the Court Reporter and the Auditor have to be met from the insolvent estate together with the legal costs incurred in making an application to the court.

In a recent application to the Court of Session, Shepherd and Wedderburn successfully persuaded the court to approve a liquidator's fees without the need to appoint a Court Reporter. The court also agreed to a short form procedure for future applications. This has resulted in significant savings in the costs of the liquidation. Details of the circumstances in which the court was willing to grant this order are set out below.

Approval of fees

In the specific case, there was one secured creditor who had standard securities over all properties belonging to the company in liquidation. The secured creditor also had a floating charge over the property and undertaking of the company. However there were no moveable assets and so no prescribed part available to ordinary creditors. The secured lender anticipated a significant shortfall in its security. Accordingly, there was no prospect of payment to any creditors other than the secured creditor.

In these circumstances, given that the secured creditor was the only party with an economic interest in the outcome of the liquidation and given that the secured creditor was happy with the proposed level of the liquidator's remuneration, the Court of Session was satisfied that it was appropriate to approve those fees without the need to appoint a Court Reporter.

The key factors here were (i) that it was only the secured creditor who had any economic interest in the outcome of the liquidation and (ii) evidence was presented to demonstrate that the secured lender was in agreement with the proposed level of remuneration. Clearly, the secured creditor's return would have been reduced had the liquidator been required to incur the costs of a Court Reporter.

Short form for further approval

One difficulty that has been faced by liquidators for some time is the fact that, where there is no liquidation committee, they require to make an application to the court for approval of their outlays and remuneration every six months. Applications require to be made as a Note in the liquidation process. This involves incurring significant outlays both in court fees and also in the legal costs of preparing the Notes, which can be exacerbated in group company situations.

The court was persuaded that there was a significant cost involved in a fresh Note having to be lodged every six months. Accordingly, on granting the order sought in relation to the initial six month period, the court also reserved to the liquidator the right to make an application for further accounting periods by way of motion. This means that it will not be necessary for a fresh Note to be prepared. Instead, all that will be required is for us to prepare a motion seeking to have the fees for further periods approved.

The authority to make further applications by a short form process was made in the context of an application where the court approved the fees without the need for the appointment of a Court Reporter. However, there is no reason to believe that a similar procedure could not be put in place in a case where the liquidator was seeking the appointment of a Court Reporter to approve his or her remuneration. In those circumstances, a Court Reporter would still be required. However, the legal costs and court dues involved in doing so would be significantly reduced.