In a decision that demonstrates a considerable degree of common sense, Lord Glennie has confirmed that in certain liquidations one can dispense with the usual requirement for a Reporter to be appointed to consider a liquidator's accounts. The decision forms part of an Opinion issued by Lord Glennie in relation to the winding-up of Park Gardens Investments Limited ("the Company").

As it applies to liquidations by virtue of the Insolvency Rules 1986, Section 53 of the Bankruptcy (Scotland) Act 1995 ("the Act") requires liquidators, every six months, to submit the accounts of the liquidation for approval by the liquidation committee or, in the absence of such a committee, to the court.

To assist in the evaluation of these accounts, Section 53(3) of the Act provides that the court "may" audit the accounts. In practice, this process involves the court forwarding the accounts to a Reporter chosen by the court to report on the reasonableness of (amongst other issues) the liquidator's remuneration.

As Lord Glennie notes, the current practice has no statutory basis. The wording of the Act is permissive rather than mandatory, with the current practice having evolved over time. However, this is not to detract from the importance of the process in balancing the interests of both the secured and unsecured creditors, as well as safeguarding the legitimate interests of liquidators.

In the current case a combination of factors in the liquidation precluded the need for such external reporting - namely:

  • The company had only one secured creditor who had already consented to the account;
  • As there were insufficient funds to meet even the secured creditor's claim, no payments would be made to the unsecured creditors; and
  • The creditors had declined to form a liquidation committee. The only effect of the reporting process in this case would have been to increase the cost and length of the liquidation process, to the detriment of the secured creditor (who was the only party with any real financial interest).

Accordingly, Lord Glennie, noting that the sums claimed by the liquidators did not appear "out of the ordinary", decided to depart from existing practice and agreed that there was no need to appoint a Reporter.

The full text of the Opinion can be accessed here.