In a recent decision issued by Lord Drummond Young, one of the Scottish insolvency judges in the Court of Session, useful guidance has been issued which will be of interest to practitioners having to deal with the, not uncommon, situation of a retiring practitioner and replacement with a current partner in the same firm.
The case arose from the liquidation of AGM Casualwear Limited, which had been wound up in November 2001. Joint liquidators were appointed but the firm handling the liquidation was faced with the situation where one liquidator was retiring from practice and the other had left the firm in question.
A note was presented asking the court to remove the joint liquidators and to appoint two other licence holders in their place. In the note the liquidators sought an order to allow them to dispense with the requirements of Rules 4.28 and 4.29, which in normal course would have required a meeting of the creditors to be held.
The court reviewed the English case law, which has held for a number of years that a "short cut" procedure was appropriate in cases where the court was satisfied that no useful purpose would be served by calling the meeting of creditors. It was argued in the Scottish case that given the time that had elapsed since the winding up order had been made, the creditors would be likely to have lost interest in the liquidation, given that any dividend was unlikely, and it was therefore likely that no quorum would attend any meeting that was called for the purpose of accepting the resignation of the incumbent office holders and appointing new liquidators.
In his opinion, Lord Drummond Young was satisfied that the same policy considerations would apply in Scottish cases. Although the statutory rules and provisions were slightly different north and south of the border, it was held that the court had a power under common law to regulate the conduct of the liquidation and to pronounce such orders as are necessary to ensure that the winding up is carried out properly and efficiently. The exercise of this power was however discretionary and would only be exercised in his view where :
# There was good reason for the liquidator ceasing to act and
# The court was satisfied that no useful purpose would be served by convening a meeting of the creditors
In certain of the English cases considered by Lord Drummond Young, conditions had been imposed by the court when permitting the liquidators to dispense with the need to hold a meeting of creditors. The rationale for such conditions had been that creditors were entitled to be notified of the proposed change of liquidator and had a right to object. In certain cases the court had been satisfied that to avoid any prejudice to creditors, notice should be given of the court order and the creditors given a period of time within which to apply to vary or recall the order. Lord Drummond Young's view was, however, that any argument of prejudice was largely illusory and his view was that in normal cases it was not likely to be necessary for the court to impose any conditions if it was otherwise satisfied that it was appropriate to adopt the short cut route and sanction the dispensation with holding the meeting of creditors. All that Lord Drummond Young ordered was that notice be given to the Registrar of Companies and that the order be advertised in the Edinburgh Gazette.