CHAD GRIFFIN AND THOMAS CAMPBELL MACLENNAN AS JOINT ADMINISTRATORS OF ALEXANDER INGLIS AND SON LTD [2024] ScotCS CSOH

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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> CHAD GRIFFIN AND THOMAS CAMPBELL MACLENNAN AS JOINT ADMINISTRATORS OF ALEXANDER INGLIS AND SON LTD [2024] ScotCS CSOH_12 (09 February 2024) URL: http://www.bailii.org/scot/cases/ScotCS/2024/2024_CSOH_12.html Cite as: [2024] CSOH 12, [2024] ScotCS CSOH_12

OUTER HOUSE, COURT OF SESSION

[2024] CSOH 12

P94/24

NOTE BY LORD BRAID

In the Note of

CHAD GRIFFIN AND THOMAS CAMPBELL MACLENNAN as joint administrators of

ALEXANDER INGLIS AND SON LIMITED

for

orders in terms of paragraph 79 of schedule B1 to the Insolvency Act 1986

Noter

Noter: Tosh; Burness Paull LLP

9 February 2024

Introduction

[1]

The noters are the joint administrators of Alexander Inglis and Son Ltd (the

company), having been appointed as such by the company's directors on 12 May 2021.

Their term of office has previously been extended to 11 February 2024, when it will expire.

The orders sought

[2]

The noters seek four orders: (1) that their appointment as joint administrators should

cease with immediate effect; (2) that they be discharged from liability in respect of their

actions as joint administrators, again with immediate effect; (3) that the company be wound

up under the provisions of the Insolvency Act 1986 and the noters appointed as joint

liquidators; and (4) that the remuneration of the noters as joint liquidators shall be fixed

as 20% of the value of any assets of the company realised by them.

[3]

There is nothing unusual about the first and second of those orders, which I accept

are appropriate in the circumstances of this case. However, I invited counsel for the noters

to address me on the third and fourth orders sought, which raise points on which there is no

Scottish authority (or at least, none to which counsel could refer me).

Background

[4]

The background to the note can be stated briefly as follows. The purpose of the

administration, to achieve a better result for the company's creditors as a whole than would

be likely if the company were wound up first (without being in administration), has been

achieved. The noters have concluded their investigations into the company and have

realised all knowns assets. Those assets include a potential claim against the company's

auditors. That claim has been assigned to a specialist litigation investment company subject

to an agreement that if the claim is successful, a percentage of the sum realised will be

returned to the company. The noters have adjudicated upon preferential and unsecured

claims. A dividend of 100 pence in the pound has been paid to the preferential creditors;

and a dividend of 1.82 pence in the pound to unsecured creditors for the prescribed part.

The noters have produced the requisite progress reports and have prepared a statement

indicating that they consider the company should now be wound up under the provisions of

the 1986 Act to allow them to: support the claim against the company's auditors by

providing financial analysis and information, as required, to enable that claim to be

pursued; finalise and pay any administration expenses; finalise VAT and corporation tax

returns with HMRC; and distribute remaining funds to the floating charge holder. Notice

of the intention to make this application (and, specifically, of the intention to have the noters

appointed as liquidators, and to ask the court to approve remuneration at 20% of the

amount recovered) was given to the directors (as the persons who appointed the noters) and

creditors of the company on 9 January 2024, when responses were invited by 16 January

2024. No response was received from any creditor, other than the floating charge holder,

which signified its consent to the proposed course of action.

The legislation

[5]

Paragraph 79(4) of schedule B1 to the 1986 Act provides:

"On an application under this paragraph the court may--

(a) adjourn the hearing conditionally or unconditionally;

(b) dismiss the application;

(d) make any order it thinks appropriate (whether in addition to, in

consequence of or instead of the order applied for)."

Rule 3.57 of the Insolvency (Scotland) (Company Voluntary Arrangements and

Administration) Rules 2018 provides as follows:

"(1) An application to court by the administrator under paragraph 79 of Schedule B1

for an order ending an administration must be accompanied by--

(a) a progress report for the period since--

(i) the last progress report (if any), or

(ii) if there has been no previous progress report, the date on which

the company entered administration;

(b) a statement indicating what the administrator thinks should be the next

steps for the company (if applicable); and

[...]

(2) Where the application is made other than because of a requirement by a decision

of the creditors--

(a) the administrator must, at least five business days before the application is

made, deliver notice of the administrator's intention to apply to court to--

(i) the person who made the administration application or

appointment, and

(ii) the creditors; and

(b) the application must be accompanied by--

(i) a statement that notice has been delivered to the creditors, and

(ii) copies of any response from creditors to that notice.

(3) Where the application is in conjunction with a petition under section 124 for an

order to wind up the company, the administrator must, at least five business days

before the application is made, deliver notice to the creditors as to whether the

administrator intends to seek appointment as liquidator."

Rule 5.26 of the Insolvency (Scotland) (Receivership and Winding Up) Rules 2018 provides:

"(1) This rule applies where the liquidator is appointed by the court under

section 138(5) (no person nominated or appointed by creditors and contributories),

139(4) (different persons nominated by creditors and contributories) or section 140(1)

(winding up following administration or CVA).

(2) The court must not make the appointment unless and until the person being

appointed liquidator has lodged in court a statement to the effect that that person is

qualified to act as an insolvency practitioner in relation to the company and consents

to act as liquidator.

..."

Rule 7.11 of the Insolvency (Scotland) (Receivership and Winding Up) Rules

2018 provides:

"(1) The liquidator's claims for the outlays reasonably incurred and for the

liquidator's remuneration must be made in accordance with this rule (and subject to

rules 7.12 to 7.15).

(2) The liquidator may within 14 days after the end of an accounting period submit to

the liquidation committee or, if there is no liquidation committee, to the court in

respect of that period and any other previous accounting period in which no

submission has been made under this paragraph--

(a) the liquidator's accounts of the liquidator's intromissions with the

company's assets for audit;

(b) a claim for the outlays reasonably incurred by the liquidator and for the

liquidator's remuneration (where the liquidator intends to submit such a

claim in respect of that accounting period); and

scheme of division of the divisible funds (unless rule 7.31(8) applies).

[...]

(7) If the liquidator makes a submission under paragraph (2) to the liquidation

committee or, if there is no liquidation committee the court, within 6 weeks after the

end of an accounting period--

(a) the liquidation committee or, as the case may be, the court--

(i) may audit the accounts; and

(ii) must issue a determination fixing the amount of the outlays and

remuneration payable to the liquidator; and

(b) the liquidator must make the audited accounts, scheme of division and the

determination available for inspection by the creditors and contributories.

(8) Subject to paragraph (9), the basis of remuneration must be fixed--

(a) as a percentage of the value of the company's assets which are realised by

the liquidator;

(b) by reference to the work which was reasonably undertaken by the

liquidator and the liquidator's staff in attending to matters arising in the

winding up;

(9) The basis of remuneration may be fixed as any one or more of the bases set out in

paragraph (8)(a) to (c) and different bases may be fixed in respect of different things

done by the liquidator."

[6]

In addition to the foregoing provisions, section 122 of the 1986 Act sets out the

circumstances in which a company may be wound up by the court, including that it is

unable to pay its debts (which, by virtue of section 123, is deemed to be the case if it is

proved to the satisfaction of the court that it is unable to pay its debts as they fall due).

Section 124 sets out who may present a winding-up petition. Section 138, headed

"Appointment of liquidator in Scotland" provides, by subsection (1) that where a winding-

up order is made by the court in Scotland, a liquidator shall be appointed by the court at the

time when the order is made; and, by subsection (2), that the liquidator so appointed

(referred to as "the interim liquidator") continues in office until another person becomes

liquidator in his place under that section or section 139; and the remaining provisions of

section 138 contain the mechanism whereby the interim liquidator is replaced by the

liquidator (which can be, and in practice almost always is, the interim liquidator). In short,

the liquidator can either be chosen by the company's creditors or creditors and

contributories (subsections (3) and (4)), or, failing any nomination by them, by the court

(subsection (5)). Section 138 therefore uses "liquidator" in two senses: the subsection (1)

sense of interim liquidator appointed by the court; and the subsection (5) sense of the

liquidator nominated by creditors or appointed by the court. Section 139 is immaterial for

present purposes. For England and Wales, section 136(1) and (2) together provide that when

a court in that jurisdiction makes a winding-up order, subject to section 140, the official

receiver becomes the liquidator of the company and continues in office until another person

become liquidator under the provisions of the Act. Finally, it is worth setting out the

provisions of section 140, insofar as material, in full:

"140 Appointment by the court following administration or voluntary

arrangement

(1)

Where a winding-up order is made immediately upon the

appointment of an administrator ceasing to have effect, the court may

appoint as liquidator of the company the person whose appointment as

administrator has ceased to have effect.

(2)

...

(3)

Where the court makes an appointment under this section, the official

receiver does not become the liquidator as otherwise provided by

section 136(2) and section 136(5)(a)"

It should be noted that although section 140 extends to Scotland, section 138, in contrast to

section 136(1), is not made subject to its terms.

The issues

[7]

There are three issues before me: whether it is competent to apply for a winding-up

order by note, rather than by petition; whether, when invoking section 140, the court must

appoint an interim liquidator; and whether, in this case, it is appropriate to approve, in

advance, the liquidators' remuneration at 20% of the assets recovered in the liquidation.

I will deal with each in turn.

Whether competent to apply for a winding up order by note, rather than petition

[8]

Rule 3.57(3), above, plainly envisages that the normal, or at least a, route into

liquidation following administration will be by means of a winding-up petition presented

under section 124. While section 140 provides for the administrator to be appointed as

liquidator, it is neutral as to the route into liquidation. Counsel for the noter primarily

founded upon the width of paragraph 79(4) which allows the court to make any order in the

administration, which, he submitted, must include an order for the company to be wound

up. He also drew my attention to English authority, Re Graico Property Co Ltd (In

Admin) [2016] EWHC 2827 (Ch), in which Norris J held that the scope of paragraph 79(4) was

entirely unrestricted and the court did have jurisdiction to wind up a company even in the

absence of a petition, provided that one or more of the circumstances in section 122 existed

and provided that the order had some relationship to the discharge of the administrators

and to the termination of the administration.

[9]

I agree with that approach. Notwithstanding the terms of rule 3.57(3), which refers

to an application for an order ending an administration being accompanied by a petition to

wind up the company, paragraph 79(4) is in unrestricted terms and entitles the court to

make any order it thinks appropriate, in addition to, in consequence of, or instead of the

order applied for. That could scarcely have been in wider terms, and it is impossible to read

that provision as excluding the power to make an order winding the company up. That

said, it would be going too far to hold that the power is entirely unrestricted: for example, it

is doubtful that the court could make an order winding up the company if none of the

circumstances set out in section 122 were made out, although in that event it is unlikely that

the court could conclude that a winding-up order was appropriate. Further, as will be seen,

I do not consider that the power is so wide as to entitle the court to innovate upon the

provisions of the 1986 Act insofar as they govern the conduct of a liquidation. However, in

the circumstances of the present case, I am entirely satisfied that a winding-up order is

appropriate. It would be futile, and detrimental to the company, to require the noters to go

to the additional expense of presenting a winding-up petition when the paragraph 79(4)

route is available, and where there is a clear and obvious link between the exit from

administration and entry into liquidation.

[10]

Accordingly, I find that it is both competent and appropriate for the noters to

proceed by way of note, and for the court to make an order winding the company up.

Must an interim liquidator be appointed?

[11]

The answer to this question is less straightforward. In England and Wales, it is clear

from the terms of sections 140(1) and (3), to which section 136 is expressly made subject, that

the court has the power to bypass the normal procedure for the appointment of liquidators

prescribed by sections 136 and 139. Support for that view, if it is needed, can be found in

Re Exchange Travel Holdings Ltd & Ors [1992] BCC 954 at 958H to 959A. The problem in

Scotland arises because, as previously pointed out, section 138 is not made subject to

section 140; and while the court is empowered by section 140 to make a winding-up order,

section 138 on the face of it mandates that the person appointed as liquidator is to be an

interim liquidator, further procedure then being required before that person can become the

liquidator.

[12]

The exercise is essentially one of construction. Was it Parliament's intention that in

Scotland the "liquidator" that the court was empowered to appoint was merely to be an

interim liquidator, in a section 138(1) sense; or was he or she to be a liquidator in a

section 138(5) sense? Both species of liquidator are, after all, appointed by the court, but at

different stages in the process.

[13]

Two considerations persuade me that the latter view is correct. First, section 140

applies equally to Scotland as to England and Wales. There appears to be no legislative

intention that the normal procedures should be bypassed in the latter jurisdiction but not in

the former, nor would there be any sensible or rational purpose in treating the two

jurisdictions differently. The difficulty arises only because the Scottish term for the interim

person in control of the company includes the word "liquidator", whereas no room for

ambiguity arises in England and Wales, where it is the Official Receiver who is appointed at

the winding-up stage. Second, rule 5.16 of the Insolvency (Scotland) (Receivership and

Winding Up) Rules 2018 equiparates the appointment by the court of a liquidator under

section 138(5) with an appointment under section 140.

[14]

Thus, notwithstanding that, unlike section 136, section 138 is not expressly made

subject to section 140, which is likely to be down to drafting oversight, I have come to the

view that section 140, properly construed, does empower the court to appoint the

administrators as liquidators, not as interim liquidators, the legislative intention being to

bypass the trouble and expense which would be incurred if the normal procedures had to be

utilised.

[15]

The power to appoint the noters as liquidators in that sense is of course a

discretionary one. In the circumstances here, I am satisfied that it is appropriate to make

that appointment. The chances of the creditors wishing to appoint a different person or

persons as the liquidator must be vanishingly small, where the creditors have already had

intimation of the administrators' intention to have themselves appointed and have raised no

objection, and appear to be entirely happy with the conduct of the noters as administrators

thus far; the more so, where the only creditor with an interest has reached an agreement

with the noters as to the basis of their remuneration, hardly redolent of a desire to appoint

someone else as liquidator.

[16]

For all of these reasons, I will not only make a winding up order but will appoint the

noters as liquidators of the company.

[17]

For completeness and to deal with a subsidiary submission made by counsel for the

noters, had I reached the contrary view, that section 140 did require the court to appoint an

interim liquidator, I would not have been persuaded that the power in paragraph 79(4) was

wide enough to allow me to innovate upon the provisions of the 1986 Act. That can be

tested by asking what the position would be if the administrators proposed, for some

reason, to appoint a person other than themselves to be the liquidator. By virtue of

paragraph 79(4) that would be a competent order for the court to make, but the effect of

section 140 would then be that the normal procedures could not be bypassed; and the

liquidator appointed in those circumstances would require to be an interim liquidator (or, in

England and Wales, the Official Receiver).

Is it appropriate to approve the liquidators' remuneration at 20% of the recoveries?

[18]

By way of general introduction, there is no doubt that the basis of a liquidator's

remuneration may be fixed as a percentage of the value of the assets realised: rule 7.11(8) of

the Receivership and Winding Up Rules makes that clear; and until relatively recently the

remuneration of office-holders was in general determined on a percentage basis: see Brook v

Reed (Practice Note) [2012] 1 WLR 419, at paragraph 8. However, rule 7.11 also makes clear

that a liquidator's claim for remuneration must be made at the end of each accounting

period (if made during an accounting period, in respect of that period, the claim is for an

interim determination). If the remuneration is fixed by the creditors, the rules make

provision for recourse to the court, which is the final arbiter. When the court comes to

consider remuneration it must have regard to all of the circumstances of the case: Mirror

Group Newspapers plc v Maxwell [1998] BCC 324, Ferris J at 338. It has been judicially

recognised that, at least in the case of easily realised assets, remuneration on a percentage

basis can lead to disproportionately high remuneration: Brook v Reed, above, at paragraph 9.

[19]

The noters' justification for seeking this order is that it will enable them to make

further distributions to creditors without delay, and will avoid the need to find creditors

willing to form a liquidation committee, and the need and consequent expense of a further

application to this court for approval of remuneration. Further, a fee of 20% is said to be

appropriate because it takes into account the risk that, if the claim against the company's

auditors is unsuccessful, the noters will not be entitled to any remuneration for their time

and trouble during the liquidation. In relation to that last point, I would observe that it may

explain why a percentage approach is justified, but it in no way justifies the level of that

percentage. Counsel for the noters emphasised that the only creditor likely to receive any

future distribution, the floating charge holder, consents to the proposal.

[20]

For a number of reasons I am unwilling to grant this part of the note.

[21]

First, I do not consider it competent to do so. The rules do not permit a claim for

remuneration before the work in question has been done, let alone before the company has

even been wound up. Where a winding-up order is made under paragraph 79(4), the

ensuing liquidation is one which is governed by the terms of the 1986 Act and of the rules

made thereunder, which cannot, in my view, be circumvented, or innovated upon, by the

power to make "any order" at the conclusion of the administration.

[22]

Second, even if it were competent, I do not consider it would be appropriate to fix

the liquidators' remuneration in advance, particularly not on a percentage basis and

particularly not in this case. No real attempt, other than in the most general terms, has been

made to predict the amount of work which the noters, as liquidators, will be required to

carry out. There is no basis on which the court can possibly assess whether a percentage fee

of 20% will represent fair remuneration for the degree of time and effort expended by the

liquidators in advancing the claim. Where the court is required to have regard to "all the

circumstances" in fixing remuneration, it is hard to see how that could ever be achieved in

advance of the circumstances having occurred.

[23]

Third, to the extent that I do have information, I remain to be satisfied in any event

that a percentage fee of 20% would not result in disproportionately high remuneration.

While I accept that the noters will be undertaking a degree of risk by acting on a speculative

basis, inasmuch as they will be devoting resource to the litigation without any guarantee

that they will be paid anything, they are not incurring any risk in relation to the claim itself,

in that any litigation would be undertaken by the funders to whom the claim has been

assigned and who will be the prime movers in bringing the claim and incurring a potential

liability in expenses. The noters' role will be restricted to providing such assistance as they

can. Counsel for the noters resisted a suggestion by me that they would be taking a back-

seat role; but nor, to pursue that analogy, can they be said to be in the driving seat. They

might devote a great deal of time and effort to assisting the progress of the claim to a

successful conclusion; or they might not. The reality is that at this stage, we simply do not

know.

[24]

Counsel for the noters laid much emphasis on the agreement by the secured creditor,

the only creditor with a real interest, to the proposed percentage and told me that the figure

was the product of negotiation between it and the noters, who must therefore have sought a

higher figure than 20%. Counsel submitted that the secured creditor would be the one to

suffer financially should the remuneration not be approved at this stage, since the expense

of presenting a future application for approval of the liquidators' remuneration might

require to be presented to the court. Several answers may be given to that objection. There

may not require to be an application to the court at all. Where remuneration is to be a

percentage of any recoveries, and there is only one asset, there should in any event be no

more than one application, at the conclusion of the liquidation. There is no particular reason

why that should be a particularly expensive exercise - although there is a practice of

remitting to a reporter, that is not an inviolate rule and that practice may well not be

followed in a case such as this, where remuneration is sought on a percentage basis. Finally,

the objection overlooks that, for aught yet seen, the outcome of any application to the court

might be that the claim for remuneration at 20% of recoveries is not approved, which would

be to the secured creditor's benefit. As Lord Malcolm observed in Liquidator of St Margaret's

School, Edinburgh, Ltd, Noter 2013 SLT 241 at para [29], the liquidator is an officer of the court

and it is appropriate that the court should have the ultimate decision on appropriate

remuneration.

[25]

In summary, if there is agreement between the liquidators and the creditors as to the

basis of remuneration, the court may not require to become involved at all; but if the court

is being asked to fix the liquidator's remuneration, that requires to be done at the

appropriate time, which is not now; a decision can only be reached in the future, in light of

all the circumstances.

[26]

Finally, counsel for the noter invited me, if refusing that part of the note, to grant

leave for the question of remuneration to be revisited by motion in this note. Initially I was

sympathetic to that, but on reflection I do not consider that to be appropriate either. This

note has been presented by the noters as administrators of the company. Following the

making of the winding-up order, they will become the liquidators and, as is implicit in what

I have already said, it is appropriate, and proper, that future claims for remuneration should

follow the usual course of any liquidation, rather than in a note pertaining to an expired

administration.

Disposal

[27]

For the foregoing reasons, I have granted the first three orders sought. I have

refused the fourth order, to fix the noters' remuneration; and I have declined the invitation

to grant leave to revisit that issue by motion in this note. The expenses of and incidental to

the note are to be expenses in the administration.

Scottish Court of Session Decisions