IP Briefing: Remuneration and Reporters (Again)

Introduction

Regular readers of our briefings know that the Scottish system for dealing with liquidators’ remuneration has impressed and bewildered (perhaps in equal measure) practitioners from elsewhere in the world.  This has particularly been the case in recent years when there has been some ambiguity about the remit of an insolvency practitioner reporter appointed to report on an insolvency practitioner’s remuneration in a case.  The decision of Lord Bannatyne in Thomas Auld & Sons Ltd (in liquidation), issued on 22nd October 2019, provides helpful further guidance.

The facts of the case in simple terms, are that the reporter appointed recommended the deduction of around £43,000 in fees in an account submitted by the liquidator.  It seems that the deduction suggested was based primarily upon the reporter’s criticism of the strategy appointed by the liquidator; for example, his continuing to trade the business.  The liquidatior enrolled a motion for the court to review the decision of the auditor of court, which echoed the reporter’s suggestions.

Lord Bannatyne refused to deduct the £43,000.  He followed the guidance he had set out in the case of Exchange Trading Ltd and indicated: “a liquidator has to be able to exercise his judgement and discretion and the ambit of the reporter’s remit is not such that mere disagreement between him and the liquidator in respect of the liquidator’s course of action should be raised as concerns…..a question of the strategy followed by a liquidator should only be raised by a reporter where; the reporter is contending that no reasonable insolvency practitioner, properly advised, would have followed that course.  A reporter should remember…..when commenting on strategy, a reporter by the nature of his task is doing so on the basis of a paper exercise and by reference to the noter’s file.  He has not had the benefit of meeting with the directors of the company.  He has not seen the assets, nor dealt with the trading of the business of the company.  In considering the strategy most appropriate to the conduct of the liquidation, he is therefore at a plain disadvantage to the insolvency practitioner.”

Advice

This is a helpful decision to the effect that in terms of Rule 4.5 of the Insolvency (Scotland) Rules 1986, the reporter reports on the appropriateness of rates and remuneration in relation to work done.  There are very limited circumstances where they would be entitled to begin to comment on the strategy adopted by the insolvency practitioner.  The very helpful template for reporters issued by ICAS may also help provide further uniformity in approach to reporting.  It is also useful to see the court acting as an appropriate check and balance on the process.

BBM Solicitors specialise in advising IP’s in both contentious and non-contentious matters (including transactional work). Contact: Eric Baijal (emb [AT] bbmsolicitors [DOT] co [DOT] uk).This briefing note is current as at 4 November 2019 and is our understanding of the position described at that date. Legal advice ought to be taken before relying on its terms (particularly to ensure the law has not changed).