Fri 01 Jun 2018

Questioning the court reporter's role in a liquidation?

Liquidations are a costly business and liquidators (including provisional and interim) require to be paid for the work they carry out during the liquidation. The Insolvency (Scotland) Rules 1986 ("the Rules") make provision for the remuneration of liquidators, including provisional and interim liquidators.

The Rules provide for a court reporter to be appointed to consider the accounts of the liquidator and to approve their fees. The court then considers the court reporter's report and fixes the amount to be paid to the liquidator. The Rules provide that when considering the basis for the court fixing the amount to be paid to the liquidator, the court should take into account the work which was reasonably undertaken by the liquidator.

Two recent cases have highlighted the role of the court reporter in considering the liquidator's fee and whether or not the court reporter's role goes beyond solely checking that the fee corresponds with the work carried out by the liquidator.   The cases have come to contrasting conclusions.

Liquidation of S & M Livestock Limited 

In this case, the court reporter appointed by the court conducted an extensive review of the joint liquidators' files before reporting to the court that, in his opinion, the fee which should be paid to the joint liquidators was less than the fee they sought.

In his report, the court reporter criticised the conduct of the liquidation and suggested alternative strategies which he considered would have better served the liquidation. The reporter suggested that had such strategies been adopted by the joint liquidators, their costs would have been less than those sought.

The question arose as to whether the court reporter was empowered to carry out such a review of the case.  Whilst the Sheriff acknowledged the points raised by the court reporter, the Sheriff did not agree that the court reporter required to undertake a full review of the joint liquidators' files. He noted the court reporter's desire to restrict the fee to work which had been "reasonably undertaken" by the joint liquidators, but confirmed that his main role was to audit the accounts of the joint liquidators and that meant checking that the time charges were substantiated by the content of the joint liquidators' files.

The Sheriff took the view that it was not for the court reporter or the court to "second guess" the actings of the joint liquidators in the liquidation. It was reasonable that the court reporter may have adopted a different strategy than the one adopted by the joint liquidators, however that did not mean that the approach adopted by the liquidator was wrong. 

The Provisional/Interim Liquidator of Equal Exchange Trading Limited, Noter  

A wider and contrasting approach was adopted by the Outer House of the Court of Session in this case, in which the decision was handed down in April 2018.

Again, in this case, the court reporter raised concerns in his report to the court with regards to the liquidator's handling of the liquidation and identified areas where he would have adopted a different strategy or carried out other work. Counsel for the liquidator argued that the court reporter, in making such criticisms, had gone out with his remit as court reporter - the court reporter's role was to provide the court with guidance with regards to the appropriateness of the liquidator's fees and the role did not go beyond that.

The court stated that the approach adopted by the Sheriff in the S & M Livestock case was too narrow and that the court reporter's role was not limited to checking and confirming that there are records evidencing the work the liquidator has carried out. The court referred to the Rules and whether the work had been "reasonably undertaken" and confirmed that the court reporter's scope is wider than whether or not there are records evidencing the work which has been claimed to have been carried out.

The court confirmed that the court reporter's scope also includes the court reporter applying their experience and expertise to matters wider than whether or not the work was "reasonably undertaken". The court listed types of concerns which would be expected to be brought before the court by the court reporter which included concerns regarding the efficiency of the liquidation and issues with regards to how the liquidation had been progressed. The court was of the view that the court reporter should bring any concerns they have to the court with regards to the liquidation and the court will then consider whether or not such concerns are relevant to the remuneration of the liquidator.

So, what next?

Whilst the decision of the Outer House of the Court of Session is not binding, it will be persuasive and therefore it's highly likely that it would be followed unless and until a conflicting authority emerges.  On that basis, it's clear that the court may consider all issues raised by a court reporter with regards to a liquidation and may order further investigation. Whilst the court may not always agree with the relevancy of the issues raised, the court reporter is not generally stepping out with the scope of his/her role by raising them in the first place.

The best way to avoid a court reporter carrying out an extensive critique of files would be to ensure that files are kept up to date, with as full records as possible to evidence the work carried out.  The practical advice to avoid an extensive report is likely to be to ensure that all relevant information is in the case papers that are handed over to the reporter in the first place.   In the real world, that may not always be possible so, at the least, insolvency practitioners should ensure that they are able to explain any issues raised by a court reporter so as to satisfy the court with regards to their claim for remuneration.

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