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Second glance - the role of a court reporter in a liquidation

A Sheriff at Glasgow Sheriff Court has recently published a judgment showing its approach regarding the role played by a court reporter in an application by a liquidator to seek approval of remuneration.

The note concerned the case of One Optical Limited (in liquidation) (the Company).

This judgment is useful for insolvency practitioners in setting out how a court (in this case Glasgow Sheriff Court) views the role of a court reporter when approving (or otherwise) the remuneration of a liquidator.

In terms of the Insolvency (Scotland) (Receivership and Winding Up) Rules 2018, a liquidator is required to make an application to court to have his remuneration approved. Once an application has been submitted to the court, the court will appoint a licensed insolvency practitioner (IP) to review and audit the accounts of the liquidator and to recommend approval (or otherwise) of the liquidator’s proposed remuneration.

In this case, the directors of the Company (which manufactured and sold optical frames and lenses) lodged a petition for its winding up and appointment of liquidators. The Company owned a property in Rutherglen and retail outlet in Dunoon. The business and assets of the Company were ultimately purchased by one of the directors (via a separate company) and the properties purchased by a former director of the Company.

A reporter was appointed who approved the liquidators’ remuneration of £107,725.81, the funds available minus the reporter’s fee. However, the Sheriff was not satisfied with the level of detail in the initial report as it omitted points such as justification of the level of remuneration; reasonableness, necessity or appropriateness of work undertaken; justification of the complexity of the work undertaken by the liquidators or justification of the reporter’s own fee. Even on invite by the Sheriff to review his report, the reporter simply referred to the time and trouble statement submitted as part of the application. Given the Sheriff’s misgivings, an alternative reporter was asked to audit the accounts.

It is fair to say that that alternative reporter took a very different approach in preparing his report. The alternative reporter recommended reducing the remuneration by almost half to £62,000. The alternative reporter focussed on what he saw as some shortcomings in the approach taken by the liquidators, in particular: (amongst others) 1) the time recording records of the liquidators; 2) number and seniority of staff involved in (what was considered to be) a straightforward liquidation; 3) charge out rates; 4) scale of the time recorded during the period of the liquidation; and 5) failure to progress the liquidation when the final asset was realised 4 years prior to the application to approve remuneration.

The report also took account of some other issues of concern, particularly in relation to the sale to a company owned by a director of the Company in liquidation; the price received for assets being £9,000 lower than the market value (in situ); the price received for the Rutherglen property being £10,000 lower than the market value for vacant possession; and the lack of marketing of the heritable properties.

So much for the contents of the two reports – the approach taken by the Sheriff at Glasgow seems to fit in between the two. Whilst the Sheriff accepted that certain concerns do need to be brought to the attention of the court (for instance if the liquidator had failed to discharge his duties), the decision made it clear that there should be a conversation between the liquidator and the reporter to deal with those concerns, before any report is submitted to the court. Concerns will then only be raised with the court if nothing the liquidator has said or shown has been sufficient to satisfy the reporter as to the issues raised.

The judgement reminds IPs that the court does not view the reporter’s involvement as adversarial. Rather, the role of a court reporter is to provide assistance  in presenting the factual position to the court whilst challenging the liquidator, where appropriate. Without detailing the specific responses given by the liquidators, suffice it to say that the Sheriff was (largely) satisfied with the explanations given following the scrutiny of the second reporter and ultimately accepted the recommendation of the first reporter.

The Sheriff also noted the widely varying approaches (and length of reports) and has arranged for a copy of the decision to be provided to ICAS in support of the aide memoire named “Work Programme: Court Reporter” from September 2019 to allow ICAS to determine whether further guidance is required. IPs may wish to look out for updated guidance in this regard.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at April 2020. Specific advice should be sought for specific cases. For more information see our terms & conditions.

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