The recent decision of Munin Navigation Company Limited ("Munin") v Petrodel Resources Limited ("PRL") put before the Isle of Man courts the question of whether sanction should be given to a liquidator to appoint lawyers in the Isle of Man and various jurisdictions worldwide, and whether retrospective sanction where lawyers had already been appointed by the liquidator, without the Court's consent, could be given. Due to an oversight by the liquidators chosen Advocates, this sanction had not been previously sought.
Under section 184 of the Companies Act 1931 a liquidator is able to exercise a raft of powers, but requires either the sanction of the Court or of any Committee of Inspection (if one has been appointed). In this case, as no Committee of Inspection existed, the sanction required, being permission to employ lawyers, had to be obtained from the Court.
The Court recognised that it was common ground that the failure to obtain such sanction did not invalidate the original appointment of the Advocates, nor did it render invalid any work done by them. It would mean, however, that the Advocates could not be paid out of the estate by the liquidator, as it was a failure by the appointed Advocates that such sanction was not obtained. The liquidator's Advocate argued that the rule under section 184 of the Companies Act 1931 did not require sanction to be obtained in advance, and it was simple a rule of practice, not of law, that sanction was generally sought first. It was also argued that relief should be given as section 193 of the Companies Act 1931 give the Court discretion to allow costs, and Advocates cannot be appointed, without there being a cost involved.
Factors to Consider
The main objection to the liquidator's position was that the Court, it was argued, should have evidence of the actions to be taken by the liquidator and a breakdown of the costs likely to be expended in such actions. Further, it was argued that the scope of the liquidation should be curtailed so that any future assets found to be held on trust for one of the interested parties were not inadvertently used to pay fees. Also, because the Isle of Man had no equivalent to the English Rule 4.184(2) of the Insolvency Rules 1986, (whereby ratification or retrospective sanction is allowed so long as the liquidator acted urgently), then there was no statutory power to give retrospective sanction. A further complaint was that the liquidator had failed to provide the Court with any information regarding the costs incurred thus far and therefore the Court was being asked to sanction "unknown costs".
Deemster Gough determined that the court had an overall supervisory role in respect of liquidations and that sanction could properly be given to the liquidator to employ lawyers in the Isle of Man and in other jurisdictions from the date of his judgment.
The court had a wide discretion to give such sanction and it gave retrospective sanction to the liquidator. The Court highlighted that the Advocates involved had already done a significant amount of work for the liquidator, and therefore a practical benefit would accrue from allowing them to continue with moving the liquidation forward.
This will come as a timely reminder to those appointed as, and acting for, liquidators in the Isle of Man, to check the basis of appointment of lawyers and to be aware of the rights and obligations which the office of liquidator brings. The legislation and rules in relation to insolvency in the Isle of Man differ significantly from that in England and Wales and particularly in cross jurisdictional liquidations, advice should be sought to identify any local provisions which may not be relevant in other jurisdictions, at an early stage, to avoid the pitfalls which this matter highlights.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.