In October 2014, the Isle of Man High Court issued useful guidance on the procedure and principles applicable to payment of provisional liquidators' fees in a protracted winding up case. In Exclusiva General Inc v Vintage Holdings, the Court was asked to decide on the procedure for the payment of provisional liquidators' fees where there is an anticipated lengthy duration of their appointment due to matters awaiting trial relating to a potential winding up order.
A without notice order was granted on 19 March 2014 at the request of Exclusiva General Inc ("Exclusiva") for the appointment of provisional joint liquidators to Vintage Holdings Limited ( the "Company") of which Exclusiva is a creditor.
The principal issue for the eventual winding up hearing will be whether there was a valid assignment of the Company's debt to Exclusiva by Exclusiva to Vorko (an alleged creditor of the Company). It is claimed that the purported assignment of the debt is a forgery.
The present application was made by the joint provisional liquidators ("JPLs") for an order that their fees and disbursements be assessed and paid from the assets of the Company and that, pending such assessment, they may pay themselves, by way of account, 80% of their fees and disbursements out of the assets of the Company.
The JPLs applied on the basis that there would likely be an extended duration of their appointment, so it would be appropriate for them to be remunerated in the usual manner, out of the assets of the Company, rather than pursuant to an indemnity from the petitioning creditor (Exclusiva).
They also requested the appointment of an assessor to assist the Court in assessing and determining their remuneration. They cited the case of Re Independent Insurance Co Ltd  BCC 919 as followed in Re Kaupthing Singer & Friedlander (Isle of Man) Ltd 2009 MLR 516, which confirmed that the Court can refer the matter of fixing remuneration to assessors.
The JPLs submitted that the starting point was Rule 21 of the Companies (Winding-Up) Rules 1934 (the "Winding Up Rules"), which states that if there is no winding up order then the liquidator's costs are normally paid out of the assets of the company and, unless the Court otherwise directs, there is a right to retain from those assets sufficient sums that are required to meet the liquidator's remuneration and expenses.
The authorities suggest that the Court has the discretion to order that the unsuccessful petitioner should replenish the assets from which the provisional liquidators have been remunerated, but this will not be the ordinary position.
The payment of remuneration is defined in the Winding Up Rules and is not dependent on the success or failure of the winding up claim (which in this case could extend until 2015) and the Court could not make an order for costs until that point.
Vintage submitted that any payment on account forthwith should be two thirds of the JPLs fees, not 80%, and that the appointment of an assessor is not necessary in this case.
Deemster Doyle confirmed that the usual position is that applications such as this, as a rule, are brought without notice. Notice was given in this case and submissions opposing the application were allowed, but the Deemster stated this was not the norm:
"An application by provisional liquidators for the Court to assess and determine their remuneration is, in effect, a matter between the provisional liquidators and the Court. Moreover, the parties may seek such orders as to costs as they see fit following the determination of the Issue [whether the assignment was a forgery]."
The Court referred to Rule 21(3) of the Winding Up Rules which provides for the payment of all costs, charges and expenses properly incurred by a provisional liquidator out of the property of the company where no order for the winding-up of the company is made upon the application.
The English Insolvency Rules 1986 provide at Rule 4.30 that the remuneration of a provisional liquidator shall be paid out of the property of the company if a winding-up order is not made or in the prescribed order of priority if a winding-up order is made.
The Court shall fix the remuneration taking into account:
- the time properly given by him (as provisional liquidator) and his staff in attending to the company's affairs;
- the complexity (or otherwise) of the case;
- any respects in which, in connection with the company's affairs, there falls on the provisional liquidator any responsibility of an exceptional kind or degree;
- the effectiveness with which the provisional liquidator appears to be carrying out, or to have carried out, his duties; and
- the value and nature of the property with which he has to deal.
The Court noted that the substance of the relevant English provisions is similar to the Isle of Man provisions in the Winding Up Rules.
The Court followed the English decision in Re U O C Corporation  B.C.C. 191 and Deemster Doyle noted that Carnwath J (as he was then) "put the position well" where it was held that the Court has the power to direct the provisional liquidator's expenses be met out of the company's assets.
The Court concluded that any payment on account should be on the basis of two thirds rather than 80% of the sums claimed and that appointing an assessor was not necessary in the circumstances of the case. The Court could assess the JPLs' remuneration following the outcome of the case, either the winding up of the Company or the dismissal of the winding up application.
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