The High Court has clarified that where an official liquidator is doing significant work for the benefit of one particular charge-holder, it is not appropriate that he be remunerated for such work out of assets coming into the liquidation that might otherwise be available for distribution to the preferential and unsecured creditors.

In the proceedings before the Court, all the assets of the company were subject to charges in favour of AIB. The amounts due to AIB far exceeded the potential realisations from the charged properties which meant that it was likely that there would be no assets available to discharge the liquidator’s costs and expenses. As AIB had, however, reached a provisional agreement with the liquidator in relation to the discharge of his costs, the Court took the opportunity to offer guidance to the parties as to the principles which should be taken into account in finalising their agreement.

The Court stated that regard must be had to the potential conflict of interest for an official liquidator who is to be remunerated by a particular creditor. Where a charge-holder proposes entering into payment arrangements with a liquidator, disclosure to and the sanction of the court is required. The Court also indicated that the same considerations would apply to remuneration arrangements between a liquidator and a petitioning creditor or any other secured or unsecured creditors. Specific reference was made to cases where the Revenue Commissioners underwrite liquidation costs and remuneration and the Court questioned the legitimacy of the practice of not obtaining its sanction for such arrangements.

The Court did indicate that while each case will depend on its own facts, it had no objection, in principle, to sanctioning third-party indemnity or payment arrangements provided that any potential conflict of interest situations are properly managed.

The full impact of this potentially far-reaching decision remains to be seen but it is now clear that where arrangements are being made for a liquidation to be underwritten by a third party, the liquidator should bring the proposed arrangements to the attention of the Court at the earliest possible opportunity. It will be interesting to see what the courts consider to be conflict of interest situations and in what circumstances sanction will be refused. 

Contributed by Lisa Killeen.

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