In a recent High Court decision, a provisional liquidator was ordered to pay the costs of the official liquidator (who replaced the provisional liquidator and was appointed as the new liquidator of the company) and Revenue without being entitled to have recourse to the assets of the company.
The case involved the legal costs of Revenue, the provisional liquidator and the official liquidator of United Power Limited (company). In a previous High Court judgment, an order was made fixing the remuneration of the provisional liquidator at €48,804.12. Following this, the provisional liquidator unsuccessfully applied under section 645 of the Companies Act 2014 to have his remuneration fixed at €91,877.57. The provisional liquidator also made an application for a separate order for his costs of this section 645 application.
Ultimately, the High Court found against the provisional liquidator on each of his applications and ruled that he had to pay his own costs, as well as the costs of the official liquidator and Revenue, both of whom opposed the provisional liquidator’s applications.
Not Entitled to have Recourse to the Company’s Assets
As to the issue of whether the provisional liquidator was entitled to look to the assets of the company for the costs awarded against him, the High Court applied the relevant principles set out in the case Revenue Commissioners v Fitzpatrick in his capacity as liquidator of Ballyrider Ltd (In Liquidation):
- Where the proceedings in question are in his own name, the normal rules vis-à-vis an adverse litigant will apply (subject to 2. below).
- A distinction exists between where the provisional liquidator is the initiator of such proceedings and where such engagement is forced upon him. In the latter situation, case law shows that he must be entitled to defend without the risk of a personal cost order being made against him: public policy so dictates.
On the basis of the Ballyrider principles, Keane J ordered the provisional liquidator to pay his own costs, as well as the costs of both the official liquidator and Revenue. He concluded that:
- The normal rules on costs apply in this case, i.e. the successful parties, being the official liquidator and Revenue, were entitled to their costs as against the provisional liquidator.
- The provisional liquidator was not entitled to have recourse to the assets of the company in respect of the payment of those costs because:
“his unsuccessful application to have his remuneration fixed at the level he sought was not one brought in a representative capacity and because it would be contrary to public policy (indeed, would fly in the face of justice) to make the company’s creditors (including Revenue) bear the legal costs of those parties’ successful opposition to that application”
- The High Court had to refuse the provisional liquidator’s application for an order that his costs of his section 645 application be made costs in the liquidation:
“it would be an afront to justice to require the creditors of the company to bear legal costs of his unsuccessful application to have his remuneration fixed at a level that was more than twice that found to be reasonable'”.
Important Takeaway from the Judgment
This judgment serves as an important reminder that in certain cases the inherent cost risks of litigation may be borne by a company’s liquidator in a personal capacity. In the event of an adverse costs finding being made against that liquidator, it is possible that the liquidator will have no recourse to company assets to meet such costs.
To discuss any aspect of the judgment in United Power Limited (In Liquidation) v Companies Act 2014 IEHC 306, or if you have any queries on the topic, please contact a member of the William Fry insolvency team.
Contributed by Alice O’Connor & Charley Moore
