Personal Liability of Liquidators for Costs.
In a Judgment delivered on the 31st of July 2019 (In re Ballyrider Limited, in Voluntary Liquidation), the Irish Supreme Court considered the question of personal responsibility for costs of a liquidator removed for cause (pursuant to Section 277 of the Companies Act 1963, now Section 638 of the Companies Act 2014). In so doing, the Supreme Court took the opportunity to consider far wider issues concerning costs orders made personally as against liquidators.
The Supreme Court confirmed that ordinarily, the legal status of a liquidator is that of agent of the company in liquidation. The Court also referred to the ten specific powers which liquidators hold under Section 627 of the Companies Act 2014 and in particular the power to bring proceedings in the name of and on behalf of the company and to defend any action in the name of and on behalf of the company (s.s 1(a)). The Court stated that "where proceedings are structured in a manner authorised by this Section" the status of liquidator is that of a non-party with the consequence that no order for costs can be made against him and subject to very limited exception, he can bear no responsibility for costs.
The exception referred to by the Court arises from the Court's own judgment in Mooreview where personal responsibility for costs may be placed on the sole driving force and sole beneficiary of the litigation brought in the name of a corporate body. This specific issue will be considered further by the Supreme Court in W.L Construction v Chawke [2018] IESCDET 106.
The Court stressed that in proceedings brought by the company, the defendant or respondent (the "adverse litigant" so described) has the entitlement to apply for security for costs. In this way, the adverse litigant can seek some assurance for its costs as against the company in liquidation
On the wider issue of liquidators' personal responsibility for costs, the Supreme Court considered the circumstances in which an order for costs may be may personally as against a liquidator where a liquidator has (unsucessfully) brought proceedings, as liquidator, in his own name. Equally, the Court considered the position where proceedings have been brought against the liquidator personally and he (as liquidator) has unsucessfully defended the proceedings.Should the successful adverse litigant be entitled to the normal costs rule (i.e costs following the event)? If so and the liquidator is faced with personal responsibility for the costs, is such liquidator then entitled to an indemnity from or to have recourse to the assets of the company in order to recoup such costs? A related point/question arises in respect of the liquidator's own costs in mounting and defending the proceedings.
Having considered english judicial authority (in the absence of irish authority), the Supreme Court answered the questions raised in a sequential fashion; where a liquidator unsuccessfully brings proceedings in his own name, the normal costs rule applies and an order for costs will be made personally as against the liquidator.
Secondly, a distinction exists where the liquidator, at the receiving end of litigation, is named personally as defendant/respondent. In such circumstances, the Supreme Court held that public policy dictates that such a liquidator must be entitled to defend without and order for costs being made personally against him.
The Court then considered whether and in what circumstances, a liquidator faced with a order for costs made personally against him and also in respect of his own costs could himself seek a further order to recoup these from the assets of the company.The Court held that the liquidator will "ordinarily" be entitled to recourse to the assets of the company in order to recoup such costs. However, if the Liquidator has committed acts or ommissions "amounting to misconduct" (the Court cited misfeasance, negligence, bad faith, personal unfitness and dishonesty as examples of such misconduct). If the liquidator's mistake was an honest mistake made in good faith, the Supreme Court held that such a Liquidator is much less likely to be deprived of an order recouping costs from the company in liquidation.
Even taking into account public policy considerations, it is difficult to understand why, a liquidator, when successfully sued as defendant/respondent and even when acting as agent of the company, should be inoculated from a personal costs order, still less that he should be allowed to recoup her costs from the assets of the company. Perhaps the reality of such findings would dictate the making of an order for costs personally as against the liquidator.
Furthermore and without wanting to add undue confusion here, there is some consideration (at par 74 of the Judgment of the Supreme Court) that as regards the liquidator's own costs of unsuccessfully mounting or defending such proceedings that the resolution of same lies within Section 617(1) of the Companies Act 2014. The Supreme Court was of the view that the liquidator's own costs of defending certainly came within Section 617(1) of the Act of 2014 and that possibly his costs of initiating and conducting such proceedings did so also.This appears to leave the Court at large in considering whether a liquidator's costs of defending were "...properly incurred in the winding up...".
Furthermore, the Court itself referred to what it described as "borderline" cases in which an application for directions could be made to the Court r under Section 631 of the Companies Act 2014 in which case it would seem that the Court would have a greater supervisory role in respect of costs.
As fate would have it, the Court's specific consideration of the costs issues arising from the successful Section 277 (now S.638 of the Act of 2014) application may provide some guidance; at the trial of the application, the liquidator had been removed for cause under Section 277 of the Companies Act 1963 (now S.638 of the Act of 2014) without any finding of negligence or misconduct having been made.
If one were to follow, without qualification, the reasoning that a liquidator defendant/respondent could not, as matter of public policy, be made personally responsible for costs, a liquidator removed for cause under the Statute could never be made the subject of an order for costs. The Supreme Court determined that because the "position of the Liquidator" was challenged in the statutory application, the ordinary rule as to costs could apply. This had the consequence that the Supreme Court held that the trial court was at large in making an award personally as against the liquidator in the Section 277 application.
Finally, the Supreme Court clarified that there were circumstances in which a liquidator having unsuccessfully defended an application seeking his removal for cause, could possibly recoup an order for costs made against him from the assets of the company. The Court cited the example of where a Liquidator was removed for technical reasons such as a potential conflict of interest.
The Court held that in the context of applications to remove a liquidator for cause, the Court would have to consider, on a case by case basis, whether it would be just and proper to order that the unsuccessful liquidator be given an indemnity in respect of costs as against the assets of the company.
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