High Court judge highlights ‘unavoidable conflict of interest’ in role of liquidators

A High Court judge has highlighted the “unavoidable conflict of interest” occupied by liquidators, in setting their own work and fees while also being expected to recover as much money as possible for a company’s creditors.

Mr Justice Michael Twomey concluded it was not best practice to pay out fees to a company associated with a liquidator, as opposed to the liquidator personally, as such a method lacked transparency.

Liquidators decide the work they should undertake in a liquidation and the amount they should be paid for the work without any oversight from directors, as the company is in liquidation, the judge said. Payment of liquidator fees inevitably reduces the amount due to an insolvent firm’s creditors.

The High Court has an “important role”, he said, in approving these payments.

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Liquidators are personally appointed and so they occupy a fiduciary duty, the judge went on. The corollary of this personal appointment is that fees are paid personally to a liquidator and not to their firm or a company associated with their firm.

Mr Justice Twomey made the comments in a ruling on Monday regarding fees for the two official liquidators of Spencer Dock Development Company Limited.

Michael McAteer, a managing partner of Grant Thornton Ireland, sought court approval permitting the payment on account of liquidators’ remuneration plus €245,000 legal costs due to solicitors and barristers for a 15-month period of work.

The legal fees are sought “pending taxation or measurement”, and the judge noted there is no independent specialist, equivalent to the Office of Legal Costs Adjudicator, who verifies that the sums sought by the liquidator are reasonable.

The liquidators sought court approval for €174,000 for professional fees and expenses, which is payable to them personally, rather than Grant Thornton.

They also sought approval for €201,000 in fees, for the same period, to a forensics accounting company called Grant Thornton Corporate Finance Ltd (GTCF). This relates to forensic accounting services provided by that company regarding litigation conducted on behalf of Spencer Dock.

Reaching the conclusion that GTCF was a part of Grant Thornton, which the liquidators were partners in, the judge assumed the liquidators would financially benefit from any payments made to GTCF.

It seemed to the court there was a lack of transparency in this process, and that, as a general principle, it should be clear to creditors precisely how much liquidators are claiming in remuneration.

The judge noted Spencer Dock’s primary creditor, the taxpayer-funded National Asset Management Agency (Nama), did not object to the separate payments being made in the manner sought.

Notwithstanding this, the court considered the taxpayer’s interest when deciding to refuse to approve the payment to GTCF.

The liquidators subsequently asked the court to approve the payment of one sum to the liquidators, which encompassed both amounts.

After Nama indicated it had no issue with this figure, the judge approved the revised liquidator fees of €376,000, as well as the €245,000 legal fees.