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Where there is a change of liquidator in the course of an office-holder’s claim, does the indemnity principle prevent the new liquidators from recovering costs of the claim relating to the period before their appointment? Cristín Toman of Enterprise Chambers, discusses the appeal of Tackie & Anor v Morrison.
Tackie & Anor v Morrison  EWHC 3980 (Ch)
This was an appeal from a decision made by the costs judge on a detailed assessment of costs in insolvency proceedings. Mr Morrison was the defendant to proceedings (the preference claim) brought under sections 238–240 of the Insolvency Act 1986 (IA 1986) by the liquidator of ATM Sales Limited.
After commencement of the preference claim, but before trial, the liquidator retired due to ill health and was no longer able to continue in office. New liquidators (the liquidators) were appointed in his place, and were substituted as claimants in the preference claim.
At trial the preference claim succeeded and a costs order was made against Mr Morrison in favour of the liquidators.
At detailed assessment Mr Morrison argued that the liquidators were not entitled to their costs in respect of the period before the change of liquidator. The costs judge rejected this argument, and assessed costs on the basis that the liquidators were entitled to costs pre-dating the change of liquidator and their substitution as claimants.
Mr Morrison appealed to the Chancery Division.
The judge, His Honour Judge Hodge QC, had to decide where there was a change of liquidator in the course of an office-holder’s claim, whether the indemnity principle prevented the new liquidators recovering costs of the claim relating to the period before their appointment.
In his appellant’s notice, Mr Morrison had presented the appeal on the (wrong) basis that the change of office-holder had occurred after the costs order was made, and that the liquidators were attempting to enforce a costs order made before they were party to the proceedings. If these had been the true facts, there would have been a further legal issue as to whether a liquidator can enforce an order for costs made in favour of his or her predecessor in the office of liquidator.
The judge decided that the liquidators were entitled to the whole of the costs of the preference claim, including costs for the period before their appointment.
This did not offend the indemnity principle since there was an express term of the liquidators’ retainer with their solicitor that they would assume responsibility to pay the costs incurred by the previous liquidator.
Even if the liquidators had not expressly assumed responsibility for costs incurred before their appointment, the judge considered that there would have been a powerful argument to the effect that they were still entitled to recover those costs. Since the cause of action under IA 1986, ss 238–240 had been vested in the liquidators from time to time as insolvency officeholders, the change in the identity of those liquidators made no difference.
The court did not decide the question of whether a liquidator can enforce an order for costs made in favour of his or her predecessor in the office of liquidator.
In dismissing the appeal, the judge recorded that the appeal was totally without merit.
The liquidators in the case were successful because they had taken the following steps:
Where there is a change of office-holder at a time when there are ongoing proceedings on an office-holder’s claim (such as proceedings under IA 1986, ss 238–240, or IA 1986, ss 212–215) the new office-holder(s) should:
Where, after change of office-holder, a costs order is made in favour of the new office-holder, the order should specify whether or not the order applies to costs of the proceedings relating to the period before the change of office-holder and/or substitution of the new office-holder as a party in the proceedings.
Cristín Toman practised as a barrister and solicitor in Australia for five years before being called to the bar in England and Wales in 2004. She joined Enterprise Chambers in 2006. Her insolvency work covers corporate and individual cases, including all stages of the winding up and bankruptcy process, disputed debts, validation orders and insolvency appeals.
Interviewed by Barbara Bergin.
The views of our Legal Analysis interviewees are not necessarily those of the proprietor.
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Stephen qualified as a solicitor in 2005 and joined the Restructuring and Insolvency team at Lexis®PSL in September 2014 from Shoosmiths LLP, where he was a senior associate in the restructuring and insolvency team.
Primarily focused on contentious and advisory corporate and personal insolvency work, Stephen’s experience includes acting for office-holders on a wide range of issues, including appointments, investigations and the recovery and realisation of assets (including antecedent transaction claims), and for creditors in respect of the impact on them of the insolvency of debtors and counterparties.
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