Founder: Turnaround Talk
On 30 June, SARIPA welcomed its members and non-members to the associations Northern Conference which was held at the iconic Villa Acadia at the Hollard campus. Plenty of insightful content was on offer on the day. Of particular interest was a presentation by Lizelle Acker, an Advocate of the High Court, which discussed the recovery of fees by a provisional liquidator in what is becoming an increasingly disruptive environment.
As we have seen with the Comair saga that led to its BRPs filing for what is currently a provisional liquidation, changes can happen in a matter of days. These changes can be disruptive to a provisional liquidator.
A liquidator faces a lengthy process
Before we go onto the options available to provisional liquidators, it is prudent to point out the delays/frustrations that provisional liquidators currently face.
“All liquidators must be provisional liquidators. And with the way in which there are delays in obtaining final orders, delays in convening meetings (first meetings and second meetings), getting resolutions in extending of powers and directives from creditors, it takes a long time before a liquidator can actually do their job,” said Acker.
Even then, Acker pointed out that provisional liquidators may face the following scenarios:
- Either the provisional liquidation order gets discharged and its over. Its done; or
- The provisional liquidator gets voted out and they do not get finally appointed.
Acker points out that before either of these scenarios take place, a substantial amount of time (which can be anything from a month to two years) elapses where the provisional liquidator has done work.
“There are also consequences to a discharge,” said Acker, “and it’s a consequence for the provisional liquidator even after there is this concept of some duties remaining on the provisional liquidator…but there is no liquidation. You remain a provisional liquidator because you still have a certificate/bond of security, what are the options available to you?”
Acker added at the conference that, unfortunately, there are very few answers to this conundrum and that there is a lot of debate in the industry regarding this. At various points, legal experts have pointed out that there are areas within the business rescue profession which need development; perhaps this is one of them?
Acker points out that there is either a legal or a practical solution to look at and she adds that – at least in the meantime – the practical solution is the better part of valour.
Photo By: Turnaround Talk
Letter of the law as it applies to a liquidator
Acker pointed out to the 80 delegates that attended the conference in person, and the 40 online participants that, as we know, liquidators are entitled to their fees.
Section 384 of the Companies Act (71 of 2008) read with the regulations and the tariff, and the schedule points out to provisional liquidators exactly what they are entitled to. And these liquidators are only entitled to this upon confirmation of an LMB Account. That does not happen in a provisional liquidation. In the meantime, provisional liquidators spend time on dispensing their duties where they incur expenses, go on road shows, recover assets, and safeguard assets. All of this takes time. But more importantly, it incurs a lot of out-of-pocket expenses.
“One thing is clear; you are entitled to some of these expenses. The regulation to the Act says that where your appointment as a liquidator is provisional, and either there is a dismissal or a withdrawal of the petition, or you don’t get finally appointed, the law says that you are entitled to a fee that can be taxed by the master with due regard to special services. There is also a proviso which says that you are entitled to a reasonable remuneration,” said Acker.
She added that liquidators need to take note that when it comes to determining what is reasonable, the Supreme Court of Appeals says that the court prescribes the approach to be adopted by the Master in determining whether the remuneration of a provisional liquidator is reasonable is as follows:
- The Master, as a statutory functionary, is not free to choose whether or not to tax the liquidator’s remuneration. The Master must tax in accordance with the tariff. But, having done so, may reduce or increase the amount arrived at by applying the tariff if in his or her discretion where there is good cause to do so.
“Consider the following scenario: you are a provisional liquidator, and you have a valid appointment. Your appointment was during either Level 3 or 4 of the Covid Lockdown regulations (as prescribed by Government). You are the liquidator for a large company with a lot of assets which are scattered across the country. Your duty as a provisional liquidator is to secure the assets and ensure that you take control of them. You either need to get the Sherriff to assist you or you need to get auctioneers or other parties who are willing to take possession of the assets and safeguard them for you. You need to go on a roadshow to secure these assets which in this case are transportation trucks. In various regions you contract storage facilities to store these trucks for you. The petitioning creditor is a large financial institution. On the return date of the winding up of the provisional winding up order, the company opposes the final winding up and there is an extension of the proviso. In the meantime, the petitioning creditor and the company’s directors settle. Part of the settlement is that the winding up order will be discharged. You know about this, but you just go about your job. The settlement and agreement are made an Order of Court, one of the terms of the settlement agreement is that the winding up order is discharged with no terms attached to it. You are still sitting with the assets scattered across the country and you have concluded agreements with storage facilities. What happens now?” asked Acker.
Two things need to happen:
- You as a provisional liquidator has a duty to return the goods; and
- You have a duty to report and account to the insolvent company detailing what you have done and not done because you may have used some of their capital.
Additionally, you need to account to the Master of the Court. Acker says that this is where it gets interesting. “There is something called an intromission account. In a court judgement Come What May Properties vs Mega Super Cement the court says that the Companies Act makes no provision for the submission of an intromission account. It would seem that the submission of an intromission account resulted from some policy submitted by the Master of the Court in regard to what happens to a company following their liquidation,” said Acker.
She warns that there is no such thing. However, the Master will not release you unless you submit this account.
Photo By: Canva
Some good news
The above situation presents a major challenge for provisional liquidators and the intromission account is possibly another are that could benefit from formal legal development.
However, it is not all bad news. Acker points out that provisional liquidators are entitled to a reasonable remuneration and the fees remain a charge against the property of the state. This needs to be paid by the insolvent or the company that is no longer insolvent. The fees cannot exceed what you have returned to the company, and you have to account for everything that you did. Finally, you are entitled to account for your fee as a debt against costs incurred.
“What do provisional liquidators need to avoid? They cannot sell the companies assets to recover any part of their remuneration. They are also not allowed to retain, protect, or keep aside any asset that they estimate their fee will be,” said Acker.
Your ticket to ride
So, what do we know up to this point?
Your job as a provisional liquidator is challenging because of the uncertainty of the environment that you work in where the status quo can change at a moments notice. However, you are entitled to a fair remuneration which is payable by the insolvent or non-insolvent company.
You cannot pre-empt any payment to yourself. So, what do you do? “When it comes to recovering fees, provisional liquidators can approach the court with Section 354 of the Companies Act which states that when there is a discharge or a stay on terms, the court may make an order on such terms and conditions as the court may deem fit. I think that the solution is that when you are appointed, to safeguard yourself, you can say that you are entitled to your fees and that the court can make a discharge according to terms,” says Acker.
So provisional liquidators can go to the company, the petitioning creditor or whoever is trying to settle and enter into a settlement agreement. Acker added that this is becoming a common practice because there is the uncertainty of when final orders will be granted.
If there is no joy, then provisional liquidators can approach the courts with Section 354 in hand.
Another strong case for legal development
What became apparent from Acker’s presentation is that the life of a provisional liquidator is challenging because the landscape is likely to change at a moments notice. Companies will jump at the chance to move from a winding up order to trading profitably again and who can blame them?
However, one has to have sympathy for provisional liquidators and the pressures that they face. There are also a lot of uncertainties in the profession, particularly when it comes to the intromission account. This, once again, highlights the need for the formal appointment of a permanent regulator and for the Department of Trade and industry to drive the legal development of the profession.
Once again, it is prudent to point out that in 2009, Rob Davies (former Minister of the Department of Trade and industry) did make assurances that a formal regulator would be appointed. Perhaps It is time to revisit this?
