Time flies
Timing, as they say, is everything. A recent case in England has highlighted the importance of timing, particulary with regard to court sanction of a proceedings raised by a liquidator.
Gresham International
The liquidator of Gresham International Limited ("the Company") brought proceedings against Moonie, a former director of the Company, and others. The proceedings concerned three separate transactions in the two years leading up to the liquidation and were brought in the name of the Company and the liquidator.
A concern arose about the recoverability of the liquidator’s Court costs. This was due to problems in obtaining sanction for the Court proceedings. Specifically, the liquidation committee became inquorate and so couldn't sanction the proceedings. Some 3 months after commencing the action, but 11 days after the committee becoming inquorate, the liquidator applied to the Secretary of State for prospective, but not retrospective, authority. Moonie claimed that this sanction was accordingly ineffective. It was not disputed that the lack of sanction would not have effected the validity of the claim, it merely prevented the liquidator from recovering her costs.
The liquidator applied to the court for (a) authority that her actions had been sanctioned and that the liquidator was entitled to an indemnity for costs out of the Company's assets and, if not forthcoming, (b) retrospective sanction of the liquidation.
Moonie objected on the grounds that:
-
The sanction was ineffective;
-
The Liquidator was out of time to seek retrospective sanction as there had been undue delay; and
-
The liquidator couldn't obtain sanction after proceedings had been commenced which covered the remainder of the liquidation.
The decision
Judge Peter Smith considered the various ways in which a liquidator could obtain authority for legal proceedings. The Secretary of State (as this is an English liquidation), or the liquidation committee may grant a full sanction or a limited sanction to take certain steps or pursue the matter up to a financial limit. If the liquidator changes the form of proceedings or exceeds any limits set, then he must seek further sanction: a sanction can be applied for in stages and it is open to the liquidator to make subsequent applications if justified under the circumstances. However, the Court found that:
-
It was appropriate to grant sanction to cover all prospective costs from the date of the current application to the court.
-
The earlier sanction granted by the Secretary of State was not effective. A prospective sanction couldn't be re-read as a retrospective sanction; and
-
The statutory requirement to seek sanction without delay had not been made out. The court had the power to grant retrospective sanction despite the requirements being made out, however, this was not appropriate in these circumstances.
Timing is therefore everything. IP’s involved in litigation should ensure that they obtain timeous sanction for proceedings. In the event of proceedings being raised without sanction, there should be no delay in obtaining sanction, and importantly, it should be retrospective. Anything else risks costs being irrecoverable and a potential personal liability.
For further information please contact: Fiona Carlin
Complete the details below to send a link to this page to a friend.