The introduction of the Leyland Daf fix via section 176ZA for all new cases commenced on 6 April 2008 or later allowing liquidator's remuneration to be drawn out of all assets of the company, including the proceeds of litigation and floating charge assets, without the authority of the chargeholder is good news, but there is an exception in respect of litigation expenses.
Where the uncharged assets are insufficient to pay “litigation expenses” the liquidator must still seek approval from the creditor(s) most immediately likely to receive some payment in respect of their claim but whose claim would not be paid in full, which could be the preferential creditors or a floating chargeholder depending upon the circumstances of the case. There is an exemption though for the first £5,000 of expenses incurred on each case, for which approval need not be sought.
Litigation expenses are expenses incurred in respect of legal proceedings, which are defined in rule 4.218A. In summary though these are essentially antecedent recovery actions taken by the liquidator as well as general legal actions and proceedings that a liquidator brings or defends in the name of the company, together with any negotiations intended to lead to a settlement or compromise in connection with such actions or proceedings. Litigation expenses will be both legal expenses incurred and the liquidator's remuneration for dealing with such matters.
This is a wide definition that almost certainly extends to include expenses incurred in debt recovery proceedings. However, it is the inclusion of negotiations within the definition of legal proceedings that we think causes liquidators a problem, as it will always be open to question as to when a request for payment stops and negotiation begins. This makes it more important than ever to correctly identify both the category of work being done and to provide sufficient narrative in support of the work done. You should also consider introducing a new time recording category of “litigation” to separately record such time costs so that you are aware as to the level of time costs that are not "litigation expenses" and so can be drawn without any additional approval once the creditors have fixed the basis of your remuneration, and those for which approval of the preferential creditors/floating chargeholder is required before they can be drawn.
