At first sight the case of International Sections Ltd appeared to be the one that all IP’s were waiting for – the one that set out what costs can be deducted when calculating the net property and hence the prescribed part available to unsecured creditors - but no, the Judge ducked the issue. Instead, he merely indicated that “the Liquidators have realised in the present case net property of £18,655.46” before deciding whether the costs of distributing the prescribed part of that net property would be disproportionate to the benefits.
It does not really come as a surprise that the court felt unable to grasp the nettle and give an indication of what costs it might be acceptable to deduct in calculating the company’s net property. After all, if Parliament did not see fit to define the parameters in the legislation, the Court is unlikely to want to do the legislature’s job. So we are left with an uncertain position where IPs are left to second guess the intention behind the legislation in a way that is only likely to be tested, at some cost, when a case arises that carries enough significance to make it worth pursuing as a test case. We have seen a legal opinion that indicates that all of the general costs of the administration, including the office holder’s costs, fees and charges, can be deducted before the net property is calculated, but Gareth and Bill cannot even agree on this within Compliance On Call and it would be a very brave IP that takes such a black and white approach without a clear indication from the Insolvency Service or the Courts.
Whilst the case therefore appears to have only limited application, since it related to an application to Court under section 176A(5), we think that given the similarity of wording with section 176A(3) the principles set out in that case should also be applied by an IP where the net property is below the statutory minimum of £10,000 and they have to decides whether to exercise their discretion and not distribute the prescribed part on the basis that the costs of distributing the prescribed part of that net property would be disproportionate to the benefits.
As a result, applying the principles of International Sections Ltd the IP should “look at the benefits to creditors as a body” and not be too ready to use their discretion just because the dividend would be small, and remembering that not applying the prescribed part provisions should be the exception, and not the rule.
