An interesting decision was handed down by Deputy Insolvency and Companies Court Judge Frith in the case of Revenue And Customs v Direct Affinity Events Ltd & Ors [2019] EWHC 3063 (Ch).

The case involved winding up orders that were either rescinded or the subject of rescission applications, often due to communication anomalies; sums due to a petitioner had been paid or the company had already been placed into Creditors Voluntary Liquidation or there was a dispute subject to alternative legal proceedings.

Key point: the petitioning creditor in general terms would probably be unlikely to find themselves liable to the Official Receiver for more than the amount already paid by way of the “deposit” but if there was some material dispute then the Court might step in and look at the matter under the assessment of costs regime.

The question that sprouted was who (if anyone) was going to pick up the costs of the Official Receiver (“OR”) and what was the status of those costs given rescission of the original orders, which arguably perhaps might not have been made. The cases involved company insolvent liquidations where there were no asset recoveries (“chargeable receipts”) into the liquidation estate. The dispute in these cases was between the OR and HMRC.

A submission by the Official Receiver was that rescission is termination of an earlier order; distinct from annulment which means the order in effect had never been made. The question which therefore arose was whether or not there were legal consequences arising from rescinded orders or whether the original orders were a nullity. The Court was not persuaded that there were no legal consequences.

What it appears that the Court found was that the Official Receiver’s entitlement to the administration fee and general fee arose in the three cases it considered “on the making of an order” but in consideration of the “2016 Order” these fees (taking into account the petition deposit) could only be recovered from “chargeable receipts” ie. asset recoveries made by the OR.

However, what the Court also then went on to broadcast was not only that the making of an order does enable the Official Receiver to retain the deposit received from the petitioning creditor but that the Court has unfettered jurisdiction to order the balance of the OR’s “actual costs” should be subject to assessment in cases of disagreement.

Notable extracts from the judgment:

A purposive construction of these Regulations leads me to conclude that not only does the right to the OR’s administration fee survive the rescission order in a winding up, but also that the petitioner is entitled to the repayment of the deposit but only if the assets available to the company are insufficient to discharge the administration fee in full. If as in these petitions, the winding up orders have been rescinded, and no chargeable receipts have been made, the deposit will be retained by the OR and applied to the partial payment of the administration fee. The position of the petitioner is that if the winding up order is rescinded and the OR has not made any chargeable receipts, the extent of the petitioner’s potential liability for the OR’s costs will be confined to the loss of the deposit and nothing more. There will be a balance of £3,400 due on the official receiver’s administration fee after the application of the £1,600 deposit, but no chargeable receipts available to discharge it. It will be written off. This assumes that the responsibility for the error that led to the making of the winding up order lies with the petitioner. In this case, HMRC has accepted responsibility for the OR’s costs. The consequences for the application of regulation 4(5) in the absence of such a concession therefore did not arise and were not argued before me.

I am comforted in this conclusion by the observation that nowhere in the 2016 Order does it establish that in addition to the surrender of the deposit, the petitioner has to make up any balance to ensure that the statutory fees are paid in full. If the actual costs exceed the amount represented by the deposit, in circumstances where there are no chargeable receipts, then, applying the principles in Metrocab, the court may make an order for costs. There will have to be an application for the costs under CPR 44 and these will be assessed by the court in the usual way. That is the only remedy available to the OR in these circumstances.

I find on the true construction of the 2016 Order, in a winding up, the OR’s administration fee and general fee arise on the making of an order in each of the three cases before me. The fees may only be recovered from chargeable receipts that the OR has made. If there are chargeable receipts available to pay them, the fees are payable in full by reference to the 2016 Order, whatever the actual costs incurred in making the realisations that gave rise to those chargeable receipts.

The OR is not entitled to claim the balance of the official receiver’s administration fee after taking into account the petition deposit, nor the full amount of the general fee from the petitioner. Such fees can only be claimed against chargeable receipts as defined in the 2016 Order. If there are none, they cannot be paid from an alternative source.

The making of the rescission orders do have residual legal consequences in relation to the return of the deposit in each case. As the OR’s administration fee arose on the making of the order and if there are no chargeable receipts, it follows that the OR can retain the deposit in full in each case in accordance with regulation 4(5). However, by virtue of the fact that those sums are payable by the petitioner and not from the chargeable receipts, the 2016 Order does not fetter the discretion of the court to assess these costs by reference to the actual costs incurred so as to ensure that the OR is not out of pocket. In these circumstances, I conclude that the court has an unfettered jurisdiction to order that the balance of the actual fees incurred (after taking into account the retention of the deposit) should be assessed and if appropriate, to be paid by a third party having regard to the circumstances of each case. Therefore, to the extent that the actual costs incurred by the OR exceed the amount it will receive from the retention of the deposit, those costs will be recoverable to be assessed by the court if not agreed and paid by HMRC, as the petitioner in each case. I should make it clear that this is a case that deals only with the situation which applies in each of the three cases before me, where no chargeable receipts have been made and where the costs incurred by the OR are minimal.