OUTER HOUSE, COURT OF SESSION [2008] CSOH 56

P669/06

OPINION OF LORD GLENNIE in the Note by JOHN CHARLES REID and JAMES BERNARD STEPHEN, both of Deloitte & Touche LLP, Lomond House, 9 George Square, Glasgow, the Joint liquidators of Arakin Limited (SC061475) Noters; for Audit of their intromissions with the Company's estate, for approval of their accounts, for discharge from liability as regards their conduct in the liquidation, and to sist the winding up. ________________

Noters: Cormack; McGrigors

Respondents: personally present

28 March 2008

[1] On 14 October 2004 the court ordered that Arakin Limited ("the Company") be wound up on the ground that it was unable to pay its debts: s.122(1)(f) Insolvency Act 1986 ("the Act"). That inability was proved in terms of s.123(1)(c) of the Act. John Charles Reid and James Bernard Stephen, both of Deloitte & Touche LLP, were appointed interim liquidators and, at a meeting of creditors on 7 December 2004, were appointed liquidators of the Company. I shall refer to them as "the Joint Liquidators".

[2] The liquidation has been long drawn out and highly contentious. It would not be helpful at this stage to apportion blame for that and in any event I have not heard full submissions on that issue. The important thing is to look forward. By Note lodged in process on 6 April 2006 (No.37 of Process) the Joint Liquidators, referred to in the Note as "the noters", seek to bring the liquidation to an end. They ask the court to fix their outlays and remuneration as interim liquidators and liquidators for the period 14 October 2004 to 28 February 2006 and to discharge them from liability for their acts and omissions in the winding up; and, for this purpose, to remit those matters to the Auditor of Court and to a Reporter in terms of s.53 of the Bankruptcy (Scotland) Act 1985 as applied with modifications by Rule 4.68 of the Insolvency (Scotland) Rules 1986 and to waive their non-compliance with the provisions thereof relating to their timeous submission of their accounts of their intromissions and their claims for outlays and remuneration. They go on to ask the court to sist the winding up of the company, but only from the date when the court shall have (a) approved the reports of the Reporter and the Auditor of Court concerning their outlays and remuneration as interim liquidators and liquidators and (b) discharged them from all liability both in respect of their acts and omissions in the winding up and otherwise in relation to their conduct as interim liquidators and liquidators.

[3] In para.2 of the Note the Joint Liquidators say this:

"That by this application, having completed the winding up process insofar as it requires the payment to eligible creditors of the Company as at the date of the commencement of the winding up, the [Joint Liquidators] seek to have their outlays and remuneration as interim liquidators and liquidators of the Company fixed and to seek the order of Your Lordships in relation to the termination of the liquidation and to obtain their release."

The proposal for termination of the liquidation is by way of a sist under s.147 of the Insolvency Act 1986. The reason for this is explained in the Note. In para.43, having set out much of the procedural history of the winding up, the Joint Liquidators point out that their obligation in terms of s.143 of the Act is to realize the assets of the Company and distribute the surplus to the persons entitled to it. At the date of the Note the person entitled to the surplus was West Corporation, which was then the Company's sole shareholder; but it is accepted, as I understand it, that Mr and Mrs McNamara are now the only shareholders in the Company. The Joint Liquidators go on to say that should they distribute the surplus in this way there might be a significant tax liability for the shareholder(s). Other options might trigger a significant tax liability for the Company. In those circumstances they submit that the court should sist the winding up "and return the company to its shareholders", a course which is likely to incur the least tax consequences for the Company and the shareholders. However, the Joint Liquidators go on to submit that if the winding up is to be sisted for this reason, the disposal of the other matters raised in the Note (viz. fixing their outlays and remuneration and granting a release from liabilities) should be no different from that which would have obtained had one or other of the alternative routes been followed. In other words, they say that their outlays and remuneration should be fixed and their release be granted before the winding up proceedings are sisted.

[4] Answers to the Note (No.94 of Process) were lodged by Mr and Mrs McNamara as shareholders.. In their Answers they take issue with many of the statements made in the Note. It is unnecessary at this stage to go into these disputes. It is, however, important to note that at paras.40, 44, 46 and 67, they support the proposal that the winding up be sisted and the Company be returned to its shareholders; but they contend that the fixing of the Joint Liquidators' outlays and remuneration and the question of their release should be dealt with subsequently. They suggest that security be put up to cover the Joint Liquidators' remuneration when ascertained.

[5] In their Answers, Mr and Mrs McNamara make it clear that they wish to challenge the outlays and remuneration claimed by the Joint Liquidators. They also wish to contend that the Joint Liquidators should not be released from liability for their acts and omissions whilst in office and raise certain specific matters of complaint. Further, Mr McNamara contends that he is a creditor of the Company in the sum of £48,869, a claim which has been rejected by the Joint Liquidators. In consequence, the liquidation has thrown up a number of satellite actions, including the following:

(a) a Note by Mr McNamara (No.137 of Process) seeking to appeal the Joint Liquidators' rejection of his claim to be a creditor in the said amount. I shall refer to this as "the creditor appeal". As well as defending this Note on its merits, the Joint Liquidators challenge the competency of the Note for procedural reasons. Part at least of the relevance of this Note is the "creditor" status it might confer on Mr McNamara, if successful, for the purpose of the ss.155 and 212 applications to which I refer below; though the Joint Liquidators say that if it is held that Mr McNamara is a creditor in that amount then they will pay him that amount and he will thereupon cease to be a creditor of the Company.

(b) A Note (No.122 of Process) by Mr and Mrs McNamara, as shareholders, seeking an Order in terms of s.155 of the Act allowing inspection of the Company's books. I shall refer to this as "the s.155 application". This is designed, as I understand it, to enable Mr and Mrs McNamara to uncover evidence to support their opposition to a release being granted to the Joint Liquidators and/or to support an application to be made by them under s.212 of the Act in respect of the actions of the Joint Liquidators whilst in office. As I understand it, the competency of this application, in particular the question of Mr and Mrs McNamara's locus to make such an application under s.155 is in dispute. Similar objections will, no doubt, be made in respect of Mr and Mrs McNamara's locus to proceed under s.212.

A hearing on the creditor appeal has been fixed for early in June of this year. A hearing on the competency of the s.155 application has been fixed to come on before Lord Menzies late in May. Whatever the outcome of those applications, it can safely be assumed that further disputes, whether related or not, will arise and will themselves lead to further applications to the court by Note, no doubt with further preliminary objections as to competency and locus. Little progress has been made in respect of the various applications in the Joint Liquidators' Note (No.37 of Process) and a substantive hearing on the Note is still a long way off. The likelihood is that the liquidation proceedings will continue to be protracted and contentious.

[6] It was against this background that I fixed a hearing By Order on 12 and 26 March on all three matters, that is to say (i) the Joint Liquidators' Note (No. 37 of Process), (ii) the creditor appeal (No.137 of Process) and (iii) the s.155 application (No.122 of Process), with a view to seeing whether there could be found a more sensible and cost effective method of resolving the outstanding disputes between the parties.

[7] The Joint Liquidators' application to sist the winding up is made in terms of s.147(1) of the Act. This provides as follows:

"Power to stay or sist winding up.

(1) The court may at any time after an order for winding up, on the application either of the liquidator or the official receiver or any creditor or contributory, and on proof to the satisfaction of the court that all proceedings in the winding up ought to be stayed or sisted, make an order staying or sisting the proceedings, either altogether or for a limited time, on such terms and conditions as the court thinks fit."

The discretion conferred by s.147 has been considered in a number of cases. At the first By Order hearing I was referred in particular to the decision of Megarry J in In re Calgary and Edmonton Land Co. Ltd. (in liquidation) [1975] 1 WLR 355. After the second hearing the Joint Liquidators also brought to my attention the decision of the Inner House in McGruther v James Scott Ltd. 2004 SC 514, though they made no additional submissions. I shall refer in more detail to these cases in due course.

[8] As I have said, both the Joint Liquidators and Mr and Mrs McNamara wish the winding up to be sisted. This is obviously the sensible course. The Company is highly solvent. I was told by Mr Cormack, who appeared for the Joint Liquidators, that the net assets of the Company run into several millions of pounds. The precise figure does not matter. With the exception of Mr McNamara's disputed claim to be a creditor of the company, all the creditors at the time of the winding up order have been paid off. For the reasons given by the Joint Liquidators in their Note, which I have summarized in para.[3] above, I am satisfied that the appropriate course at the end of the liquidation is to sist the winding up and return the Company to its shareholders. The question is one of timing. There is nothing further for the Joint Liquidators to do in the liquidation. The only outstanding matters are those raised in the Joint Liquidators' Note (No.37 of Process), namely their application to have their outlays and remuneration fixed and to be discharged from liability as regards their conduct in the liquidation. The dispute between the parties is as to whether the winding up should be sisted whilst these matters are still outstanding or whether, as the Joint Liquidators prefer, the sist should only come into effect after all these matters have been resolved.

[9] The position of the Joint Liquidators, as explained by Mr Cormack, was in summary as follows. Because of their status as officers of the court, they were in the court's hands as regards the proper course to be taken. On balance, they submitted, it was more appropriate to allow the liquidation to continue in the usual way until these outstanding matters were resolved. Although it was recognised that sisting the liquidation at this stage might have the advantage of making redundant certain of the outstanding disputes - e.g. the creditor appeal and the s.155 application - it was unlikely to shorten the dispute and might in fact introduce further grounds for dispute. For example, there might be difficulties put in the way of realising any security put in place to protect the Joint Liquidators' position. The history of the matter to date did not encourage optimism on that score. Further, the continued existence of the liquidation, coupled with the obvious desire on the part of the McNamaras to get the Company back, might provide an impetus to the speedy resolution of the outstanding matters. The Joint Liquidators accepted appointment on the basis that the liquidation would follow the usual course. They should not be left unprotected. If there were a sist, whether total or partial, it would require careful drafting to ensure that the Joint Liquidators were not left exposed to continuing liabilities.

[10] In Re Calgary and Edmonton Land Co. Ltd. (in liquidation), Megarry J pointed out that that the language of the section made it clear that the jurisdiction to sist a winding up is discretionary and that it lies on those who seek a sist to make out a sufficient case for it. I was referred to a passage beginning at p.360B where Megarry J considered the persons whose interests ought normally to be considered in making the decision whether or not to sist the winding up. He said this:

"That brings me to the third point, that of the persons whose interests have to be considered on an application for a stay. These must, of course, depend on the circumstances of each case; but where, as here, there is a strong probability, if not more, that the assets of the company will suffice to pay all the creditors and the expenses of the liquidation, and so leave a surplus for the members of the company, there are plainly three categories to consider. First, there are the creditors. Their rights are finite, in that they cannot claim more than 100p in the pound. I cannot see that in normal circumstances any objection to a stay could be made on behalf of the creditors if for each of them it is established either that he has been paid in full, or that satisfactory provision for him to be paid in full has been or will be made, or else that he consents to the stay or is otherwise bound not to object to it. Second, there is the liquidator. By section 309, all costs, charges and expenses properly incurred in the winding up, including the liquidator's remuneration, are made payable out of the assets of the company in priority to all other claims. Where a liquidator has accepted office on this footing, I cannot see that in normal circumstances it would be right to stay the winding up unless his special position had been fully safeguarded, either by paying him the proper amount for his expenses or by sufficiently securing payment. A liquidator who loses control of the assets by reason of a stay ought normally to be properly safeguarded in relation to his expenses. Third, there are the members of the company. No question of satisfying them by immediate payment of all that they are entitled to can very well arise; for unlike the creditors, with their ascertained or ascertainable debts, the rights of the members cannot be quantified until the liquidation is complete. Accordingly, in normal circumstances I think that no stay should be granted unless each member either consents to it, or is otherwise bound not to object to it, or else there is secured to him the right to receive all that he would have received had the winding up proceeded to its conclusion. Each member has a right of a proprietary nature to share in the surplus assets, and each should be protected against the destruction of that right without good cause.

It will be observed that each of the heads is qualified by the words 'in normal circumstances.' I am not suggesting that in these cases there are hard and fast rules; but I am saying that the circumstances that I have mentioned will usually be at least highly material in deciding how the court's discretion should be exercised. Cases out of the normal way, of course, call for special treatment."

The principles upon which the discretion might properly be exercised were recently considered by the Inner House in McGruther v James Scott Ltd. Lord Hamilton, giving the Opinion of the Court, said this at paras.[16]-[18]:

"[16] It is clear from the terms of sec 147(1) that the applicant for a sist, if he is to succeed, must satisfy the court that such an order ought to be made. We do not construe Megarry J's observation in Re Calgary & Edmonton Land Co Ltd (at pp 358, 359) that 'the applicant for a stay must make out a case that carries conviction' as intended to impose any special burden on the applicant. ... The ordinary burden of satisfying the judge, whether on evidence or other material, rests on the applicant. We are unable to accept the soundness of any textbook glosses which may suggest otherwise.

[17] In addressing the issue whether or not the power should be exercised, the judge requires to consider the rights and interests of those who may be affected by his or her decision. Depending on the circumstances, such persons may include the creditors, the liquidator and the members (Re Calgary & Edmonton Land Co Ltd, per Megarry J at p 360). The public interest may also require to be considered (as in Re Telescriptor Syndicate Ltd). Other particular persons may have an interest which likewise has to be addressed. ...

[18] Megarry J indicated that in cases of this kind there are no 'hard and fast rules'. It is clear that he regarded none of the categories of persons whose interests he identified as having a right in all circumstances to full protection of his prior position. What is reasonable protection for any person with an interest must depend on the nature of that interest, the nature of any other interests and the whole other circumstances of the particular case."

Submissions were made to me by reference to the categories identified by Megarry J in the passage which I have cited. Whilst recognising that other persons might require to be considered depending on the circumstances, it was not suggested that in this case I need look beyond those categories.

[11] As I have said, I am persuaded that a sist of the winding up under s.147 of the Act is the appropriate course at some stage. All parties are in agreement on this. But I must still consider the interests of parties who might be affected by the stage at which the sist is granted.

[12] The first category identified by Megarry J is the body of creditors. In the present case I am told that all creditors have been paid off. The only uncertainty hangs over Mr McNamara and his claim to be a creditor to the extent of £48,869. Mr McNamara wants the Company to be returned to himself and his wife as the sole shareholders. If that is to be done, he has no interest in establishing a claim against the Company. He has indicated his consent to the winding up being sisted without the creditor appeal being decided on its merits. It is agreed that if an order is made sisting the winding up, the creditor appeal should be brought to an end, preferably, so it seems to me, by it also being sisted, that being the most neutral form of disposal. By the same token, since Mr and Mrs McNamara are the only shareholders and they consent to the winding up being sisted, no separate consideration need be given to the members of the Company. That leaves the Joint Liquidators. I repeat, because Mr Cormack emphasised this point, the words of Megarry J dealing with their position. He identified the basic rule, in Scotland now dealt with in the Insolvency (Scotland) Rules 1986, as being that all costs, charges and expenses properly incurred in the winding up, including the liquidator's remuneration, are made payable out of the assets of the company in priority to all other claims. He went on to say:

"Where a liquidator has accepted office on this footing, I cannot see that in normal circumstances it would be right to stay the winding up unless his special position had been fully safeguarded, either by paying him the proper amount for his expenses or by sufficiently securing payment. A liquidator who loses control of the assets by reason of a stay ought normally to be properly safeguarded in relation to his expenses."

It seems to me that this has great force in a case such as the present. In the ordinary course, as Megarry J points out, the liquidators' outlays and remuneration would be paid out of the assets of the company in priority to other claims. It is not suggested that they should have less security if the winding up is to be sisted before these matters have been dealt with. If it is sisted now, there is no question of the Joint Liquidators being paid their outlays or remuneration before the sist comes into force. They have not as yet submitted their claims in accordance with s.53 of the Bankruptcy (Scotland) Act 1985, as applied with modifications by the Insolvency (Scotland) Rules 1986. Therefore security must be given for payment of such outlays and remuneration as may be fixed in the future. Security must also be given for future expenses which may be incurred by the Joint Liquidators in resisting challenges to their remuneration and/or to their claim to be released from liability for their conduct of the liquidation. I was told that the Joint Liquidators estimate that their fees and outlays to date amount to a figure of about £470,000. That will, of course, be subject to audit by the Auditor of Court and the Reporter appointed by the court and ultimately to the court's approval. I should not limit the security to this sum however. Further expenses may be incurred in establishing the level of their remuneration, in seeking to establish their entitlement to a discharge and, possibly, in realising the security. On the basis that remuneration and outlays to date are estimated at nearly £500,000, I would be minded, having regard to these other matters, to double that and order that security be put up in the amount of £1,000,000. This sum amply covers the liquidators for their current estimates of outlays and remuneration and provides ample margin for all circumstances that may occur between now and the final resolution of all outstanding issues, even if one were to assume the worst. This sum was agreed in court to be an appropriate sum; and it was further agreed that, if I were to order a sist on this basis, security should be put up in equal parts by a cash deposit in an interest bearing account and by a heritable security over one of the Company's properties, namely that at 1305 Shettleston Road, Glasgow. To avoid any risk to the Joint Liquidators of the company's assets being put beyond their reach after the sist and before the security is established, the interlocutor to be pronounced would require the Joint Liquidators to effect such security themselves; and would go on to provide for the sist only to be ordered once the security is in place.

[13] At the end of the last hearing, Mr Cormack indicated that he wished to take instructions on certain matters which might, in the opinion of the Joint Liquidators, expose them to the possibility of being held liable for the liabilities of the Company. This was, as I understood it, on the basis that what was proposed was a partial sist, but I will listen to anything he may bring to my attention on this topic. Subject to this, however, it seems to me that by the provision of security in the manner indicated, the Joint Liquidators have ample security for their claims to remuneration and outlays, present and future, and for any further legal and other expenses which they may incur. On that basis, I see no advantage in prolonging the winding up and every advantage in sisting it. If it is sisted now, the satellite litigation presently on foot will come to an end. There will be no purpose in the creditor appeal continuing, and that can be sisted. The s.155 application becomes unnecessary - as directors of the Company, Mr and Mrs McNamara will have full access to the Company's books - and can also be sisted. There will be no need for Mr and Mrs McNamara to consider making an application under s.212 of the Act, since their rights (if any) under that section are no greater than their rights as shareholders and directors of the Company to oppose the application by the Joint Liquidators for a release from liabilities. I put this in this way advisedly. I have not had to consider what rights, if any, a shareholder or director of a solvent company emerging from a liquidation may have to challenge the Joint Liquidators' application for a release from liability. But I cannot conceive that their rights, if any, under s.212 of the Act would put such a person in a more advantageous position. After all, an application under s.212 can only be made by a restricted class of persons and, in the case of a contributory, only with the leave of the court. On this basis, if I were to sist the winding up now, there would be no reason for further satellite litigation. The matter would proceed to the submission by the Joint Liquidators of their accounts of intromissions and their claims for outlays and remuneration in terms of s.53 of the Bankruptcy (Scotland) Act 1985 as applied to insolvency by the Insolvency (Scotland) Rules 1986. Any opposition to their claims would be dealt with within that process. I should add that I do not attach any weight to the submission, made on behalf of the Joint Liquidators, that if the liquidation continued it might provide some "impetus" to a resolution of the outstanding disputes. It is true that it might give the Joint Liquidators a tactical advantage enabling them to bring some pressure to bear on Mr and Mrs McNamara to back off, though the history of the matter to date does not suggest that that is likely to be effective. But it is not the function of the court to choose a course so as to give one side or the other such an advantage and I therefore disregard it altogether.

[14] A question remains as to the form of the sist: should it be partial or total? At the end of the first By Order hearing I circulated a draft Interlocutor which provided that the winding up should be sisted "save for" certain purposes, those purposes being the Joint Liquidators' applications to have their outlays and remuneration fixed and to obtain their release from liability. In light of this suggestion, Mr Cormack drew to my attention certain authorities and passages in text books dealing with the competency of a partial sist. He accepted that it was competent for the court to order a partial sist, i.e. to sist the winding up for some purpose though not for others. Authority for this is to be found in Re Western of Canada Oil, Lands and Works Company [1874] WN 148; and both Buckley on the Companies Acts, 14^th Ed. at para.256 and Gore-Browne on Companies (Update 62) at para.56[10] support the proposition that a sist can be partial, the winding up being allowed to continue for certain limited purposes. There is a suggestion to the contrary in the earlier authority of Re European Assurance Company [1872] WN 85, but the circumstances in that case were somewhat peculiar. I prefer the authority of Re Western of Canada Oil, Lands and Works Company and the text books to which I have referred. In my opinion a partial sist of a winding up is competent under s.147 of the Act. However, it will usually be cleaner and apt to cause less confusion if a sist ordered under that section is total. I would therefore be reluctant to order a partial sist in circumstances where there was no need for the liquidators to continue in office for the purpose of resolving any outstanding issues. In Re Western of Canada Oil, Lands and Works Company it was necessary for the liquidators to stay in office for the purpose of considering whether or not to raise proceedings and for the purpose of realizing the assets of the company with certain exceptions. In the present case I see no reason why the liquidation need continue or the Joint Liquidators remain in office in order for the applications relating to outlays and remuneration and discharge to be disposed of. Mr Cormack accepted, by reference to s.174 of the Act, that the question of release from liability could competently be dealt with after the Joint Liquidators had demitted office. He put before me no persuasive argument to the effect that they needed to remain in office while questions relating to their remuneration and outlays were resolved. In Re Calgary & Edmonton Land Co Ltd the discussion in the judgment proceeds on the basis that if a stay were ordered security would have to be given for the remuneration of the liquidator, presumably on the basis that the amount due to him would not be fixed until after the liquidation was sisted. The drafting of the interlocutor and the security documentation is, of course, crucial, but there is no reason why the drafting should not provide a solution to any such difficulties and also include provision for securing, within the total amount of £1,000,000, the further expenses etc. which the Joint Liquidators may incur in defending themselves against the possible challenges to which they may be subject.

[15] For these reasons I am persuaded (subject to any new points that may be put forward at the By Order hearing fixed for 2 April) that a sist of the winding up is appropriate; that the winding up should be sisted as soon as the security is in place; and that the sist should be total, not partial, on the basis that the interlocutor will provide for the progress of the Joint Liquidators' applications for payment and release.

[16] I propose also in the interlocutor to give directions for the remaining applications made in the Joint Liquidators' Note (No.37 of Process). Subject to further argument, it seems to me that the Joint Liquidators should be required to submit their accounts of their intromissions and their claims for outlays and remuneration within three months. The incorporation into the Insolvency (Scotland) Rules 1986 of s.53 of the Bankruptcy (Scotland) Act 1985, with a requirement for such accounts and claims to be lodged and audited every six months is unsatisfactory, and invariably gives rise to applications by liquidators for the court to waive non-compliance. The practice of the court in recent years has been to consider the question of waiver in advance of allowing a remit to the Auditor of Court and the Reporter, but some have suggested that the court is in a better position to decide whether non-compliance should be waived once it has received the Auditor's and the Reporter's reports. I do not think that it is necessary to lay down a hard and fast rule about this. What is important is that at the time it is required to make a decision the court should be in possession of sufficient information to make that decision. In the present case it seems to me that I should defer a consideration of the question of waiver until I have seen the reports from the Auditor and the Reporter. Once those reports are to hand, the Joint Liquidators will require to enrol a motion to have their outlays and remuneration fixed, for their non-compliance to be waived and for them to be released from liability in respect of their acts and omissions during the liquidation. I will require that motion to be served on Mr and Mrs McNamara. Any arguments as to whether they have a right to be heard in opposition can be dealt with at that stage.

[17] I have put the case out for a hearing By Order next Wednesday 2 April. I would hope that the final arrangements could then be put in place. I attach to this Opinion a revised draft interlocutor dealing with the matters discussed in this Opinion. The draft is open for discussion. I would hope to be able to finalise matters at the By Order hearing. I shall at the same time issue separate interlocutors sisting the creditor appeal and the s.155 application and discharging the diets currently fixed in those cases.

APPENDIX

Revised draft Interlocutor:

The Lord Ordinary, having again heard Counsel for the Joint Liquidators and the Respondents personally By Order, and of consent, Mr. McNamara having also consented in his capacity as an alleged creditor of the Company, and with a view to sisting the winding up of the Company in terms of Section 147(1) of the Insolvency Act 1986 once the security referred to in paragraph 9 of this interlocutor has been put in place:

(1) Permits the Joint Liquidators to proceed (i) with their application to have their outlays and remuneration as interim liquidators and liquidators of the Company fixed and (ii) with their application to obtain their release and to be discharged from all liability both in respect of acts or omissions of theirs in the winding up and otherwise in relation to their conduct as interim and joint liquidators;

(2) Appoints the Joint Liquidators to submit an account of their intromissions with the assets of the Company and their claim for outlays and remuneration as interim liquidators and liquidators of the Company by [2 July 2008];

(3) Remits to Colin A. F. Hastings, Chartered Accountant, Messrs. Hastings & Co.,13

Bath Street, Glasgow, to examine and audit the account of the Noter's intromissions as interim and official liquidators for the period from 14 October 2004 to date, in so far as not already approved by the liquidation committee, and to report thereon, to suggest a suitable sum for outlays and report what in his opinion is a suitable remuneration for the interim and official liquidators for the said period;

(4) Remits to the Auditor of Court to report what in his opinion is a suitable sum for outlays and remuneration for the interim and official liquidators for the said period;

(5) Appoints the said reporter and the Auditor of Court to confer before issuing their respective reports;

(6) Remits to the Auditor of Court to tax the Noters' Law agents' Account of expenses.

(7) Appoints the Joint Liquidators to serve any motion for approval of their outlays and remuneration and for their release and discharge upon the Respondents;

(8) Defers until the hearing of such motion consideration of the various applications by the Joint Liquidators in their Note No.37 of Process for waiver of their non-compliance with the provisions of s.53 of the Bankruptcy (Scotland) Act 1985 and the Insolvency (Scotland) Rules 1986;

(9) Appoints the Joint Liquidators by [16 April 2008] to put in place out of the assets of the Company security:

(i) for their outlays and remuneration as interim liquidators and liquidators of the Company and

(ii) for any further expenses the liquidators may reasonably incur in respect of any further proceedings in or in connection with the liquidation including, for the avoidance of doubt, their future outlays and legal expenses reasonably incurred in connection with their applications referred to in paragraph (1) hereof

all in the sum of £1,000,000, said security to be established by means of

(a) a heritable security for £500,000 over the Company's property at 1305 Shettleston Road Glasgow and

(b) a deposit of the sum of £500,000 in an interest bearing account in the name of the solicitors for the Joint Liquidators;

(10) Appoints the Joint Liquidators within 7 days thereafter to enrol a motion to sist the winding up.

(11) Reserves to the parties the right to apply to the Court at any time in respect of any problems encountered in the working out of this Interlocutor.