Re Caledonian Securities Limited

Corporate Insolvency – office-holders’ fees and expenses – trust assets – Berkeley Applegate jurisdiction

Caledonian Securities Limited (CSL) provided fiduciary, custody and brokerage services to its clients, which involved it (and custodians on its behalf) holding assets including cash and securities for its clients. CSL entered compulsory liquidation and the liquidators applied for an order that they could take their fees and expenses from these assets, notwithstanding CSL held them on trust for its clients.

Applying Re Berkley Applegate Investment Consultants Ltd [1989] 1 Ch 32, previously applied in the Cayman Islands in AHAB v SICL (2010) 1 CILR 553, the Chief Justice held that the court had an inherent equitable jurisdiction to direct that fees and expenses are paid from trust property held by a company in liquidation where such fees and expenses are reasonably incurred by the liquidator in returning the trust property to those entitled to it. This was an appropriate case in which to exercise that jurisdiction, but the critical question was what part of the liquidators’ work could be remuneration from the trust assets.

The Chief Justice rejected an argument that the Berkley Applegate jurisdiction did not permit the liquidators to take their fees from the trust assets generally, as CSL was not contractually or otherwise authorised to debit fees and expenses incurred in relation to one account from assets held for another account. In this case, as in Berkley Applegate much of the relevant work could be viewed as being for the benefit of the assets owners as a whole.

However, not all the liquidators’ fees and expenses could be recovered from the trust assets. Recovery was confined to costs and expenses incurred investigating CSL’s records (said to be poorly kept) so as to determine what was trust property and continuing to manage or administer that property. The Chief Justice then approved a scheme for apportioning the liquidators’ costs and expenses between the different trusts, recognising that it was inevitably imprecise and imperfect, but sufficient to do justice in the circumstances of the case.

This case is a useful exposition and affirmation of the principles in Berkeley Applegate in the context of the liquidation of a modern fiduciary, whose principle assets will often be held on trust and thus are usually unavailable to satisfy liquidation expenses. The decision confirms the court’s willingness to aid liquidators who undertake work ultimately beneficial for the asset holders.