‘Surprise and concern’ at accountant fees of £120,000 over 20 days during liquidation of St Margaret’s School in Edinburgh

A JUDGE has expressed “surprise and concern” at fees of more than £120,000 being charged by accountants for 20 days’ work during the liquidation of a private school.

• Work carried out by KPMG had been checked independently and found to be necessary, with hourly rate of £515 described as ‘reasonable’

• St Margaret’s School closed at end of 2010 after running into financial troubles after years of falling pupil roll and income

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Lord Malcolm was told that the work by KPMG in relation to St Margaret’s School, Edinburgh, had been checked independently and been found to be necessary. The hourly rates charged, of up to £515, were described as “reasonable”.

He agreed to authorise payment to the firm, but commented: “I retain a sense of surprise and concern at a proposed fee of over £120,000 for 20 days’ work, and I suspect that many will find it remarkable that the winding-up of a middling sized private school can generate (total) fees of over £620,000.”

Lord Malcolm said at the Court of Session in Edinburgh that he hoped lessons might be learned from the case, and he stressed the importance of “robust scrutiny” of fees charged by liquidators.

St Margaret’s, which catered mainly for girls, was founded in 1890 but ran into financial difficulties after several years of a falling pupil roll and fee income. It closed at the end of the academic year in June 2010 when there were 397 pupils, paying up to £2,628 a term, and 143 staff.

Uniquely difficult and time-consuming

Blair Nimmo, of KPMG, was appointed liquidator, and the court was told it had been “a uniquely difficult and time-consuming” exercise, but more than £4.6 million had been realised from the sale of properties to pay some debts in full while unsecured creditors were expected to receive a dividend of 19 per cent.

Only Mr Nimmo’s claimed fees of £120,344 for the period 10-29 June, when he had been provisional liquidator, required approval by Lord Malcolm. Other fees totalling £502,659 were sanctioned “without demur” by a liquidation committee on which five creditors were represented.

David Sellar, QC, for Mr Nimmo, told the court that, unfortunately, “liquidation, like any other insolvency process, is an expensive exercise, especially in its initial stages.”

Lord Malcolm said, generally, an application for fees in a liquidation was determined without any public hearing or publicity. In this case, he had been concerned at the size of the fee and had decided to fix a hearing. He explained that fees were paid out of the realised assets of a company in priority to the claims of creditors. As was usual practice, he obtained reports on Mr Nimmo’s claim by an independent accountant, and an auditor, both of whom supported payment of the fee for 421.35 hours at an average hourly rate of £285.62.

Lessons to be learned

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The judge noted that the other fees had been approved by the liquidation committee.

“It may be asked, if the creditors are unconcerned, why should the court spend time deliberating on the application? However, there is a limit to the extent to which creditors...can be relied upon to scrutinise and police such claims,” he said.

“The true role of this case may be to prompt the court, and perhaps others, to reflect on the whole matter and assess what, if any, lessons are to be learned. Work of this nature, especially in difficult and sensitive cases, may simply be very intensive and expensive and require the use of a large number of highly qualified and skilled people.

“But where there is a pot of money to be distributed, it is important that the party responsible for the distribution is subject to robust scrutiny as to his fees and costs, especially when he enjoys priority over other claims. That remains true even if no public money is involved.

“On any view this was a complex and unusual liquidation. I can readily understand that it demanded extra work and required a great deal of skilful handling. I am told that the rates charged are the market rates for a firm of this size and that all the work done required to be done at the reported level of seniority of the staff involved.”