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Litigation costs – a liquidation expense?
Following the decision in Re: Floor Fourteen - November 2000,
liquidators became increasingly cautious when commencing
proceedings in their own name as the costs cannot necessarily be
recouped out of the company's assets as an expense of the
liquidation. This is because Re: Floor Fourteen ruled that
litigation costs were not classified as a "liquidation expense", as
defined in Rule 4.218 of tghe Insolvency Rules 1986. As a result, a
new rule has been introduced with effect from 1 January 2003 by
Rule 23 Insolvency (Amendment) (No. 2) Rules 2002. This rule adds
to the list of expenses under Rule 4.218 "costs relating to the
conduct of legal proceedings which the liquidator has the power to
bring or defend, whether in their own name or in the name of a
company." Liquidators should therefore feel safer when embarking
upon proceedings in their own name without the fear that they may
be personally liable for the costs of that litigation.