Examiner's costs do not have priority over those of the official liquidator

 

In the matter of Springline Limited (in liquidation) and in the matter of an Application pursuant to section 280 of the Companies Act 1963.

Company in Liquidation Prior appointment of examiner Remuneration, costs and expenses of examiner Priority of payments Extent of that priority Whether liability of examiner ranked in priority to costs and expenses of official liquidator Whether liability to liquidator could be classified as "another claim" Reference to "future debts" and "future claims" Intention of legislature Function of the courts Preserving realising or getting in the assets of the company Protection of the company due to examinership Role of examiner in protecting assets Companies Act 1963 (No 33), sections 128(1), 244, 283(1), 284(1) and 288 Companies (Amendment) Act 1990 (No 27), sections 10, 29(3) Debtors Act (Ireland) (1872), section 4 Irish Bankrupt and Insolvent Act (1857), section 252 Bankruptcy Act 1988 (No 27), section 75(1), First Schedule Rules of the Superior Courts 1986, Order 74 Rules 108 and 128(1) The Constitution, Article 40.6(1).

The High Court (before Mr Justice Shanley); judgment delivered 28 October 1997.

THE High Court held after carefully considering the relevant statute law that the examiner was not entitled to his remuneration, costs and expenses in priority to those of the official liquidator of the company as the costs, remuneration and expenses of the official liquidator could not be deemed to belong to the category of liabilities termed "any other claims" in the Companies (Amendment) Act 1990.

John McBratney SC and Michael Cush BL for the examiner; Bill Shipsey SC and John Gleeson BL for the liquidator.

MR JUSTICE SHANLEY said that on the 26 February 1996 Mr Rory O'Farrell was appointed examiner to Springline Limited following a petition to the High Court. The examiner subsequently informed the High Court that there was no possibility of a scheme of arrangement being put in place and the High Court made an order withdrawing the protection of the court, thereby terminating the examinership on 8 May 1996. A petition to wind up was presented to the High Court and a provisional liquidator was appointed on 21 May 1996. A winding-up order was made on 10 June 1996 in relation to the company. Mr Justice Shanley said that the High Court sanctioned payments to Mr O'Farrell totalling £54,210.28 in July and October 1996 in respect of his costs, remuneration and expenses in the winding up and Mr O'Farrell now claimed payment of that amount.

Mr Justice Shanley said that the court was to determine the priority of the remuneration costs and expenses for work done by the examiner on behalf of Springline Limited in liquidation. Mr Justice Shanley considered the provisions of the Companies (Amendment) Act 1990 and said that the function of an examiner was to investigate the possibility of whether a company which is unable to pay its debts was capable of surviving as a going concern. During that time the property of the company was afforded protection and was preserved from its creditors. Section 29(3) of the 1990 Amendment Act gave priority to the remuneration costs and expenses of an examiner. However it was the extent of that priority which the court had to determine.

Mr Justice Shanley looked closely at the provisions of the Companies Acts to determine the rules which apply in relation to insolvent companies as to the proof and ranking of claims in a winding-up and the payment of costs, charges and expenses of liquidators of such companies. It was pointed out by the court that section 284(1) of the 1963 Act provided that debts provable in a winding-up were to be determined in accordance with the rules in force for the time being under the law of bankruptcy. The provisions of the Bankruptcy Act 1988 were analysed and Mr Justice Shanley said it was clear that an entirely different approach was to be adopted in relation to the proof and ascertainment of debts and the means whereby the remuneration, costs and expenses of a liquidator were determined. Mr Justice Shanley then considered the submissions made by counsel on behalf of both the liquidator and the examiner. Mr Shipsey on behalf of the liquidator submitted that the effect of section 29(3) of the 1990 Amendment Act was that while the costs, remuneration and expenses of an examiner had priority over secured or unsecured claims of creditors of the company, they did not have priority over the costs, remuneration and expenses of a liquidator appointed by the court. The court would have to be satisfied that the words "other claim" in section 29(3) of the 1990 Amendment Act included the remuneration, costs and expenses of a liquidator appointed by a court if an examiner was to be entitled to his costs in priority to the liquidator. Mr McBratney on behalf of the examiner submitted that the phrase "any other claim, secured or unsecured" in section 29(3) was so wide as to necessarily embrace the costs, charges or expenses of a liquidator. Section 281 of the 1963 Act referred to "all other claims" and that section provided for the priority of the costs, charges and expenses incurred by a voluntary liquidator in a winding up and payable out of the assets of the company in priority to all other claims. Mr Justice Shanley concluded that the real issue in the case was whether the costs, remuneration and expenses of a liquidator can under any circumstances be described as representing a debt or claim against the company. If they could be described as such then the effect of section 29(3) of the 1990 Amendment Act would be to give the costs, remuneration and expenses of an examiner priority over those of a liquidator. Mr Justice Shanley rejected this proposition. In his view the priority given in section 29(3) of the 1990 Amendment Act was not a priority against anything other than all other claims against the company whether secured or unsecured. The examiner did not have priority over the costs, expenses and remuneration of the official liquidator. Mr Justice Shanley took the view that reference to a future "claim" or "debt" could not be taken to refer to the costs, expenses or remuneration of a liquidator in a winding up by the court. Because debts and claims under the Bankruptcy Rules were provable as of the date of adjudication or in the case of a windingup as of the date of commencement of the windingup, obligations incurred by companies after the date upon which the company was wound up could not fall into the category of future claims or future debts. The liquidator's costs, remuneration and expenses were not obligations which neccessarily occured after the date of the winding-up order and therefore did not fall to be proven as debts in the liquidation or as claims in the liquidation in the manner provided for in Order 74 of the Rules. Mr Justice Shanley said he was mindful that the court had a duty where it was possible to construe the provisions of the Act in order to give effect to the intention of the legislature. While it was not the intention of the legislature to allow a situation arise whereby an examiner could only recover by way of remuneration what he could by dividend in the course of a winding-up, the wording of section 29(3) could not be construed to allow him be paid his costs, remuneration and expenses ahead of the remuneration of the liquidator. Mr Justice Shanley also rejected the submission that the examiner was entitled to have his costs paid in priority on the basis that his costs were costs which arose from the "preserving, realising or getting in the assets" of the company as provided for by Order 74 Rule 128(1) of the Rules of the Superior Courts. However, the preservation of the assets of the company was a consequence of the examinership and not as a result of anything the examiner did directly. Therefore, Order 74 Rule 128(1) could not be used to make provision for the costs and expenses of the examiner. Mr Justice Shanley concluded that the examiner was not entitled to his remuneration, costs and expenses in priority to those of the official liquidator of the company.

Solicitors: Matheson Ormsby & Prentice (Dublin) for the examiner; Eugene F. Collins (Dublin) for the liquidator.

[This decision is under appeal.]