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Cite as: [1999] 1 IR 467, [1998] 1 ILRM 301, [1997] IEHC 163

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Springline Ltd., Re [1997] IEHC 163; [1999] 1 IR 467; [1998] 1 ILRM 301 (28th October, 1997)

THE HIGH COURT

1996 120 COS

IN THE MATTER OF SPRINGLINE LIMITED (IN LIQUIDATION) AND

IN THE MATTER OF AN APPLICATION PURSUANT TO SECTION 280 OF THE COMPANIES ACT 1963.

JUDGMENT of Mr. Justice Shanley delivered the 28th day of October 1997.

1. A Petition to appoint an Examiner in relation to this company was presented to the High Court on the 19th February 1996 and on the 26th February of that year, an Examiner was appointed to the company. The examination of the company proceeded until May 1996 when the Examiner, Mr Rory O'Ferrall, found it impossible to put in place a scheme of arrangement and thereafter informed the High Court on or about the 8th May 1996 that as there was no possibility of a scheme of arrangement being put in place, the protection of the Court should be withdrawn. On the 8th May 1996 the High Court made an Order withdrawing the protection of the Court from the company thus terminating the Examinership. On the 16th May 1996 a Petition to wind up the company was presented to the High Court and on the 21st May 1996 a provisional Liquidator was appointed. On the 10th June 1996 a winding-up Order was made by the High Court in relation to the company.

2. Mr O' Ferrall now claims payment of his costs remuneration and expenses in the winding up in the amount of IR£54,210.28 (inclusive of VAT). Mr O' Ferrall applied to the High Court on the 29th July, and 9th October, 1996 and obtained Orders from the Court sanctioning payments of sums amounting to £54,210.28.

3. The question which this Court is asked to determine is the priority of the remuneration costs and expenses claimed by the Examiner Mr. O' Ferrall in relation to the work done by him on behalf of Springline Limited in liquidation in his capacity as such Examiner.

4. The principal function of an Examiner appointed under the provisions of the Companies (Amendment) Act 1990 is to investigate the possibility of whether a company, which is unable to pay its debts, is capable of surviving as a going concern. The effect of the presentation of a Petition, which results in the appointment of an Examiner, also results in protection being available to a company for a limited period during which time the property of the company is preserved from the clutches of its creditors. The 1990 Amendment Act makes provision for liabilities incurred by a company during the protection period. In particular, Section 10 deals with circumstances under which the Examiner may incur certain liabilities and Section 29 of the Act deals with the payment of costs and remuneration of examiners appointed by the Court.

Section 29 (3) of the Companies (Amendment) Act 1990 provides as follows:-

The remuneration, costs and expenses of an examiner which have been sanctioned by order of the court shall be paid in full and shall be paid before any other claim, secured or unsecured, under any compromise or scheme of arrangement or in any receivership or winding-up of the company to which he has been appointed.

Section 29(3) of the Companies (Amendment) Act 1990 clearly gives a priority to the remuneration costs and expenses of an Examiner but it is the extent of that priority that is at issue. To that end it is necessary first to look at the provisions of the Companies Acts insofar as they relate to insolvent companies and to determine the rules which apply in relation to such companies as to the proof and ranking of claims in a winding-up of an insolvent company and the payment of the costs, charges and expenses of liquidators of such companies.

WINDING-UP UNDER THE COMPANIES ACTS 1963 TO 1990.

5. It is appropriate I believe to start with Section 244 of the Companies Act 1963 which provides as follows:-

"The Court may, in the event of the assets being insufficient to satisfy the liabilities, make an order as to the payment out of the assets of the costs, charges and expenses incurred in the winding up in such order of priority as the court thinks just."

6. That is a provision, as appears clear, which deals expressly with the costs charges and expenses incurred during the winding-up, it is not a provision which deals with in any way the debts which are provable in a winding-up.

Section 284(1) of the Companies Act 1963 provides as follows:-

"In the winding up of an insolvent company the same rules shall prevail and be observed relating to the respective rights of secured and unsecured creditors and to debts provable and to the valuation of annuities and future and contingent liabilities as are in force for the time being under the law of bankruptcy relating to the estates of persons adjudged bankrupt, and all persons who in any such case would be entitled to prove for and receive dividends out of the assets of the company may come in under the winding-up and make such claims against the company as they respectively are entitled to by virtue of this section."

7. As is apparent from the foregoing subsection, one of its effects is to provide that debts provable in a winding-up are to be determined in accordance with the rules in force for the time being under the law of bankruptcy.

Section 283(1) of the Companies Act 1963 provides as follows:-

"Subject to subsection (2), in every winding up (subject, in the case of insolvent companies, to the application in accordance with the provisions of this Act of the law of bankruptcy) all debts payable on a contingency, and all claims against the company, present or future, certain or contingent, ascertained or sounding only in damages, shall be admissible to proof against the company, a just estimate being made, so far as possible, of the value of such debts or claims which may be subject to any contingency or which sound only in damages, or for some other reason do not bear a certain value".

Order 74 of the Rules of the Superior Courts deal among other things with the proof of debts and also with the charges, costs and expenses payable out of the assets of a company in liquidation. I do not at this stage propose to deal in any detail with the provisions of Order 74 other than to refer to two rules. Rule 108 provides that:-

"A creditor may prove for a debt not payable at the date of the winding up order or resolution, as if it were payable presently, and may receive dividends equally with the other creditors, deducting only thereout a rebate of interest at the rate of six per cent per annum computed from the declaration of a dividend to the time when the debt would have become payable according to the terms on which it was contracted. "

Rule 128(1) provides as follows:-

"The assets of a company in a winding up by the Court remaining after payment of the fees and expenses properly incurred in preserving, realising or getting in the assets including where the company has previously commenced to be wound up voluntarily such remuneration, costs and expenses as the Court may allow to a Liquidator appointed in such voluntary winding up, shall, subject to any order of the Court, be liable to the following payments which shall be made in the following order of priority, namely:

First - The costs of the petition, including the costs of any person appearing on the

petition whose costs are allowed by the Court.

Next - The costs and expenses of any person who makes or concurs in making

the company's statement of affairs.

Next - The necessary disbursements of the Official Liquidator, other than expenses properly incurred in preserving, realising or getting in the assets hereinbefore provided for.

Next - The costs payable to the solicitor for the Official Liquidator.

Next - The remuneration of the Official Liquidator.

Next - The out-of-pocket expenses necessarily incurred by the committee of

inspection (if any)".

8. As I have already noted, Section 284(1) of the Companies Act 1963 makes provision for the application of the Rules in force for the time being under the law of bankruptcy to debts provable in the winding-up of an insolvent company. The debts which are subject to such rules in bankruptcy are those debts which are defined by Section 283(1) of the Companies Act 1963 as:-

".... all debts payable on a contingency, and all claims against the company, present or future, certain or contingent, ascertained or sounding only in damages,..."

The Debtors Act (Ireland) 1872 provides in Section 4 thereof that:

"In in this Act, if not inconsistent with the context, the following terms shall have the meanings herein-after respectively assigned to them; that is to say,

"debt contracted after the passing of this Act" shall mean any sum of money due or payable under or in respect of any contract or obligation made or entered into or liability incurred, or cause of action or suit arisen after the passing of this Act:..."

Section 252 of the Irish Bankrupt and Insolvent Act 1857 (now repealed) provided that:

"Any person who shall have given Credit to the Bankrupt or Insolvent upon valuable Consideration for any Money or other Matter or Thing whatsoever which shall not have become payable at the Time of the filing of the Petition of Bankruptcy or Insolvency and whether such Credit shall have been given upon any Bill, Bond, Note, or other negotiable Security or not, shall be entitled to prove or may be admitted as a Creditor in respect of such Debt, Bill, Bond, Note, or other Security, as if the same was payable presently, and receive Dividends equally with the other Creditors, deducting only thereout a Rebate of Interest for what he shall so receive at the Rate of Six Pounds per Centum per Annum, to be computed from the Declaration of a Dividend to the Time such Debt would have become payable according to the Terms upon which it was contracted".

The Bankruptcy Act 1988 which repealed in its entirety the Irish Bankrupt and Insolvent Act 1857 deals in Section 75 with debts provable in bankruptcy and arrangements and provides in Section 75(1) :-

"Debts and liabilities, present or future, certain or contingent, by reason of any obligation incurred by the bankrupt or arranging debtor before the date of adjudication or order for protection and claims in the nature of unliquidated damages for which the bankrupt or arranging debtor is liable at that date by reason of a wrong within the meaning of the Civil Liability Act, 1961, shall be provable in the bankruptcy or arrangement."

Finally, the first schedule to the Bankruptcy Act 1988 provides at Article 15

that:-

"In respect of debts due after the adjudication or order for protection, the liability for which existed at the date of such adjudication or order for protection, a creditor may prove for the value of the debt at that date. "

9. I have already referred to Order 74 of the Rules of the Superior Courts and in particular Rules 108 and 128 of Order 74. This Order sets out in detail the procedure for ascertaining the creditors of a company and the proof by those creditors of their claims, that procedure is succinctly described by Keane J. in his work "Company Law in the Republic of Ireland" at paragraph 38.71 as follows:-

"In order to ascertain the creditors, an advertisement is published at such time as the court directs fixing a time within which the creditors are to send in to the liquidator particulars of their claims. This advertisement also appoints a day for adjudicating on the claims. The Liquidator sets out in an affidavit the debts which he thinks should be allowed without further evidence and those which should be proved. At the adjudication, the Examiner decides which debts should be allowed upon the liquidator's affidavit and which creditors should come in and prove. The liquidator then gives notice to the latter of the time at which they are to attend to prove their claims. The value of contingent or unliquidated claims is to be ascertained, as far as possible, according to their value at the date of the winding up order. Debts can be proved by sending particulars of the claim through the post, an affidavit not being necessary unless the liquidator and the Examiner specifically require one. A creditor may come in and prove at any time before the final distribution of assets, but he cannot disturb any dividend already paid. The Examiner states the results of his adjudications in certificates. "

Section 228 (D) of the Companies Act 1963 provides that:-

"a person appointed liquidator shall receive such salary or remuneration by way of percentage or otherwise or as the court may direct, and if more such persons than one are appointed liquidators, their remuneration shall be distributed among them in such proportions as the court directs;"

10. Whilst this Section remains unrepealed the fact is that the costs, remuneration and expenses of a liquidator in a compulsory winding-up are usually fixed by the Court on application made from time to time by the liquidator to the Court.

11. In addition, of course, the priority of the liquidator in respect of his costs remuneration and expenses is determined by Order 74 Rule 128 which I have already referred to in detail. Where there are disputes or differences of opinion as to the amount of the remuneration claimed by a liquidator such differences are usually referred to the Examiner's Office for consideration and reporting finally to the Court. As the authors of Corporate Insolvency and Rescue (Irene Lynch, Jane Marshall and Rory O' Ferrall) note at paragraph 2.85 of their work McCarthy J. observed in Re. Merchant Banking Limited [1987] ILRM 260 that the inquiry conducted by the Examiner is;

"one of amount and not of nature or kind".

12. The foregoing analysis of the provisions of the Companies Acts and of the Bankruptcy Act 1988 and its rules, makes it clear that an entirely different approach is adopted relating to the proof and ascertainment of debts and the means whereby the remuneration, costs and expenses of a liquidator are determined. It is equally clear that the Bankruptcy Code has over time given a clear and unambiguous meaning to the words "debt" and "claim".

THE SUBMISSIONS

13. It was argued by Mr Shipsey that the effect of Section 29(3) of the Companies (Amendment) Act 1990 is that while the costs, remuneration and expenses of an Examiner have priority over secured or unsecured claims of creditors of the company, they do not have priority over the costs, remuneration and expenses of a liquidator appointed by the Court to an insolvent company. He argued that if the Examiner was to be entitled to his costs, remuneration and expenses in priority to the liquidator, he would have to satisfy the Court that the words "other claim" appearing in Section 29(3) of the Companies (Amendment) Act 1990 embraced the remuneration, costs and expenses of a liquidator appointed by a Court in the winding-up of an insolvent company. He drew attention also to Sections 244, 281 and 283 of the Companies Act 1963 . Section 244 as I have already indicated deals with the situation where the assets of a company are insufficient to satisfy the liabilities of the company and that section provides that the Court may make an Order as to the payment out of the assets of the costs, charges and expenses incurred in the winding up in such order of priority as the Court thinks just. Section 283 deals with those debts which may be proved against the company. Mr McBratney for the Examiner, argued that Section 29 (3) of the Companies (Amendment) Act 1990 providing for the priority of the remuneration, costs and expenses of the Examiner expressly gives that priority over "any other claim, secured or unsecured...." . He contended that this phrase was so wide as to necessarily embrace the costs, charges and expenses of a liquidator or the costs, remuneration and expenses of a liquidator referred to in Order 74 Rule 128 of the Rules of the Superior Court . He also pointed to Section 281 of the Companies Act 1963 (as did Mr Shipsey, but for a different reason). Mr McBratney argued that in relation to Section 281 there was a reference again to "all other claims" in a provision which 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 a company in priority to all other claims.

CONCLUSIONS

14. The real issue in this case is whether the liquidator's costs, charges and expenses (or costs, remuneration and expenses) can under any circumstances be described as representing a debt or claim against the company. If such costs, remuneration and expenses can be regarded as "a debt" or "a claim" against the company then, Section 29(3) of the Companies (Amendment) Act 1990 has the effect of giving the costs, remuneration and expenses of the Examiner a priority over the costs, remuneration and expenses of a liquidator, in a winding-up by the Court. In my opinion the liquidator's costs, charges and expenses cannot be regarded as constituting "a claim" or "a debt" against the company. The costs, expenses and remuneration of the Examiner, Mr O' Ferrall in this case, of course, represents a debt provable against the company in the winding-up of the company under the supervision of the Court. But as I have said the real issue, of course, is whether the costs, expenses and remuneration of the liquidator can be regarded as "a claim" or "a debt" against the company. Section 283 of the Companies Act 1963 refers to the fact that all claims against the company present or future, shall be admissible to proof against the company upon a winding-up of the company. Section 75 of the Bankruptcy Act 1988 provides that debts and liabilities "present or future" shall be provable in the bankruptcy or arrangement.

15. I do not think that it can be argued that references to a future "claim" or a future "debt" (as appears in the Bankruptcy Act 1988 and the Companies Act 1963 ) can be argued to refer in any way to the cost expenses remuneration or charges of a liquidator in a winding up by the Court. It seems to be clear that the notion of a future debt or a future claim at the date of a winding-up or at the date of an adjudication of bankruptcy relates to obligations of the company or the bankrupt, incurred before the date of winding-up or the date of adjudication, but in respect of which obligation its discharge follows the date of winding-up or adjudication. That this is the proper construction of "future claims" or "future debts" is reinforced by the wordings of Section 75 of the Bankruptcy Act 1988 and Rule 15 of the Schedule to that Act. Because debts and claims under the Bankruptcy Rules are provable as of the date of adjudication (or in the case of a winding-up as of the date of the commencement of the winding up) obligations incurred by companies after the date upon which the company was wound up cannot fall into the category of future claims or future debts. Such is the position of the liquidator's costs, expenses and remuneration. They were not obligations incurred before the winding up Order was made: they were obligations which necessarily occurred after the date of the winding-up Order and therefore do 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.

16. While the Examiner is given a priority by Section 29(3) of the Companies (Amendment) Act 1990 it is not a priority in respect of anything other than all other claims against the company whether secured or unsecured: It does not give the Examiner priority over the costs, expenses and remuneration of the Official Liquidator in this case.

17. I am conscious that it is the duty of the Court in all cases where it can possibly do so to construe an act in such a way as will give effect to the intention of the legislature. I am equally conscious that the Legislature would not have wished to leave an Examiner in the position that Mr O'Ferrall finds himself in now, namely, having done work for which he is not to receive any remuneration other than the remuneration he can recover by dividend (if any) in the course of the winding-up. It does seem to me that there is no way, without doing violence to the subsection, whereby subsection (3) can be construed in such a manner as to allow for the payment to Mr O' Ferrall of his remuneration ahead of that of the Liquidator. As Mrs Justice Denham said in the case of Mahon & Others, Applicants -v- Butler & Others, Respondents in a judgment delivered on the 1st August, 1997:-

"It is not for the Courts to Legislate. If there is a lacuna in legislation then it is appropriate to indicate that gap - but not to fill it. If there is a policy decision in the legislation then that is a matter for the Oireacthas".

Order 74 Rule 128 (1) does provide, as already noted, that:-

"The assets of a company in a winding up by the Court remaining after payment of the fees and expenses properly incurred in preserving, realising or getting in the assets, including where the company has previously commenced to be wound up voluntarily such remuneration, costs and expenses as the Court may allow to a Liquidator appointed in such voluntary winding-up, shall, subject to any order of the Court, be liable to the following payments which shall be made in the following order of priority...."

18. If it could be argued that what the Examiner had in substance done was to preserve, realise and get in the assets of the company, or to do any of those things alone, then it might be arguable that he was entitled to be paid his fees for such, before the Official Liquidator was paid his costs, remuneration and expenses. However it seems to be clear on a perusal of the provisions of the Companies (Amendment) Act 1990 that the principal function of the Examiner is to investigate the viability of the company and, in certain circumstances, to formulate proposals for its survival and to present a scheme of arrangement to the members and creditors and, ultimately, to the Court for the survival of the company as a going concern. It is true, that while the Examiner is performing the functions and exercising the powers given to him by the Companies (Amendment) Act 1990 the assets of the company are preserved. However, this is not by anything done by the Examiner himself but rather it is the consequence of the Order of the Court which extends the protection of the Court to the company during the period of the Examinership. Accordingly, it seems to me that nothing which the Examiner has done which gives rise to his claims in these proceedings could colourably be regarded as properly incurred " in preserving, realising or getting in the assets" of the company. Consequently it does not seem to me that it is possible to use the wording of Rule 128 of Order 74 to make provision for the costs, expenses and remuneration of Mr O' Ferrall.

19. In my view the Examiner is not entitled to his remuneration costs and expenses in priority to those of the Official Liquidator of the company.