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Cite as: [1999] 1 IR 492, [1998] IEHC 12

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Coombe Importers Ltd., Re [1998] IEHC 12; [1999] 1 IR 492 (28th January, 1998)

THE HIGH COURT

1990 No. 12513 p

IN THE MATTER OF COOMBE IMPORTERS LIMITED (IN LIQUIDATION)

AND IN THE MATTER OF THE COMPANIES ACTS 1963 TO 1990.

JUDGMENT of Mr Justice Peter Shanley delivered the 28th January, 1998 .

1. Coombe Importers Limited was wound up by the Court on the 28th day of November, 1990. The company has previously been under the protection of the Court pursuant to the provisions of the Companies (Amendment) Act, 1990. In this application, Thomas Grace, the Official Liquidator of the company, seeks directions of the Court as to whether a particular claim of the Revenue Commissioners is entitled to super-preferential status pursuant to Section 120 of the Social Welfare (Consolidation) Act, 1981 or, alternatively, whether the claim is only entitled to preferential status pursuant to Section 285 of the Companies Act, 1963.

2. Brian Jenkins, a Chartered Accountant, had been appointed Examiner of the company. Within a week of his appointment it became apparent to him that there were certain irregularities in the company in relation to the payment of wages: the wages put through the wages book did not tally with the wages in the cheque journal. It is common case that what in fact occurred is that monies were paid to employees of the company prior to its winding up without deduction of PAYE or PRSI. These payments were disclosed by the Examiner's staff to the Revenue Commissioners and, in due course, on the 22nd October, 1990, estimates were raised by an Inspector of Taxes pursuant to Sections 8 and 11 of the Finance Act, 1968 (as amended). There was no appeal by the company against these estimates within thirty days following receipt of the estimates, and, in consequence, the Revenue Commissioners contend that the sum of £12,811.03 assessed in accordance with the estimates is to be regarded as a super-preferential claim in the winding up. The estimates are in respect of PRSI due in respect of the monies paid to employees where, as I have already stated, there was no deduction of either PAYE or PRSI.

STATUTORY PROVISIONS

3. The Social Welfare (Consolidation) Act, 1981 specified the sources of monies which would fund the benefits payable out of the Social Insurance Fund. Section 10, in particular, provided for employment contributions to be paid by employed contributors and their employers: Section 10(4) of the 1981 Act, provided as follows:-

"An employer shall be entitled subject to and in accordance with regulations to recover from an employed contributor the amount of any contribution paid or to be paid by him on behalf of that contributor and, notwithstanding anything in any enactment, regulations for the purposes of this sub-section may authorise recovery by deductions from the employed contributors remuneration, but any such regulation shall provide that:-

(a) where the employed contributor does not receive any pecuniary remuneration either from the employer or from any other person, the employer shall not be entitled to recover the amount of any such contribution from him, and

(b) where the employed contributor receives any pecuniary remuneration from the employer the employer shall not be entitled to recover any such contribution otherwise than by deductions."

4. Regulations such as were envisaged by Section 10(4) of the 1981 Act were made by the Minister for Social Welfare on the 9th November, 1989. These regulations were the Social Welfare (Collection of Employment Contributions by the Collector General) Regulations, 1989 (Statutory Instrument 298 of 1989). Article 6(1) of the Regulations provided as follows:-

"An employer shall, on making any payment of reckonable earnings to an employed contributor, deduct from the earnings -

(a) The amount of any employment contribution due by the contributor in respect of that payment of reckonable earnings, or

(b) where the said amount cannot at the time of making such payment be ascertained, the amount reasonably believed by the employer to be so due"

Section 120(2) of the Social Welfare (Consolidation) Act, 1981, provided as follows:-

"Any sum deducted by an employer from the remuneration of an employee of his in respect of an employment contribution due by the employer and unpaid by the employer in respect of such contribution shall not form part of the assets of a limited company in a winding up under the Companies Act 1963, and in such a winding up a sum equal in amount to the sum so deducted shall, notwithstanding anything in that Act be paid to the social insurance fund in priority to the debts specified in Section 285 (2) of that Act."

Section 120(2) of the 1981 Act is the original basis for the claim of the Revenue Commissioners to be entitled to a super-preferential status in respect of the estimated PRSI. sums. Section 120(4) of the 1981 Act provided as follows:-

Full proof of a debt to which priority is given by this Section shall not be required except where required by or under the Act of 1889 or the Companies Act, 1963."

"The Act of 1889" is a reference to the Preferential Payments in Bankruptcy (Ireland) Act, 1889, and, for the purposes of this application, is of no relevance. The question of the admission to proof and of the value of the claim by the Revenue Commissioners arose before the Assistant Examiner of the High Court and, in the absence of agreement between the parties, namely, the Revenue Commissioners and the Official Liquidator, was referred to the High Court for its determination. At this stage, it is worth noting that as a matter of law all debts and claims which are admitted to proof must be valued at the date of the commencement of the winding up. In this particular case the date of commencement of the winding up is the 28th November, 1990.

5. The Social Welfare (Consolidation) Act, 1993, repealed the Social Welfare (Consolidation) Act, 1981 save part VI of that Act which is not relevant to the issues that arise in this matter. The 1993 Act contains the following somewhat obtuse provision, namely, Section 301 of that Act which provides as follows:-

"The continuity of the operation of the law relating to the matters provided for in the repealed enactments shall not be affected by the substitution of this Act for those enactments, and -

(a) so much of any enactment or document (including enactments contained in this Act) as refers, whether expressly or by implication, to or to things done or falling to be done under or for the purposes of, any provision of this Act, shall, if and so far as the nature of the subject matter of the enactment or document permits be construed as including, in relation to the times, years or periods, circumstances or purposes in relation to which the corresponding provision in the repealed enactments has or had effect, a reference to, or, as the case may be, things done or falling to be done under or for the purposes of, that corresponding provision;

(b) so much of any enactment or documents (including repealed enactments and enactments and documents passed or made after the commencement of this Act) as refers, whether expressly or by implication, to, or to things done or falling to be done under or for the purposes of, any provision of the repealed enactments shall, if and so far as the nature of the subject matter of the enactment or document permits, be construed as including, in relation to the times, years or periods, circumstances or purposes in relation to which the corresponding provision of this Act has effect, a reference to, or, as the case may be, to things done or deemed to be done or falling to be done under or for the purposes of, that corresponding provision.

Section 302(2) of the 1993 Act provided that all instruments made and documents issued under the repealed enactments or any enactments repealed by the Social Welfare (Consolidation) Act, 1981, and in force immediately before the commencement of that Act other than the provisions of any instruments which were incorporated in the Act should continue in force as if made or issued under the 1993 Act. Accordingly, the Social Welfare (Collection of Employment Contributions by the Collector-General) Regulations, 1989, are still in force.

A perusal of the Social Welfare (Consolidation) Act , 1993, discloses that Sections 9 and 10 of the 1981 Act, may be said to correspond with Sections 6 and 10 of the 1993 Act and Section 120 (2) of the 1981 Act corresponds with Section 16(2)(a) of the 1993 Act. Section 16 (1) and (2) of the 1993 Act provide as follows:

"(1) In this section "the Act of 1889" means the Preferential Payments in Bankruptcy (Ireland) Act, 1889.

(2) The assets of a limited company in a winding up under the Companies Acts 1963 to 1990 shall not include -

(a) any sum deducted by an employer from such remuneration of an employee of his as was paid prior to the winding up in respect of employment contribution due and unpaid by the employer in respect of such contribution, or

(b) any sum which would have been deducted from the remuneration of an employee in respect of an employment contribution for a period of employment prior to a winding up had such remuneration been paid prior to such winding up,

and in such a winding a sum equal in amount to the sum so deducted and unpaid or which would have been deducted and payable, shall notwithstanding anything in those Acts be paid to the Social Insurance Fund in priority to the debt specified in Section 285(2) of the Companies Acts, 1963."

6. Subsections (3) and (5) of Section 16 are not relevant to the issues which I have to decide in this case but subsection (4) of Section 16 provides as follows:-

"Formal proof of a debt to which priority is given by this Section shall not be required except by or under the Act of 1889 or the Companies Act, 1963 .

As is apparent from the foregoing, there is a distinct correspondence between Section 120(2) of the 1981 Act and Section 16(2)(a) of the 1993 Act. It is equally clear that Section 16(2)(b) does not have any corresponding provision in the 1981 Act.

THE LIQUIDATOR'S SUBMISSIONS

Counsel on behalf of the Liquidator submits that the payment of wages without deduction of PRSI cannot lead to a claim for super-preferential status in respect of the PRSI sum, as that status depends on a physical deduction by the employer of the employee's employment contribution. He contends that Section 120(2) of the 1981 Act and Section 16(2)(a) of the 1993 Act clearly only catch as super-preferential "any sums deducted by an employer" . Because the sums for wages were paid under the counter, without any deductions, the unappealed estimate in respect of such sums does not elevate the estimated sums for PRSI to the status of a super-preferential claim. The Liquidator also submits that Section 16(2)(b) is of no assistance to the Revenue as that subsection relates only to sums which would have been deducted in respect of pre-liquidation employment had such remuneration been paid, but where in fact no remuneration was paid. The Liquidator says that this Subsection deals with a situation where remuneration was to be paid but was, as I have stated, not in fact paid. In any event, the Liquidator contends that, as Section 16(2)(b) of the 1993 Act finds no corresponding provision in the 1981 Act, to apply it to the issue of the admissibility and valuation of a claim as at the 28th November, 1990 is impermissible being retrospective application of a statutory provision so as to affect legal rights.

THE SUBMISSIONS OF THE REVENUE COMMISSIONERS

7. Counsel on behalf of the Revenue Commissioners contends that as the estimates remained unappealed, the money for PRSI remains due and owing and attracts super-preferential status. Counsel for the Liquidator counters this by saying that, while he concedes the money is due by reason of the unappealed estimates, it only will have super-preferential status where it can be shown to be within Section 120(2) of the 1981 Act or Section 16(2)(a) of the 1993 Act. In addition Counsel for the Revenue submits that Section 16 (2) should be broadly construed by the Court so as to embrace all sums which are deducted or ought to be deducted by employers, and that once the Court is satisfied that the company was obliged to deduct the sum for PRSI, the wording of Section 16(2)(a), or alternatively, Section 16 (2)(b), is wide enough to catch the sum as a super-preferential debt.

CONCLUSIONS

8. In considering whether the sum of £12,811.03 may be regarded as having super-preferential status, or, alternatively preferential status, the Court should have regard to the legal position which obtained at the date of commencement of the winding-up. As at that date, the Social Welfare (Consolidation) Act, 1981, was in force. Section 120(2) of that Act provided:-

"Any sum deducted by an employer from their remuneration of an employee of his in respect of an employment contribution due by the employer and unpaid by the employer in respect of such contribution shall not form part of the assets of a limited company in a winding-up under the Companies Act, 1963 and in such a winding-up a sum equal in amount to the sum so deducted shall, notwithstanding anything in that Act, be paid to the social insurance fund in priority to the debts specified to Section 285(2) of that Act."

9. I am satisfied that Section 120(2) of the 1981 Act, corresponds with Section 16(2)(a) of the 1993 Act: I am also satisfied that Section 120(2) does not correspond (nor does any other Section of the 1981 Act) with Section 16(2)(b) of the 1993 Act. Because there is that correspondence between these Sections, it appears to me that on a construction of Section 301 of the 1993 Act, I am entitled to look at the "things done or falling to be done" , while Section 120(2) of the 1981 Act was in force as if such things were done or fell to be done pursuant to Section 16(2)(a) of the 1993 Act. The effect of Section 301 of the 1993 Act is, in substance, to continue in force certain provisions of the 1981 Act, being those provisions with a corresponding provision in the 1993 Act. Accordingly, whether one looks at Section 120(2) of the repealed 1981 Act or, alternatively, Section 16(2)(a) of the 1993 Act, one sees that a condition precedent to the super-preferential status of any sum is that it be a sum deducted by the employer in respect of the employment contribution of the employee which remains due and owing by the employer. Neither section, in my view, permits of a construction that super-preferential status can be afforded to sums which ought to have been deducted in respect of the employments contribution of an employee, but were not so deducted. As to Section 16(2)(b) of the 1993 Act, it appears to me that that section deals with and is restricted to situations where employees were due remuneration prior to a winding-up but did not receive such remuneration from their employer. It has no application to the facts of the present case where employees did receive remuneration from their employer without deductions being made. For completeness, I should add that if it could be argued that Section 16(2)(b) of the 1993 Act had any application to the facts of the instant case, such as to give the sum in issue a super-preferential status, I would be of the view (there being no corresponding provision in the 1981 Act) that it could not be invoked retrospectively so as to impair or affect rights existing in those parties with an interest in the winding-up of the company as at the 28th November, 1990.