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Cite as: [2004] ScotCS 15

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Jackson & Anor v Motherwell Football and Athletic Club [2004] ScotCS 15 (23 January 2004)

OUTER HOUSE, COURT OF SESSION

OPINION OF LORD CARLOWAY

on the note for directions of

BRYAN A JACKSON and

PHILIP J LONG (managers ad interim

of THE MOTHERWELL FOOTBALL AND ATHLETIC CLUB)

Noters;

in the petition of

THE MOTHERWELL FOOTBALL AND ATHLETIC CLUB

Petitioners:

________________

Noters: Sellar QC; Harper MacLeod, Glasgow

23 January 2004

Background
[1] On 24 April 2002, the petitioners presented a petition craving an administration order under the Insolvency Act 1986 (c 45) and the appointment of the noters as administrators. By interlocutor of the same date the Lord Ordinary:

"nominates and appoints ad interim [the noters] ... jointly to manage the affairs, business and property of [the petitioners] for the purposes specified in section 8(3)(a)(b) and (d) of the Insolvency Act 1986 with the powers set out in Schedule 1 to said Act; ad interim prohibits the directors of the company from exercising any powers as director of the company without the consent of the joint administrators ad interim."

This form of interlocutor, so far as the appointment is concerned, was said to be of a type devised after the issue of the Opinion of the Extra Division delivered by Lord Penrose in Secretary of State for Trade and Industry v Palmer 1994 SC 707 (see especially p. 712). That Opinion, it is worth observing in limine, makes it clear that, if a Court is to make an interim order under section 9(4) of the Act, appointing a person to some form of administrative role in a company and restricting the powers of the directors in terms of the specific provisions of section 9(5), such an order is not of itself an administration order and the person appointed does not have the status of an administrator in terms of the statute. However, it is remarkable that in this case the interlocutor refers to the noters as "joint administrators ad interim". It also specifies the functions of the appointees under reference to section 8(3), namely:

"(a) the survival of the company, and the whole or any part of its undertaking, as a going concern;

(b) the approval of a voluntary arrangement under Part 1;

(d) a more advantageous realisation of the company's assets than would be effected on a winding up."

It is also remarkable that the powers given to the noters under reference to schedule 1 are all the powers of an administrator, including the making of any arrangement or compromise on behalf of the company. It would appear that in practical terms, and on the express terms of the interlocutor, the noters are administrators ad interim albeit that I must accept that, in terms of Secretary of State for Trade and Industry v Palmer (supra) they do not have the "status" of administrators.

[2] Although the Court pronounced the interim order well over a year and a half ago, the petition has not progressed to the stage of anyone moving the Court to grant decree in terms of its prayer or otherwise to dispose of the petition. It has not progressed at all. Rather, the petitioners, and perhaps others, appear to have been content to leave matters upon an interim basis. There are no further interlocutors prior to the presentation of the present Note in mid December 2003, when an order for service was granted. It would appear that the appointment has not been regarded as an order obtained as a matter of urgency pending a hearing upon the merits of the petition (which incidentally has remained uncontested) but has been used to permit the noters to act effectively as administrators without any formal appointment as such.

The Note and the Legislation
[3] The Note states that it is not now envisaged that an administration order will ever be enrolled for. Rather, the proposal is that the petitioners will enter into a voluntary arrangement with their creditors in terms of Part I of the 1986 Act. It is within that context that the noters seek directions on how to treat the debts owed to the Inland Revenue (PAYE) and Customs and Excise (VAT). Section 4(4) of the 1986 Act prohibits the approval by the company and its creditors of any arrangement which proposes that any "preferential debt" should be paid other than in priority to other debts. Preferential debts are, in terms of section 386, listed in schedule 6 of the Act and formerly included PAYE (Category 1) and VAT (Category 2). However, the list was restricted by section 251 of the Enterprise Act 2002 (c 40) whereby both PAYE and VAT debts were deleted; that is to say, the Crown preference was abolished. If the petitioners do not have to treat their own debts to the Inland Revenue and Customs and Excise as preferential then the potential distribution to ordinary creditors will be far greater than would otherwise be the case. This then is the area upon which the noters seek directions from the Court; i.e. to advise them on what the law is.

[4] The answer to the problem has to be found largely within the four corners of article 4 of The Enterprise Act 2002 (Commencement No. 4 and Transitional Provisions and Savings) Order 2003 (SI 2093) as amended by The Enterprise Act 2002 (Transitional Provisions)(Insolvency) Order 2003 (SI 2332). Article 4 provides that if it applies then the amendments in section 251 do not apply (Article 4(4)). Put another way, the Crown preference continues if article 4 bites. It is therefore necessary to consider in some detail when exactly article 4 is said to apply. Article 4 reads as follows:

"(1) This article applies to a case where before the first commencement date [15^th September 2003] -

(a) a petition for an administration order pursuant to Part II of the Insolvency Act 1986 is presented;

(b) a voluntary arrangement under Part I of the Insolvency Act 1986 has effect;

(c) a receiver is appointed under the terms of a charge (which when created was a floating charge) in relation to the property of a company subject to the charge;

(d) a petition for a winding-up order is presented;

(e) a resolution for the winding up of the company is passed;

(f) a petition for a bankruptcy order (or, in Scotland, for sequestration) is presented; or

(g) a voluntary arrangement pursuant to Part VIII of the Insolvency Act 1986 has effect."

The amending Order inserts the following:

"(1A) This article also applies to a case where -

(a) an administration order under Part II of the Insolvency Act 1986 is made on a petition presented prior to the first commencement date;

(b) that order is discharged;

(i) a winding-up order is made in respect of the company in question; or

(ii) a resolution for the winding up of the company is passed, on or after the first commencement date.

(1B) This article also applies to a case where -

(a) a winding-up order is made on a petition presented prior to the first commencement date; and

(b) the company in question enters administration by virtue of an order made under paragraphs 37 or 38 of Schedule B1 to the Insolvency Act 1986.

(1C) This article also applies to a case where

(a) a resolution for the winding up of a company is passed before the first commencement date; and

(b) the company enters administration by virtue of an order made under paragraph 38 of Schedule B1 to the Insolvency Act 1986.

(1D) This article also applies to a case where -

(a) a receiver is appointed before the first commencement date in respect of a company;

(b) the receiver vacates office; and

(c) the company in respect of which the receiver is appointed enters administration within the meaning of paragraph 1(2)(b) of Schedule B1 to the Insolvency Act 1986 during the period that the receiver is in office or immediately after the end of that period."

The original article then resumes:

"(2) This article also applies to a case where proposals for a voluntary arrangement under Part I of the Insolvency Act 1986 are made (whether before or after the first commencement date) by -

(a) a liquidator in a winding up where the winding-up petition is presented or, as the case may be, the resolution for winding up is passed, before the first commencement date; or

(b) an administrator appointed in relation to an administration under Part II of the Insolvency Act 1986 where the administration order is made on a petition which is presented before the first commencement date.

(3) This article also applies to a case in which a proposal for a voluntary arrangement under Part VIII of the Insolvency Act 1986 is made (whether before or after the first commencement date) by a person who was adjudged bankrupt on a petition which was presented before the first commencement date."

The Note states that the noters have been advised that, in the case of a voluntary arrangement, article 4(1)(b) (i.e. not articles 4(1)(a) or 4(2)(b)) determines the position and section 251 (i.e. the abolition) will apply where the arrangement has effect after the commencement date, as is the case with the petitioners' proposals. The Note has been intimated to both the Inland Revenue and the Customs and Excise but neither has lodged answers to it.

The Written and Oral Submissions
[5] The noters helpfully presented a submission in writing for use at the hearing on the motion for directions and expanded upon this orally at the bar. The noters first set out the basis upon which they claimed to be entitled to ask for directions, namely that they could do so as officers of the Court (Liquidator of Upper Clyde Shipbuilders, Noter 1975 SLT 39). This was so even although the voluntary arrangement would ultimately be proposed by the directors under section 1 of the 1986 Act. Secondly, the noters explained that it was expedient to give directions because it would create certainty and could avoid expense if problems arose at a later date.

[6] On the substantive issue, under reference to a number of well known cases, whose citations are set out in the written submission, the noters reminded the Court that any statutory provision is presumed to have its natural meaning in its context, including the whole of the statute or instrument. The statute or instrument requires to be interpreted as a whole so as to take account of any clear statutory purpose and to give content to each provision. If the meaning of a particular provision is not clear then the meaning which is more consistent with the statutory purpose is to be preferred. The context informing the statutory purpose includes any later amendment. When the language under consideration expressly covers a particular thing, it expressly excludes other things even of the same kind. The creation of one or more anomalies cannot, of itself, effect statutory meaning when that meaning is otherwise clear.

[7] Applying these principles to article 4, it was candidly accepted that the natural meaning of article 4(1)(a) appeared to be that it did apply here where a petition for an administration order had been presented prior to the commencement date. However, if the word "case" were analysed, its natural meaning of "state of facts" may not be clear and it may have the more specialised meaning of "a legal insolvency process". If so then article 4(1)(a) has two requirements: first that a petition has been presented; and secondly that an order has actually been made. In this regard, it was pointed out that the normal English practice is to make an administration order soon after the presentation of the petition rather than appoint persons ad interim as had happened here. Put another way, 4(1)(a) does not apply where no administration order is ever made and the petition is dismissed, as is intended here. The insolvency process becomes instead the proposed voluntary arrangement. If that is correct then article 4(1)(b) will apply since the directors will be proposing the arrangement and not the administrators, when 4(2)(b) would apply. This approach was preferable even if "case" has its natural meaning, given the structure of the legislation which deals with specific situations and suggests that any situations not specifically mentioned are not covered. No content could be given to article 4(2)(b) if article 4 applied to every voluntary arrangement which is preceded by an administrative petition. Equally, there would have been no need for the new article 4(1A) if 4(1)(a) applied to every case where a petition for an administration order had been presented. The approach suggested does create an anomaly in that it is the general intention of article 4 to apply to a situation where there are two insolvency processes occurring respectively before and after the commencement order. However, that did not effect the interpretation.

Decision
[8] Since the Court did appoint the noters for certain specified purposes, they are entitled to ask the Court for directions in relation to the performance of their duties. Given that one of the purposes of that appointment relates to the approval of a voluntary arrangement, they are entitled to ask about the legality of the terms of such an arrangement.

[9] In broad terms, article 4 of the Commencement No. 4 and Transitional Provisions and Savings Order (supra) intends to abolish the Crown preference in respect only of insolvency procedures which start after the commencement date. It does so first by stating simply that the abolition does not take effect where petitions for administration orders, winding-up or sequestration have been presented. It goes on secondly to cover what might be described as the non-petition situations, namely where voluntary arrangements have been effected, a receiver has been appointed or there is a resolution for a winding up. All of these are what might loosely be called cases of insolvency. However, the provisions can only have application so long as the cases persist or have effect; that is to say so long as the judicial or extra-judicial process continues or results in a conclusion, such as, in the case of petition processes, the making of an administration, winding up or sequestration order. If it were otherwise then article 4(1)(a) would bite no matter the vintage and irrelevancy of a historical petition for administration which had long since been dismissed or abandoned.

[10] Given that the specific terms of article 4(1) and its general intention might easily be circumvented by the abandonment of the particular petition process, provisions have been put in place to prevent such circumvention in appropriate cases by the terms of article 4(2) and, subsequently, articles 4(1A-C). Thus, article 4(2), again in broad terms, provides that, where there is an administrator, liquidator or trustee already appointed upon a petition, then the preference is not avoided where the petition predates the commencement order even if the insolvency situation is ultimately resolved upon a voluntary arrangement. Equally articles 4(1A-C), in general, make similar provisions to cover the situations where steps have been taken to dispose of the original petition, perhaps in order to achieve circumvention, but other steps are taken to continue with the insolvency process, albeit possibly in a slightly different form. There is no conflict or anomaly created by the statutory provisions, all of which can be seen as applying to different situations at least if article 4(1) is seen as applying only to continuing or successful processes of either a judicial or voluntary type.

[11] Here, there is an existing petition for an administration order. So long as that is the case, article 4(1)(a) applies and the Crown preference continues to exist. Any approval of a voluntary arrangement, which does not give effect to that preference, will contravene the terms of section 4(4) of the 1986 Act. This conclusion gives to the words in article 4(1)(a) their natural and ordinary meaning. There has been no voluntary arrangement reached prior to the commencement date and therefore article 4(1)(b) has, and can have, no application to the current situation. If the petition were to be dismissed, then it may well be that a voluntary arrangement can be proposed and proceeded with in a manner which would not involve article 4 biting. In that regard, there may well be substance in the submission made about article 4(1)(a) ceasing to have effect. In that event also any voluntary arrangement would not fall under 4(1)(b) nor would it fall under 4(2)(b), since there would be no administrator to propose it. However, in that situation, the noters would no longer have any responsibility so far as the proposal of any voluntary arrangement is concerned since they could not longer be officers of the Court in the petition process. It is not appropriate in these circumstances for the Court to give directions on what might be the position in relation to a voluntary arrangement reached after the dismissal of the petition.

[12] I accordingly direct the noters that, so long as they remain in office in the current petition for an administration order, any voluntary arrangement, under which the debts due in respect of PAYE and VAT are to be paid other than in priority to the ordinary creditors, cannot be approved.