Claiming
Cases
Stein v Blake
[1995] UKHL 111996] 1 AC 243
LORD KEITH OF KINKEL
My Lords,
For the reasons given in the speech to be delivered by my noble and learned friend Lord Hoffmann, which I have read in draft and with which I agree, I would dismiss this appeal.
LORD ACKNER
My Lords,
I have had the advantage of reading in draft the speech prepared by my noble and learned friend Lord Hoffmann. For the reasons he gives I too would dismiss this appeal.
LORD LLOYD OF BERWICK
My Lords,
I have had the advantage of reading in draft the speech prepared by my noble and learned friend Lord Hoffmann. For the reasons he gives I too would dismiss this appeal.
LORD NICHOLLS OF BIRKENHEAD
My Lords
I have had the advantage of reading in draft the speech prepared by my noble and learned friend Lord Hoffmann. For the reasons he gives, with which I agree, I too would dismiss this appeal.
LORD HOFFMANN
My Lords,
The issues
If A and B have mutual claims against each other and A becomes bankrupt, does A’s claim against B continue to exist so that A’s trustee can assign it to a third party? Or is the effect of section 323 of the Insolvency Act 1986 to extinguish the claims of A and B and to substitute a claim for the net balance owing after setting off the one against the other? And if the latter is the case, can the trustee assign the net balance (if any) before it has been ascertained by the taking of an account between himself and B? If yes, is that what the trustee in this case has done? These are the issues in this appeal.
The facts
The plaintiff Mr. Stein was adjudicated bankrupt on 16 July 1990. He was at the time a legally aided plaintiff engaged in suing the defendant Blake. It is unnecessary to go into the details save to say that Mr. Stein was claiming damages for breach of contract and a declaration that he was entitled to be indemnified against certain tax liabilities. Mr. Blake was counterclaiming for damages for misrepresentation and had in addition an indisputable cross-claim under various orders for costs in any event. Mr. Blake perhaps hoped that Mr. Stein’s trustee, in whom the right of action (if any) had vested, would decide that it was not in the interests of creditors to spend money on pursuing the litigation. If so, he was right, but the trustee did not abandon the claim. Instead he executed a deed dated 4 April 1991 by which he assigned the benefit of the action back to Mr. Stein in return for 49% of the net proceeds. Mr. Stein again obtained legal aid. Mr. Blake applied to have the proceedings dismissed on the ground that a claim subject to a set-off under 323 of the Insolvency Act 1986 could not validly be assigned. The application succeeded before the judge but his decision was reversed by the Court of Appeal. Mr. Blake now appeals.
Bankruptcy set-off
Section 323 reads, so far as relevant, as follows:
“(1) This section applies where before the commencement of the bankruptcy there have been mutual credits, mutual debts or other mutual dealings between the bankrupt and any creditor of the bankrupt proving or claiming to prove for a bankruptcy debt. (2) An account shall be taken of what is due from each party to the other in respect of the mutual dealings and the sums due from one party shall be set off against the sums due from the other. (3) . . . (4) Only the balance (if any) of the account taken under subsection (2) is provable as a bankruptcy debt, or, as the case may be, to be paid to the trustee as part of the bankrupt’s estate.”
Bankruptcy set-off compared with statutory legal set-off.
Section 323 is the latest in a line of bankruptcy set-off provisions which go back to the time of Queen Anne. As it happens, legal set-off between solvent parties is also based upon statutes of Queen Anne. But the two forms of set-off are very different in their purpose and effect. Legal setoff does not affect the substantive rights of the parties against each other, at any rate until both causes of action have been merged in a judgment of the court. It addresses questions of procedure and cash-flow. As a matter of procedure, it enables a defendant to require his cross-claim (even if based upon a wholly different subject-matter) be tried together with the plaintiff’s claim instead of having to be the subject of a separate action. In this way it ensures that judgment will be given simultaneously on claim and cross-claim and thereby relieves the defendant from having to find the cash to satisfy a judgment in favour of the plaintiff (or, in the 18th century, go to a debtor’s prison) before his cross-claim has been determined.
Bankruptcy set-off, on the other hand, affects the substantive rights of the parties by enabling the bankrupt’s creditor to use his indebtedness to the bankrupt as a form of security. Instead of having to prove with other creditors for the whole of his debt in the bankruptcy, he can set off pound for pound what he owes the bankrupt and prove for or pay only the balance. So in Forster v. Wilson (1843) 12 M. & W. 191, 204, Parke B. said that the purpose of insolvency set-off was “. . . to do substantial justice between the parties. …” Although it is often said that the justice of the rule is obvious, it is worth noticing that it is by no means universal. (Wood, on English and International Set-Off (1989), paras. 24-49 to 24-56. It has however been part of the English law of bankruptcy since at least the time of the first Queen Elizabeth, (op. cit.. para. 7-26.)
Legal set-off is confined to debts which at the time when the defence of set-off is filed were due and payable and either liquidated or in sums capable of ascertainment without valuationor estimation. Bankruptcy set-off has a much wider scope. It applies to any claim arising out of mutual credits or other mutual dealings before the bankruptcy for which a creditor would be entitled to prove as a “bankruptcy debt.” This is defined by section 382 of the Insolvency Act 1986 to mean:
“(1) . . . any of the following (a) any debt or liability to which he is subject at the commencement of the bankruptcy (b) any debt or liability to which he may become subject after the commencement of the bankruptcy (including after his discharge from bankruptcy) by reason of any obligation incurred before the commencement of the bankruptcy. . . (3) For the purposes of references in this Group of Parts to a debt or liability, it is immaterial whether the debt or liability is present or future, whether it is certain or contingent or whether its amount is fixed or liquidated, or is capable of being ascertained by fixed rules or as a matter of opinion: and references in this Group of Parts to owing a debt are to be read accordingly.”
Taking the account under section 323
Bankruptcy set-off therefore requires an account to be taken of liabilities which, at the time of bankruptcy, may be due but not yet payable or may be unascertained in amount or subject to contingency. Nevertheless, the law says that the account shall be deemed to have been taken and the sums due from one party set off against the other as at the date of the bankruptcy. This is in accordance with the general principle of bankruptcy law, which governs payment of interest, conversion of foreign currencies etc., that the debts of the bankrupt are treated as having been ascertained and his assets simultaneously distributed among his creditors on the bankruptcy date: see In re Dynamics Corporation of America [1976] 1 W.L.R. 757, 762. It is clear, therefore, that when section 323(2) speaks of taking an account of what is “due” from each party, it does not mean that the sums in question must have been due and payable, whether at the bankruptcy date or even the date when the calculation falls to be made. The claims may have been contingent at the bankruptcy date and the creditor’s claim against the bankrupt may remain contingent at the time of the calculation, but they are nevertheless included in the account. I consider next how this is done.
Quantifying the cross-claims
How does the law deal with the conundrum of having to set off, as of the bankruptcy date, “sums due” which may not yet be due or which may become owing upon contingencies which have not yet occurred? It employs two techniques. The first is to take into account everything which has actually happened between the bankruptcy date and the moment when it becomes necessary to ascertain what, on that date, was the state of account between the creditor and the bankrupt. If by that time the contingency has occurred and the claim has been quantified, then that is the amount which is treated as having been due at the bankruptcy date. An example is Sovereign Life Assurance Co. v. Dodd [1892] 2 Q.B. 573, in which the insurance company had lent Mr. Dodd £1,170 on the security of his policies. The company was wound up before the policies had matured but Mr. Dodd went on paying the premiums until they became payable. The Court of Appeal held that the account required by bankruptcy set-off should set off the full matured value of the policies against the loan.
But the winding up of the estate of a bankrupt or an insolvent company cannot always wait until all possible contingencies have happened and all the actual or potential liabilities which existed at the bankruptcy date have been quantified. Therefore the law adopts a second technique, which is to make an estimation of the value of the claim. Section 322(3) says:
“The trustee shall estimate the value of any bankruptcy debt which, by reason of its being subject to any contingency or contingencies or for any other reason, does not bear a certain value.”
This enables the trustee to quantify a creditor’s contingent or unascertained claim, for the purposes of set-off or proof, in a way which will enable the trustee safely to distribute the estate, even if subsequent events show that the claim was worth more. There is no similar machinery for quantifying contingent or unascertained claims against the creditor, because it would be unfair upon him to have his liability to pay advanced merely because the trustee wants to wind up the bankrupt’s estate.
The occasion for taking the account
In what circumstances must the account be taken? The language of section 323(2) suggests an image of the trustee and creditor sitting down together, perhaps before a judge, and debating how the balance between them should be calculated. But the taking of the account really means no more than the calculation of the balance due in accordance with the principles of insolvency law. An obvious occasion for making this calculation will be the lodging of a proof by a creditor against whom the bankrupt had a cross-claim. Indeed, it might have been thought from the words “any creditor of the bankrupt proving or claiming to prove from a bankruptcy debt” in section 323(1) that the operation of the section actually depended upon the lodging of a proof. But it has long been held that this is unnecessary and that the words should be construed to mean “any creditor of the bankrupt who (apart from section 323) would have been entitled to prove for a bankruptcy debt”. Thus the account to which section 323(2) refers may also be taken in an action by the trustee against a creditor who, because his cross-claim does not exceed that of the trustee, has not lodged a proof: see Mersey Steel and Iron Co. v. Naylor Benzon & Co. (1882) 9 Q.B.D. 648 and In re Daintrey [1900] 1 Q.B. 546, 568.
Once one has eliminated any need for a proof in order to activate the operation of the section, it ceases to be linked to any step in the procedure of bankruptcy or litigation. This is a sharp contrast with legal set-off, which can be invoked only by the filing of a defence in an action. Section 323, on the other hand, operates at the time of bankruptcy without any step having to be taken by either of the parties. The “account” in accordance with section 323(2) must be taken whenever it is necessary for any purpose to ascertain the effect which the section had. This is shown most clearly by the Australian case of Gye v. Mclntyre (1991) 171 C.L.R. 609. In 1980 Gye, Perkes and three others bought a hotel in New South Wales from a company for $ 1.25m. For this purpose they borrowed $200,000 from Mrs Mclntyre, who was the company’s tenant. The business was a failure and in June 1982 Mrs Mclntyre obtained judgment by default for $224,000 in respect of her loan, interest and costs. Execution was stayed while Gye and Perkes pursued an action for damages against Mrs Mclntyre for having fraudulently induced them to buy the hotel from the company by overstating its profits. In 1985 both Gye and Perks entered into binding compositions with their creditors under which they assigned certain assets and promised certain payments to a trustee for the benefit of their creditors. The assigned assets did not include the benefit of the action against Mrs Mclntyre and she did not prove as a creditor in either composition. In 1988 the action against Mrs Mclntyre was successful and Gye and Perks obtained judgment in the sum of $214,600. They claimed a declaration that she was not entitled to set off the 1982 judgment, for which she could have proved in the compositions. The Australian Bankruptcy Act 1966 provides, if I may paraphrase in English terminology, that bankruptcy set-off shall apply in a composition as if a bankruptcy order had been made on the day on which the resolution accepting the composition was passed and the trustee of the composition was the trustee in bankruptcy.
It will be observed that in this case the creditor was neither seeking to prove nor being sued by the trustee in bankruptcy. The issue was the effect which the deemed bankruptcy had had upon a claim which had never passed to the deemed trustee and which was later litigated between the bankrupt and the creditor. The High Court of Australia held that bankruptcy set-off applied. The judgment of the court said, at p. 622:
“Section [323] is a statutory directive (‘shall be set off) which operates as at the time the bankruptcy takes effect. It produces a balance upon the basis of which the bankruptcy administration can proceed. Only that balance can be claimed in the bankruptcy or recovered by the trustee. It its operation is to produce a nil balance, its effect will be that there is nothing at all which can be claimed in the bankruptcy or recoverec :n proceedings by the trustee. The section is self-executing in the sense that its operation is automatic and not dependent upon ‘the option of either party’: see, per Lord Selborne L.C. in In re Deveze; Ex parte Barnett (1874) 9 Ch. App. 293, 295.”
The court noted the majority decision of this House in National Westminster Bank Ltd v. Halesowen Presswork & Assemblies Ltd [1972] A.C. 785 that the application of section 323 is mandatory in the sense that it cannot be excluded by prior agreement of the parties. But it said that whether or not it could be excluded by agreement, its operation did not depend upon any procedural step. If, for example, the cross-claims produced a nil balance, one would hardly expect either the creditor to prove or the trustee to sue. But there could be no doubt that if the question subsequently needed to be decided, the two claims would be treated as having extinguished each other. The court said:
“Even if one were to accept the dissenting view of Lord Cross of Chelsea in the National Westminster Case [1972] A.C. 785, 813-818 to the effect that the otherwise automatic operation of a provision such as [section 323] may be excluded by an antecedent agreement, it would be wrong to attribute to the legislature the illogical intent that a directive which was intended to be otherwise automatic in its operation and to apply in circumstances where set-off produced a nil balance should not operate at all unless and until either the bankrupt’s creditor saw fit to exercise the option of lodging a formal proof of debt or the trustee in bankruptcy instituted proceedings for recovery of a debt due to the bankrupt.”
Do the causes of action survive?
The principles so far discussed should provide an answer to the first of the issues in this appeal, namely, whether if A, against whom B has a cross-claim, becomes bankrupt, A’s claim against B continues to exist as a chose in action so that A’s trustee can assign it to a third party. In my judgment the conclusion must be that the original chose in action ceases to exist and is replaced by a claim to a net balance. If the set-off is mandatory and self-executing and results, as of the bankruptcy date, in only a net balance being owing, I find it impossible to understand how the cross-claims can, as chooses in action, each continue to exist.
This was the conclusion of Neill J. in Farley v. Housing & Commercial Developments Ltd [1984] B.C.L.C. 442. Mr. Farley was the principal shareholder in W. Farley & Co. (Builders) Ltd, which in 1972 had entered into two agreements with the defendant company to build blocks of flats. Both led to disputes, with claims by the building company for money due under the contracts and cross-claims by the defendant for damages. In 1975 the building company went into insolvent liquidation. In 1979 the liquidator purported to assign to Mr. Farley the benefit of the agreements and all moneys payable thereunder. Mr. Farley then commenced arbitration proceedings under the agreements. The arbitrator stated a special consultative case (p. 447) asking:
“(1) Whether by reason of the provisions of [the then equivalent of section 323 as applied to companies] upon the contractor becoming insolvent and being wound up . . . the debts due under the [two agreements] ceased to have a separate existence as chooses in action (and thus thereafter could not be assigned) being replaced by a balance of account under [section 323].”
Neill J. answered in the affirmative. I think that he was right. The cross-claims must obviously be considered separately for the purpose of ascertaining the balance. For that purpose they are treated as if they continued to exist. So, for example, the liquidator or trustee will commence an action in which he pleads a claim for money due under a contract and the defendant will counterclaim for damages under the same or a different contract. This may suggest that the respective claims actually do continue to exist until the court has decided the amounts to which each party is entitled and ascertained the balance due one way or the other in accordance with section 323. But the litigation is merely part of the process of retrospective calculation, from which it will appear that from the date of bankruptcy, the only chose in action which continued to exist as an assignable item of property was the claim to a net balance.
The reasoning of the Court of Appeal.
The Court of Appeal took the view that Farley was wrong and that the separate causes of action survived the bankruptcy and could be assigned, subject to the “equity” of the bankruptcy set-off. My Lords, the notion of an assignment subject to equities looks plausible when one is dealing with an assignment of the only claim which the bankrupt has against a creditor. In such a case it produces the same result as an assignment of the net balance. But the fallacy is exposed if the bankrupt has more than one claim. Take, for example, the two contracts in Farley’s case and assume that the liquidator at first assigns only one to Mr. Farley. If each contract continues to exist as a chose in action, each can be the subject of a legal assignment. Mr. Farley sues on his contract and by way of defence the defendants plead counterclaims for damages under both contracts. The court decides that the damages exceed the sums due under the contract and dismisses the action. The liquidator then assigns the other contract to Mrs Farley. She is not bound by the decision in her husband’s case and the defendant would have to plead and prove its counterclaims all over again. The account envisaged by section 323 would have to be taken twice (with possibly differing results) when the section plainly contemplates a single calculation.
The argument for the plaintiff, which was recorded and accepted by Balcombe L.J. in the Court of Appeal [1994] Ch. 16, 22, began with the proposition that “Nothing in the wording of section 323 changes the nature of set-off as it operates between solvent parties; it merely widens the categories of claim capable of being, and which must be, set off.” I hope I have demonstrated that this submission is fundamentally wrong. It is true that bankruptcy set-off does cover a much wider range of claims than legal set-off. But for present purposes the important difference is that the latter must be pleaded and is given effect only in the judgment of the court, whereas the latter is self-executing and takes effect on the bankruptcy date.
Secondly it was submitted for the plaintiff (pp. 22-23) that “the language of the section draws a distinction between what is due – which is the word used in subsections (2) and (3) – and what is payable or recoverable – as under subsection (4). The separate causes of action (claim and cross-claim) remain due, and do not cease to exist, until the set-off has been completed by payment one way or the other.” This argument is derived, via Derham on Set-Off (1987), p. 74, from a dictum of Mason J. in Day & Dent Constructions (Pty) Ltd v. North Australian Properties (Pty) Ltd (1982) 150 C.L.R. 85. The learned judge said that “due” in the Australian equivalent of section 323(2) meant due at the date when the account had to be taken and he relied upon this construction to explain why a creditor should be entitled to set off a debt which was contingent at the bankruptcy date. I would respectfully disagree because I think that “due” merely means treated as having been owing at the bankruptcy date with the benefit of the hindsight and, if necessary, estimation prescribed by the bankruptcy law. The valuationprovision in section 322(3) shows that the contingency need not have occurred even at the time when the account has to be taken. But the point was not necessary for the decision and was in any case addressing the question of what obligations should be taken into account in arriving at the net balance rather than whether those obligations survived as chooses in action.
Thirdly, Balcombe L.J. placed much weight upon a dictum of Brett J. in New Quebrada Co. Ltd v. Can (1869) L.R. 4 C.P. 651, 653-654. This was an action by a company in liquidation for calls against three partners, joint owners of shares in a company. The plea was a set-off of a debt alleged to be owing by the company to the shareholders. It is important to bear in mind that this was pleaded as a legal set-off under the Statutes of Set-off, not a bankruptcy set-off arising on the liquidation of the company. Bankruptcy set-off did not apply to company liquidations until the Judicature Act 1875. It was therefore essential that the debt relied upon as set-off should have been legally actionable by the defendants. The replication was that after the action had been brought and before the plea, one of the partners had become bankrupt and his interest in the company’s alleged debt had vested in his assignee. It had therefore ceased to be actionable by him. There was a demurrer to this replication. In support of the demurrer it was argued that the bankrupt’s share in the debt had not vested in his trustee because under section 171 of the Bankruptcy Act 1849 (the then equivalent of section 323 of the Insolvency Act 1986) it was on his bankruptcy automatically set off against the calls due to the company. Bovill C.J., applying an earlier decision, disposed of the case on the ground that section 171 applied only to a sole trader and not to one partner in a firm. Byles J. and Montague Smith J. agreed. Brett J. also agreed, but went on to consider obiter what the effect of section 171 would have been if the bankrupt had been a sole trader. In his view, the debt owing to the bankrupt would have vested in his trustee and therefore ceased to be actionable by the bankrupt. Having so vested, it would then have been liable to be set off in the bankruptcy against the company’s claim to prove for calls. He added:
“[Section 171] does not, I think, extinguish the mutual debts, but if it did, I should have thought it would have answered the plea of set-off. In either view I think it does not leave a right of action in the bankrupt against the plaintiffs, and that he cannot, therefore, avail himself of his claim against the plaintiffs under an ordinary plea of set-off, and that, on the present pleadings and argument, it seems to me, is all we have to decide.”
It should be noticed that section 171 of the Bankruptcy Law Consolidation Act 1849 (12 & 13 Vict. c. 106) said that “one debt or dema d may be set against another”, as opposed to the words “the sum due from tne one party shall be set off against any sum due from the other party” which were used in the equivalent section [section 39] of the Bankruptcy Act 1869 (32 & 33 Vict. c. 71) and all its successors. It is therefore perhaps not surprising that the mandatory and self-executing nature of the set-off was not as fully apparent under the Act of 1849 as it is today. At any rate, I do not think that despite the eminence of its author, this somewhat throw-away dictum on the Bankruptcy Act 1849 can be regarded as authoritative on the construction of section 323 of the Insolvency Act 1986.
Can the net balance be assigned?
The next question is whether the trustee can assign the net balance. (I should mention that the question was not put to Neill J. in Farley v. Housing & Commercial Developments Ltd. [1987] B.C.L.C. 442.) The duty of the trustee under section 305(2) is to realise the bankrupt’s estate and the right to the net balance is part of the property of the bankrupt vested in the trustee. One method of realisation is to transfer or assign the individual assets for value. In Ramsey v. Hartley [1977] 1 W.L.R. 686 the Court of Appeal, following authority which went back more than a century, held that even a bare right of action was property which the trustee was entitled to assign. His statutory duty to realise the estate excluded the doctrines of maintenance and champerty which would otherwise have struck down such an assignment. Likewise, there is no rule to prevent him from assigning such a right of action to the bankrupt himself. So why should a trustee not assign the right to the net balance?
Mr. Mark, for the appellant, says that the right cannot be assigned until the balance has been quantified by the account taken under section 323. The reason, he says, is that the trustee must be party to the taking of that account. Bankruptcy set-off is, as Lord Simon of Glaisdale said in National Westminster Bank Ltd v. Halesowen Presswork & Assemblies Ltd [1972] A.C. 785, 809, part of a “code of procedure whereby bankrupts’ estates … are to be administered in a proper and orderly way.” So, for example, section 322(3) (which I have already quoted) requires that the value of a contingent or otherwise unascertained debt to be estimated by the trustee.
I think that this submission of Mr. Mark is wrong for the same reasons that persuaded me that his submission on the first issue was right. If bankruptcy set-off is self-executing, it does not require the trustee or anyone else to execute it. The argument gives too literal a meaning to the notion of taking an account. The case of Gye v. Mclntyre (1991) 171 C.L.R. 609 shows the account being taken in proceedings to which the trustee was not a party. It is true that the situation arose because in a composition, the parties are able to decide which property should vest in the trustee and could exclude the claim against Mrs Mclntyre. In the case of a bankruptcy, vesting is determined by the law. But for present purposes I can see no logical distinction between a case in which the trustee assigns the right to the net balance and one in which the bankrupt’s claim, though subject to bankruptcy set-off, did not vest in him in the first place.
It is true that the trustee will ordinarily not be party to the action between assignee and creditor. So if the creditor is asserting that there is actually a net balance in his favour for which he is entitled to prove, a successful outcome of the action will not, as a matter of res judicata, oblige the trustee to allow his proof. But there is no reason why a defendant should not, with leave, join the trustee as a defendant to his counterclaim. Even if the action had been brought by the trustee, the creditor would have needed the leave of the court to make a counterclaim. In these circumstances, there seems to me little additional inconvenience in having to add the trustee as a party. I would therefore hold that a trustee may assign the right to the net balance like any other chose in action.
Questions of construction.
Did the actual deed executed by the trustee have the effect of carrying the net balance? That is a question of construction. If a trustee purports to assign the bankrupt’s rights in a cheque for £10,000, it would be absurd to hold that the deed has no effect because it turns out that the drawer of the cheque has some small counterclaim against the bankrupt. The intention of the parties is clear enough. If the assignment would have carried the original cause of action, it will also, as a matter of conveyance, carry the right to the balance after deduction of the cross-claim. Whether the assignee would have any claim against the trustee for having purported to assign a greater interest than he actually had need not here be considered.
There is greater difficulty if the trustee has assigned less than the net balance, i.e. to have kept back some credit item in the calculation. This would be an assignment of a part of a debt. On ordinarily principles it would not be enforceable in proceedings to which the trustee was not a party. Only if the trustee joined as a plaintiff could the single account envisaged by section 323 be taken.
In this case the deed of assignment of 4 April 1991 recited that the trustee had agreed with the bankrupt for the assignment to him of:
“such claims and legal rights of action as are hereinafter mentioned which the trustee as trustee in bankruptcy of the assignee may have against [the defendant]”
The operative part said in clause 1 that the trustee assigned to the bankrupt:
“such claim or claims against Mr. Blake as the Trustee may have as trustee in the bankruptcy of the assignee as presently formulated, or as amended by counsel with the Trustee’s approval, based only on the facts pleaded in consolidated action number Ch. 1989 S-8148 and 1988 S-4555 (“the Claim”) to the intent that the assignee shall be entitled (subject as hereinafter mentioned) to such monies as Mr. Blake may be to the Assignee in settlement of the Claim.”
By clause 6 (ii) the parties agreed, for the avoidance of doubt, that:
“nothing in this agreement shall affect the Trustee’s right to take action against Mr. Blake if so advised in relation to matters not arising out of the facts other than those pleaded in the aforesaid consolidated action.”
My Lords, the fact that the assignment makes no express reference to the defendant’s cross-claim is, for the reasons I have given, no obstacle to holding the assignment effective to carry whatever balance is due after its deduction. But if the effect of this last clause was that the trustee retained a part of his claim to the net balance against Mr. Blake, then in my judgment the action would not have been properly constituted until the trustee had been added as a party. Mr. Blake could not be put in a position in which he had to raise the same cross-claim in two sets of proceedings. His remedy would have been to apply to have the action stayed until the trustee had been added. Before your Lordships’ House, however, Mr. Bannister Q.C. for the plaintiff said that the trustee asserted no other causes of action against Mr. Blake. He is willing to make it clear that he is assigning the whole of the net balance due to the bankrupt’s estate. In these circumstances it is unnecessary to discuss further the question of what might have happened if there had been an application for a stay on the grounds that the proceedings were not properly constituted. The application to which the judge actually acceded was to dismiss the action on the ground that Mr. Stein had no title to sue. For the reasons which I have given, which I think were the alternative reasons of Staughton L. J., the Court of Appeal was in my judgment right to hold that the judge’s order could not be supported. I would therefore dismiss this appeal.
The wider issues.
I should add in conclusion that although the appeal may have turned on a somewhat technical question, it is a symptom of a wider problem. Although Mr. Mark argued that it was inconvenient and unjust for the account under section 323 should be taken between him and Mr. Stein, rather than between him and the trustee, he frankly admitted that his main grievance was that despite the bankruptcy, he was still being pursued by Mr. Stein with the benefit of legal aid. But he acknowledged that this complaint would have been the same if there had been no counterclaim and the case had not fallen within section 323 at all.
It is a matter of common occurrence for an individual to become insolvent while attempting to pursue a claim against someone else. In some cases, the bankruptcy will itself have been caused by the failure of the other party to meet his obligations. In many more cases, this will be the view of the bankrupt. It is not unusual in such circumstances for there to be a difference of opinion between the trustee and the bankrupt over whether a claim should be pursued. The trustee may have nothing in his hands with which to fund litigation. Even if he has, he must act in the interests of creditors generally and the creditors will often prefer to receive an immediate distribution rather than see the bankrupt’s assets ventured on the costs of litigation which may or may not yield a larger distribution at some future date. The bankrupt, with nothing more to lose, tends to take a more sanguine view of the prospects of success. In such a case the trustee may decide, as in this case, that the practical course in the interests of all concerned (apart from the defendant) is to assign the claim to the bankrupt and let him pursue it for himself, on terms that he accounts to the trustee for some proportion of the proceeds.
It is understandable that a defendant who does not share the bankrupt’s view of the merits of the claim may be disappointed to find that notwithstanding the bankruptcy, which he thought would result in a practical commercial decision by an independent trustee to discontinue the proceedings, the action is still being pursued by the bankrupt. His disappointment is increased if he finds that the bankrupt as plaintiff in his own name has the benefit of legal aid which would not have been available to the trustee. Similar considerations apply to an assignment of a right of action by the liquidator of an insolvent company to a shareholder or former director. In such a case there is the further point that the company as plaintiff can be required to give security for costs. The shareholder assignee as an individual cannot be required to give security even if (either because he does not qualify or the Legal Aid Board considers that the claim has no merits) he is not in receipt of legal aid.
I mention these questions because they were alluded to by Mr. Mark as a policy reason for why the courts should be restrictive of the right of bankruptcy trustees or liquidators to assign claims. But the problems can be said to arise not so much from the law of insolvency as from the insoluble difficulties of operating a system of legal aid and costs which is fair to both plaintiffs and defendants. Mr. Blake is in no worse position now that he was before the bankruptcy when Mr. Stein was suing him with legal aid (although this would not have been the case if the plaintiff had been a company.) Mr. Blake’s complaint is that the bankruptcy has brought him no relief. But whether it should seems to me a matter for Parliament to decide.
Stein (A.P.) (Respondent) v. Blake (Appellant)
JUDGMENT
Die Jovis 18° Maii 1995
Upon Report from the Appellate Committee to whom was referred the Cause Stein against Blake, That the Committee had heard Counsel as well on Monday the 3rd as on Tuesday the 4th days of April last upon the Petition and Appeal of David Blake of 2 Ordnance Hill, St. John’s Wood, London NW8, praying that the matter of the Order set forth in the Schedule thereto, namely an Order of Her Majesty’s Court of Appeal of the 5th day of May 199 3, might be reviewed before Her Majesty the Queen in Her Court of Parliament and that the said Order might be reversed, varied or altered or that the Petitioner might have such other relief in the premises as to Her Majesty the Queen in Her Court of Parliament might seem meet; as upon the case of Allan Stein lodged in answer to the said Appeal; and due consideration had this day of what was offered on either side in this Cause:
It is Ordered and Adjudged, by the Lords Spiritual and Temporal in the Court of Parliament of Her Majesty the Queen assembled, That the said Order of Her Majesty’s Court of Appeal of the 5th day of May 1993 complained of in the said Appeal be, and the same is hereby, Affirmed and that the said Petition and Appeal be, and the same is hereby, dismissed this House: And it is further Ordered, That the Appellant do pay or cause to be paid to the said Respondent the Costs incurred by him in respect of the said Appeal to this House, the amount thereof to be certified by the Clerk of the Parliaments if not agreed between the parties: And it is also further Ordered. That the costs of the Respondent be taxed in accordance with the Legal Aid Act 1988.
Cler: Parliamentor:
Murphy v. Revenue Commissioners
[1976] IR 15
Kenny J.
Harrex Ltd. was incorporated in the Republic of Ireland on the 15th September, 1954, and carried on business as manufacturers of handbags. On the 13th March, 1959, the company executed a mortgage debenture in favour of the National Bank Ltd. by which the company demised to the bank the lands described in the schedule to the deed for the residue of the term of years for which the lands were held; the company also assigned to the bank the fixed plant, machinery and fixtures and charged “by way of floating security in favour of the bank all their undertaking and assets whatsoever, both present and future” with the payment of sums thereby secured. The mortgage debenture also provided that the bank, at any time after it had demanded payment of the moneys due, might appoint in writing a receiver of the property and assets thereby charged; the debenture provided that the receiver should be the agent of the company, that he was to have power to take possession of and collect the property charged by the debenture, and that he was to carry on the business of the company. On the 2nd January, 1968, the applicant was appointed receiver of all the assets of the company, and on the 8th March, 1968, the company permanently discontinued its trade. At the time when the receiver was appointed the company owed the respondents the sum of £2,841 for corporation profits tax, turnover tax. wholesale tax and interest.
Section 311 of the Income Tax Act, 1967, provides that where a trade is permanently discontinued and any person carrying it on has sustained in it a loss (called a terminal loss in the section), he may claim that the amount of that loss is to be set off or deducted from the profits on which he has been charged to income tax under Schedule D in respect of the trade for the three years of assessment preceding that in which the discontinuance occurred. The company’s terminal loss was agreed at £7,781 but the respondents claim to be entitled to set off the £2,841 against it. The applicant disputes their right to do so and he has now brought these proceedings in which he asks the Court to decide whether the respondents are entitled to the set-off which they have claimed.
The terminal loss was a future asset of the company and so was charged with the sum due to the bank; and so when the loss arose on the 8th March, 1968, there was an immediate equitable assignment of it to the bank. The effect of the appointment of a receiver is that property comprised in the floating charge is thereby assigned in equity to the debenture holder. Set-off is now governed by s. 27, sub-s. 3, of the Supreme Court of Judicature Act (Ir.), 1877, which provides in effect that where there are mutual debts between the plaintiff and the defendant one debt may be set off against the other. The applicant’s argument is that these were not mutual debts because the moneys claimed by the respondents were due when the receiver was appointed in January, 1968, while the claim for payment arising out of the terminal loss did not arise until March. 1968. I think that the assignment of the future assets of the company in January, 1968, was subject to the right of any creditor to whom a debt was then due to set it off against the sum which that future asset might realise and that the contention of the respondents is correct. I think this is the correct view on principle and that it is supported by the reported cases.
In Biggerstaff v. Rowatt’s Wharf Ltd. 4 the defendant company had issued a series of debentures charging their assets with payment of the amount secured. On the 1st November, 1893, a firm called Harvey, Brand & Co. had bought from the defendants 7,000 barrels at 3/6d. each and paid for them. On the 30th October, 1894, a receiver was appointed over the assets of the defendant company by the court; at that date 2,784 barrels only had been delivered. Harvey, Brand & Co. owed rent to the defendant company and they claimed that they were entitled to set off the amount due for barrels undelivered against the rent. The Court of Appeal in England decided that the amount due for the barrels not delivered was an ascertained sum. that there had been a total failure of consideration which entitled Harvey. Brand & Co. to get the price back and that a right of set-off existed. In the course of his judgment, Kay L.J. said at p. 105 of the report:”It is true that as against an assignee there can be no set-off of a debt accrued after the person claiming set-off has notice of the assignment . . . I think that if at the time of the assignment there was an inchoate right to set-off it can be asserted after the assignment, for the assignment is subject to the rights then in existence. The question is whether the assignment took place at the issue of the debentures or at the appointment of a receiver. The debentures contain provisions the effect of which is that the company is at liberty to go on with its business as if the debentures did not exist. until possession is taken under them. From that time the company cannot deal with its assets as against the title of the debenture-holders; up to that time it can deal with them in every legitimate way of business. Therefore the date to be regarded is the time of taking possession . . . There was an inchoate right of set-off at the time when the receiver was appointed; and that, and not the time of issuing the debentures, is the time to be looked to. The debentures must be regarded as incomplete assignments which do not become complete until the time when the receiver is appointed.”
In N. W. Robbie & Co. Ltd. v. Witney Warehouse Co. Ltd. 5 the plaintiff company, which was incorporated in the Republic of Ireland, issued a debenture to the Bank of Ireland securing all moneys due from time to time by a floating charge on their assets. Between the 24th May, 1961, and the 6th July, 1961, the plaintiff company sold goods on credit to the defendants at a price of £95. On the 6th July, 1961, the bank appointed a receiver of the property included in the debenture. After the 6th July, 1961, the plaintiff company, with the approval of the receiver, sold goods, which had been part of their stock on that date, to the defendants for £1,251. As these goods formed part of the assets of the plaintiff company at the date when the receiver was appointed, the floating charge had attached to them. Between November, 1960, and the end of January, 1961, the plaintiff company had bought goods on credit from a third company, a subsidiary of the same parent company as the defendants, and £852 was due for these. On the 6th October, 1961, the benefit of this debt of £852 was assigned to the defendants and notice of the assignment was given to the plaintiffs. When the plaintiffs sued the defendants for the £95 and £1,251, the defendants sought to set off the debt of £852. This claim failed because the debts of £95 and of £1,251 became assigned in equity to the debenture-holder before the debt of £852 had been assigned to the defendants and there was, therefore, no mutuality of debts.
In the course of his judgment, Russell L.J. said at p. 1338 of the report:”Thus far, in my judgment, by force of the debenture charge an equitable charge attached in favour of the debenture-holders not only on the £95 debt existing at the date of the appointment of the receiver and manager, but also upon the other debts constituting the total of £1,346 as they came into existence on delivery of goods to the defendants after such appointment. These choses in action belonging to the company became thus assigned in equity to the debenture-holders, at times when the defendants had no cross-claim of any kind against the company and consequently no right of set-off. Before the defendants acquired by assignment this cross-claim the defendants must be fixed with knowledge of this equitable assignment to the debenture-holders (by way of charge) of the debt owed by the defendants to the company. A debtor cannot set off his claim against X against a claim by X against him which the debtor knows has been assigned by X to Y before the debtor’s claim arose. Just as an assignee of a chose in action takes subject to an already existing right of set-off, so a debtor with no existing right of set-off cannot assert set-off of a cross-claim which he first acquires after he has notice of the assignment of the claim against him . . .” In the present case, at the date of the appointment of the receiver there was an existing right of set-off for the Revenue debts then due.
Rother Iron Works Ltd. v. Canterbury Precision Engineers Ltd. 6, which is a decision of the Court of Appeal in England. has a close resemblance in its facts to the present case. In August, 1971, the plaintiff company executed a mortgage debenture in favour of its bank: it contained a floating charge on all the assets, present and future, of the company and power to appoint a receiver. On the 4th October, 1971, the plaintiff company owed the defendants £124 for goods sold. Between the 4th and 18th October, 1971, the plaintiff company contracted to sell to the defendants goods at a price of £159. On the 21st October, before this contract had been carried out, the bank appointed a receiver. The goods ordered by the defendants were delivered to them on the 3rd November. The plaintiff company brought an action for £159 and claimed that the defendants were not entitled to set off the £124 because the debt of £159 had arisen when the goods were delivered and after the charge had crystallised and so, they said, the debts were not mutual. It was held that the appointment of the receiver operated as an equitable assignment of the plaintiff company’s rights under the contract for the purchase by the defendants of goods, but that these were always subject to the defendants’ right to assert a set-off of £124 and that the debenture-holder could not be in a different or better position than the plaintiff company.
In the present case the debt due to the respondents was in existence when the receiver was appointed, and so the equitable assignment of the future asset (the right to payment of a terminal loss) was always subject to the right of set-off. In my opinion, the respondents are entitled to set off
In the Matter of Siobhan Mullee Bankruptcy
[2012] IEHC 275
Mr. Justice Gilligan delivered the 3rd day of February, 2012
1. The same situation applies in respect of a petition for arrangement by Dominic Mullee, the petitioner’s husband, in proceedings bearing Record No. 2330 AD.
2. Three issues arise for determination before the court following upon the earlier judgment as delivered herein on the 14th December, 2011. The first issue relates to the amount of the debt due pursuant to the guarantees as referred to in the earlier judgment, and in particular the amount of interest which the bank is entitled to on the basis that the arranging debtor contends that no interest is due on the debt after the date of the order of protection, which in this instance is the 22nd March, 2010, as under the Bankruptcy Rules such is interest is only calculable up to the date of the granting of protection. The arranging debtor relies on a passage from Forde & Simms: “Bankruptcy Law” Round Hall 2009 at p. 137, paras. 8- 11 wherein in it is stated:-
“Interest cannot be recovered in respect of the period following adjudication which causes some injustice in periods of very high interest rates and where the administration of insolvent estate takes a long time. As Costello J. said in a company liquidation case:-
‘It has long been established that in the case of an insolvent company which is being wound up, creditors whose debts carry interest are entitled to dividends only upon what was due for principal and interest at the commencement of the winding up and interest ceases to run from that date.’
This is rule is confirmed by the 1988 Act and is extended to any other financial “consideration in lieu of interest”.”
3. Mr. Jennings on behalf of the arranging debtor relies on s. 75(2) of the Bankruptcy Act 1988, in support of this proposition. In particular, making reference to the fact that the issue has been clarified by s. 75(2) which has recently been substituted by a new s. 75(2) by s. 30(f) of the Civil Law (Miscellaneous Provisions) Act 2011 (No. 23 of 2011) with effect from the 2nd August, 2011, in providing:-
“(2) Where interest or any pecuniary consideration in lieu of interest is reserved or agreed for on a debt which is overdue at the date of adjudication or order for protection the creditor shall be entitled to prove or be admitted as a creditor for such interest or consideration up to the date of adjudication or order for protection.”
4. Mr. Jennings contends that the bank is claiming almost eight months of additional interest to which it is not entitled. While no exact figure is available the arranging debtor estimates that the overcharging of interest by the bank runs to a sum in the region of €130,000.00.
5. The second issue that arises is in respect of the fact that the bank has altered its position from the content of the grounding affidavit of debt of November, 2010 and that in effect the bank has subsequently obtained further valuation reports in April, June and September, 2011 and exhibited these in affidavits wherein it sought to amend its claim to reflect the falling value of its security and accordingly, amend its valuation and proof.
6. Mr. Jennings contends that the bankruptcy rules make specific provision for amending valuations and proofs and the bank has failed to follow this procedure. Section 24(5) of the first schedule of the Bankruptcy Act 1988, sets out the circumstances in which a creditor may amend its valuation and proof in stating as follows:-
“Where a creditor has valued his security he may at any time amend the valuation and proof on showing to the satisfaction of the official assignee, or the court, that the valuation and proof were made bona fide on a mistaken estimate, but every such amendment shall be made at the cost of the creditor and upon such terms as the court shall order, unless the official assignee allows the amendment without application to the court.”
7. In essence Mr. Jennings contends that amended valuations were put in moving down the line which reflected the falling values of the company’s profit assets and no order of the court was sought or granted to reflect the fluctuations of the property market generally.
8. Reliance is placed on the decision of Budd J. in In Re Michael Clenaghan a Bankrupt [1961], 95 ILTR at p. 89. Mr Jennings contends that the valuations of November, 2010 are the correct valuations to be used for the purpose of assessing the amount due and owing to the bank, and that the bank simply cannot moving down the line keep putting in further valuations reflecting a fall in property prices.
9. The third issue that arises is in respect of the estimated legal costs involved in litigation as taken by the bank as against the solicitors who acted on behalf of the company Mullee Properties Limited in respect of various property transactions. Mr. Jennings quite candidly does not dispute the amount of the estimated legal costs, but takes the view that they may be “a bit on the high side” and relies on the discretion of the court to reduce these somewhat.
10. Ms. Kelly Smith on behalf of the bank contends that s. 75(1) of the Bankruptcy Act 1988, makes clear that the nature and extent of the debts capable of being proved is extremely wide so as to encompass contractual interest. In this case she contends that the right to contractual interest has accrued and that s. 75(2) of the Bankruptcy Act 1988, is quite clear in providing for the banks entitlement to the appropriate interest as due on all outstanding sums and the section was only substituted by s. 30(f) of the Civil Law (Miscellaneous Provisions) Act 2011 (No. 23 of 2011) with effect from the 2nd August, 2011, and the reference therein contained to the order for protection is the only issue that arises and quite clearly in the particular circumstances that pertain the substitution is not retrospective and cannot apply. In the circumstances that pertain a letter of demand was served on the 15th September, 2009, a receiver was appointed to the company on the 17th September, 2009, and on the 26th October, 2010, demands were served on the guarantors. All events occurring prior to the 2nd August, 2011, so that, in effect, the right to contractual interest had accrued. Furthermore, it is contended that in the particular circumstances the bank was not put on notice of the events taking place and the bank was not initially listed as a creditor.
11. Reliance is placed on ss. 26 and 27 of the Interpretation Act 2005, in dealing with the position of the repeal and substitution of a legislative provision and, in particular, s. 26(1) which provides that:-
“Wherein enactment repeals another enactment and substitutes other provisions for the enactment so repealed the enactment so repealed continues in force until the substituted provisions come into operation. Following from s. 27(1)(e) the repeal does not affect any right, privilege, obligation or liability acquired, accrued or incurred under the enactment and does not prejudice or affect any legal proceedings civil or criminal pending at the time of the repeal in respect of any such right, privilege, obligation, liability, offence or contravention.”
12. Further reliance is placed on s. 27(2) which provides that where an enactment is repealed the proceedings in being may be carried out as if the enactment had not been repealed.
13. In the present case it is contended that s. 75(2) continues to apply as a result of s. 27 of the Interpretation Act 2005. It is clear that the substituted s. 75(2) cannot apply in the particular circumstances of this case, and that in particular not only were the arranging debtors petitions issued prior to the commencement of the 2011 Act, but the bank had also sought to prove its debt prior to the commencement of the 2011 Act. On this basis it is respectfully submitted that the bank’s right to prove for interest had accrued prior to the introduction of the substituted s. 75(2).
14. Reliance is also placed on the decision of Dunne J. in Start Mortgages Ltd v. Gunne [2011] 1 EHC at p. 275 wherein Dunne J. confirmed that proceedings in respect of a right acquired or accrued may be continued as if the enactment had not been repealed.
15. As regards the question of valuations as submitted by the bank originally, it is accepted on the bank’s behalf that the original valuations only referred to finished and unfinished houses and did not include a substantial number of fully serviced sites.
16. Ms. Smith refers to s. 24 of the Bankruptcy Act 1988, with reference to secured creditors and in particular s. 24(5)(6) and (7), and contends that effectively subs (5), (6) and (7) clarify the situation.
17. The relevant sections provide as follows:-
“(5) Where a creditor has valued his security he may at any time amend the valuation and proof on showing to the satisfaction of the Official Assignee, or the Court, that the valuation and proof were made bona fide on a mistaken estimate, but every such amendment shall be made at the cost of the creditor, and upon such terms as the Court shall order, unless the Official Assignee allows the amendment without the application to the Court.
(6) Where a valuation has been amended in accordance with subparagraph (5), the creditor shall forthwith repay any surplus dividend which he may have received in excess of that to which he would have been entitled on the amended valuation or, as the case may be, shall be entitled to be paid, out of any money for the time being available for dividend, any dividend or share of dividend which he has not received by reason of the inaccuracy of the original valuation before that money is made applicable to the payment of any future dividend but he shall not be entitled to disturb the distribution of any dividend declared before the date of the amendment.
(7) If a creditor having valued his security subsequently realises it, or if it is realised under the provisions of subparagraph (4), the net amount realised shall be substituted for the amount of any valuation previously made by the creditor, and shall be treated in all respects as an amended valuation made by the creditor.”
18. As regards the decision of Budd J. in Michael Clenaghan a Bankrupt, Ms. Kelly contends that this case was decided on old 1905 rules representing a very different situation to the provisions of the 1988 Bankruptcy Act and that, in essence, in the Clenaghan case no amendment was permitted, but that is not the situation that pertains in the Bankruptcy Act 1988.
19. Ms. Smith was not required by the court to comment on the aspect of the litigation costs.
20. Paragraphs 15 and 16 of the first schedule of the Bankruptcy Act 1988, set out as follows:-
“(15) In respect of debts due after the adjudication or order for protection the liability for which exists at the date of such adjudication or order for protection a creditor may prove her value of the debt at that date.
(16) Where a person who is liable to make any periodical payment (including rent) is adjudicated bankrupt or is granted an order for protection on a day other than the day on which such payment becomes due the person entitled to the payment may prove for a proportionate part of the payment for the period from the date when the last payment became due to the date of the adjudication or order for protection as if the payment accrued due from day to day.”
21. The reality of the situation is that pursuant to the Bankruptcy Rules interest is only calculable up to the date of the order granting protection. While some doubt may arise in respect of the appropriate interpretation of s. 52(2) of the Bankruptcy Act 1988, that situation has now been clarified by the substitution of a new s. 75(2) by s. 30(f) of the Civil Law (Miscellaneous Provisions) Act 2011 (No. 23 of 2011) with effect for the 2nd August, 2011. However, no authority in support of the Bank’s proposition to the effect that s. 75(2) of the Bankruptcy Act 1988, was considered and found to differ from the bankruptcy rules, has been submitted to the court and thus, no authority for the proposition that interest continues to run from the date of protection. By analogy the passage from Forde & Simms “Bankruptcy Law” Round Hall 2009 at para. 137, appears to follow the line of the bankruptcy rules in respect of the winding up of an insolvent company in that creditors whose debts carry interest are entitled to dividends only upon what was due for principal and interest at the commencement of the winding up and interest ceases to run from that date and, in my view, the date of the commencement of the winding up in respect of a company can be safely equated to the date of the protection order. Accordingly, in my view on this aspect I prefer the submissions as made out on behalf of the arranging debtor and interest accordingly ceases to run from the date of the protection order. As has been previously stated herein, the situation has been further clarified with effect from the 2nd August, 2011, by the substitution of s. 30(f) of the Civil Law (Miscellaneous Provisions) Act 2011.
22. The bank accordingly is not entitled to prove interest in the bankruptcy proceedings as and from the date of the protection order.
23. As regards the issue of valuations, the court is satisfied that pursuant to s. 24 of the Bankruptcy Act 1988, where a creditor has valued his security he may at any time amend the valuation but only on the basis that the valuation of proof was made bona fide on a mistaken estimate and then only upon such terms as the court shall order unless the official assignee allows the amendment without application to the court.
24. In the court’s views. 24(6) and (7) only clarify events that are to take place following an amendment of a valuation which has arisen bona fide on a mistaken estimate.
25. The court is satisfied that no case has been made out in general terms in respect of the 2010 valuation to the effect that the content thereof was bona fide set out on a mistaken estimate and thus, also bearing in mind that no application has been made to the court to allow an amended valuation, and it not being the case that the official assignee has allowed any amendment without application to the court, the Bank is obliged at this point in time to rely on the November, 2010 valuation insofar as it provided a value at that time in respect of the finished and unfinished houses.
26. However, the matter does not end there because it does appear that there was a bona fide mistake in that a significant number of serviced sites were not included in the November, 2010 valuation but were included in the September 2011 valuation, and in these circumstances on the basis that it does appear there was a bona fide mistake made the court is satisfied in the exercise of its discretion that it is appropriate accordingly that, in this one regard, the fully serviced sites are to be valued as per the appropriate November, 2010 valuation. The court is of the opinion that the view as expressed adequately deals with the situation that has arisen in the round.
27. As regards the costs of litigation the court does not propose to interfere in any way with the figure as claimed.
28. It is most unfortunate that this matter has taken up so much time and clearly it is now incumbent on the parties to reach agreement as per the court’s directions and findings so as to move this matter to a conclusion.
Macks Bakeries Ltd., Re.
[2003] 2 ILRM 75, [2003] IEHC 2, [2003] 2 IR 396
NOTE OF EX TEMPORE JUDGMENT delivered by Mr Justice Kelly on the 9th day of April, 2003.
On the 11th December, 2002 Mr Luby was appointed liquidator of Macks Bakeries Limited. That was done pursuant to a resolution of the members passed at an extraordinary general meeting of the company. That appointment was confirmed at a meeting of the creditors held later that day.
On the 13th December, 2002 the liquidator wrote to the respondent asking for details of all matters in respect of which the respondent had acted as solicitor for the company. He also
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requested details of title deeds, outstanding fees due to the respondent and “confirmation or any lien or other security which you claim”.
On the 20th December, 2002 the respondent provided the details requested. The fees payable by the company amounted to a total of € 32,307.70. On the 29th January, 2003 the respondents claimed fees in respect of work done in relation to the liquidation of the company amounting to a total of € 2,625.70.
The respondent asserted and continues to assert a solicitor’s common law retaining lien over folio MY20399 Co. Mayo and files and documents relating to the company in the respondent’s possession as security for those fees. I should note for the sake of completeness that the respondent also holds folios MY4433F and MY4434F Co. Mayo. These are held on accountable trust receipt and a lien is not asserted in relation to these documents.
The present application is made pursuant to section 244(A) of the Companies Act, 1963 as amended by the Companies Act, 1990 which insofar as it is relevant provides
“Where the court has appointed a provisional liquidator or a company has been wound up by the court or by means of a creditors’ voluntary winding up, no person shall be entitled as against the liquidator or provisional liquidator to withhold possession of any deed, instrument, or other document belonging to the company, or the books of account, receipts, bills, invoices or other papers of a like nature relating to the account or trade, dealings or business of the company, or to claim any lien thereon provided that –
(a) where a mortgage, charge or pledge has been created by the deposit of any such document or paper with a person, the production of the document or paper to the liquidator or provisional liquidator by the person shall be without
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prejudice to the person’s rights under the mortgage, charge or pledge (other than any right to possession of the document or paper) …”
The applicants contend that the wording of this section is crystal clear. They say that the effect of the section is to unambiguously disentitle the respondent to rely upon the lien so as to avoid handing over possession of the documents in suit to the applicant.
This statutory provision was introduced for the first time in the Companies Act, 1990. It was not part of Irish law prior to then.
Attention was drawn to the equivalent section in the United Kingdom which is s.246 of the Insolvency Act, 1986 but that differs significantly from the section in suit and is of little assistance.
The applicants contend that the court is obliged to give effect to the plain and unambiguous words of the section by making the order sought. They call my attention to the commentary on this section which is contained in Lynch Marshall and O’Farrell’s work on Corporate Insolvency Law at paragraph 7.24 where the authors comment as follows
“Finally, certain liens may not be enforceable against a liquidator in a compulsory or creditors voluntary liquidation under s.244(a) of the 1963 Act, an amendment inserted by the 1990 Act. Such liens are liens over documents belonging to the company or ‘other papers of a like nature relating to the account or trade, dealings or business of the company’. These liens are not enforceable against the liquidator, in that such documents cannot be withheld by any person. However, where a charge has been created, the production of documents ‘shall be without prejudice to the person’s rights under the mortgage charge or pledge…’ For example, where a bank has title documents in its possession by way of equitable deposit these documents
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must be surrendered but this will be without prejudice to the existence of the deposit itself. It is not possible for solicitors to retain title documents of a company in liquidation as security for payment of fees, nor is it possible to retain the books of account of a company to ensure payment”.
It is argued that that passage accurately describes the meaning and effect of the section.
For the respondents it is correctly pointed out that the solicitor’s lien at common law was expressly recognised by the Supreme Court in Re Galdan Properties Limited (In Liquidation) [1998] IR 213. There McCarthy J. said
“A solicitor holds a general or retaining lien; in that respect it differs from the ordinary lien derived from possession of the article to which value has been added and to which there attaches a lien for payment of the charges in respect of that added value. A solicitor’s lien attaches to all documents and other personal property in his possession as such solicitor and relates to all outstanding charges, as solicitor, not merely those in respect of the particular documents over which the lien is claimed. The lien entitles the solicitor to retain the documents, or the personal property, until payment of the full amount of the bill, subject to taxation if required and if the bill is still liable to taxation”.
This is the form of lien which is asserted here. There is no doubt but that the lien provides an enhanced status as against other creditors to the holder of it.
The respondent points out that pursuant to the provisions of s.284(1) of the Companies Act, 1963 the law of bankruptcy is to be applied in an insolvent liquidation in order
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to establish the rights of creditors of the insolvent company. Section 3(l) of the Bankruptcy Act, 1988 defines a secured creditor as meaning “any creditor holding any mortgage charge or lien on the debtor’s estate or any part thereof as security for a debt due to him”.
The respondent asserts that if s.244(A) has the meaning attributed to it by the applicant it will leave the applicant with no security in respect of the fees payable to him by the insolvent company and that this will be to give the section an effect which it ought not to have. It is contended that the intended effect of the section is not to extinguish the legal rights of persons in the position of the respondent. Whilst reference is made to the decision in Kelly v. Scales [1994] 1 ILRM 42 it is clear that the issue in that case was whether or not s.244(A) had retrospective effect and so has little relevance to the question in suit.
It is said by the respondent that if s.244(A) has the meaning attributed to it by the applicants it has brought about a change in the law of insolvency which was not intended or alternatively resulted from an oversight which gives rise to an implicit amendment to s.3(1) of the Bankruptcy Act, 1988.
Reliance was placed upon the judgment of Henchy J. in Minister for Industry & Commerce v. Hales [1967] IR 50 where Henchy J. applied a presumption which avoids an interpretation of an Act which would result in “radical and far reaching changes in the law of contract”.
The respondent submits that the law of lien is well established and to interpret s.244(A) in the manner sought would give effect to radical and far reaching changes. To justify such a result the statutory provision relied on would have to be clear and unambiguous as to the amendment of the position of lienees under s.3(1) of the Bankruptcy Act, 1988. It is said that the section is not sufficiently clear and unambiguous to merit such application.
The object of all statutory interpretation is to discern the intention of the legislature. That has to be done by reference to the language which is used in the section.
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I have come to the conclusion that the language which is used in s.244(A) is clear and unambiguous and allows of no other interpretation but that the legislature intended that the holder of a lien would not be entitled to claim such as against a liquidator in the position of the applicant. I do not think that it can be said that the legislature had brought about this result by inadvertence or oversight. In fact it appears to me that s.244(A) demonstrates a quite sophisticated approach to the issue because of, in particular, the saver which is to be found in subsection (a) thereof in respect of the holder of a mortgage charge or pledge.
It appears to me to be clear and unambiguous that the legislature intended that the rights of holders of consensual securities would be preserved in the manner specified. On the other hand the holder of a lien which comes into effect by operation of law and not by the consent of the parties is not so protected.
There is little doubt but that this section has brought about a change in the law of insolvency insofar as the holders of liens are concerned. However, having regard to the clear wording used (“no person shall be entitled as against the liquidator … to claim any lien thereon”) such a change cannot be regarded as unintended. Neither is it ambiguous. This conclusion is, in my view, fortified by the legislative protection or comfort given to holders of consensual securities.
In these circumstances I am of opinion that the effect of the section is to render it impossible for the respondent solicitors to retain the title documents of the company in liquidation as security for payment of fees. Accordingly there will be the appropriate declaration and order.
Springline Ltd., Re
[1997] IEHC 163; [1999] 1 IR 467; [1998] 1 ILRM 301 (28th October, 1997)
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.