Overview
Cases
In re Atlantic Magnetics Ltd. (In receivership)
[1993] 2 IR 561
Finlay C.J. S.C.
Finlay C.J.
These are a series of appeals brought, firstly, by Westdeutsche Landesbank (Ireland) Limited (“the Bank”) against four orders made by Lardner J. in the High Court pursuant to the Companies (Amendment) Act, 1990, in the matter of the above company, which are dated the 15th November; the 21st November; the 22nd November; and the 25th November, 1991. In short these orders were:
15th November, 1991: The appointment of Mr. Fitzpatrick as examiner, made pursuant to s. 2 of the Act, and an order pursuant to s. 6, sub-s. 1 (a) of the said Act, that the receiver to the company should cease to act as and from the date of the order. The order of the 21st November was an order made pursuant to s. 9 of the Act authorising the examiner to borrow from time to time sums not exceeding £429,000, and to apply the monies so borrowed to certain specified purposes for the continuance of the company, coupled with a declaration that the monies so borrowed and expended should be treated as expenses properly incurred by the examiner pursuant to s. 29, sub-s. 1 of the Act, and should be repaid in full out of the assets of the company in priority to any other claim, whether secured or unsecured, in accordance with the terms of s. 29, sub-s. 3 of the Act.
The order of the 22nd November authorised the Bank of Ireland and Barclays Bank to have recourse to funds standing to the credit of the company in the company’s accounts in those banks, so far as was necessary, for the purpose of lending to the examiner, pursuant to the
order made on the 21st November, 1991. The order of the 25th November directed the Bank of Ireland to pay out the monies standing to the credit of the company to the examiner, pursuant to the orders of the 21st and 22nd November, 1991. Against this last order, not only did the Bank appeal but the Bank of Ireland, which had applied to the High Court for a stay on that order, appealed, not only against the refusal of a stay, but against the making of the order itself.
Counsel on behalf of the examiner did not oppose the appeal of either the Bank or of the Bank of Ireland against the making of the order of the 25th November, 1991. I will now deal with the other appeals which were fully debated before this court.
Appointment of examiner
The powers contained in s. 2 of the Act as amended can be exercised only when it appears to the court that a company “is or is likely to be unable to pay its debts” and no subsisting resolution or order has been made for its winding up.
Under sub-s. 1 the court appears to have a wide discretion to agree or refuse to appoint an examiner. Under sub-s. 2 the court, “if it considers that such order would be likely to facilitate the survival of the company, and the whole or any part of its undertaking, as a going concern”, has a power which, in my view, must be considered as being strongly persuasive in favour of making such an order.
Having regard to the judgments of Lardner J. and, in particular, to his decision to make an order that the receiver should cease to act, which necessitated his compliance with s. 6, sub-s. 3, it would appear that the order in this case was made pursuant to the power contained in sub-s. 2 of s. 2 and it is not therefore necessary to consider the circumstances under which it would be proper for the court to exercise its discretion under sub-s. 1 of s. 2 where it did not consider that the making of such an order would be likely to facilitate the survival of the company.
The issue as to what the circumstances are which a petitioner seeking the appointment of an examiner to a company under s. 2 must establish, and the issue of the extent to which or having regard to what onus of proof these should be established, would appear to be subject to the following principles. In the construction of the Act it is of considerable significance that the petition to appoint an examiner is butthe first step in a process which will bring back before the court, within a strictly limited time, usually of three weeks, the matter for further consideration on much fuller information. It is also relevant that it is the first step in a process of examination which must conclude in three months from the date of the appointment unless by special order the court extends that period for a further thirty days.
The provisions of the Act clearly envisage a situation at the end of that period in which the court will make final conclusions on all the matters which are brought before it and, in particular, on the basic question as to whether proposals made are capable of effecting the survival of the company as a going concern. The basic purpose of the appointment of an examiner is to do precisely what the word involves,examine the situation, affairs and prospects of the company. Having regard to these considerations, it is quite clear that there cannot be, on a petitioner seeking an order for the appointment of an examiner, an onus of proof to establish as a matter of probability that the company is capable of surviving as a going concern.
Having regard to the clearly preliminary stage at which a decision under s. 2 has to be made and having regard to the phraseology contained in sub-s. 2 of that section which, in my view, provides a strongly persuasive obligation to make an order appointing an examiner where the court considers that such an order is likely to facilitate a survival of the company, I do not see any warrant for incorporating into the exercise of the power contained in s. 2 of the Act of 1990 the necessity for the establishment at that stage to the satisfaction of a court of “a real prospect of survival of the company”.
I accept that for a court to consider that there was a likelihood that an order would facilitate the survival of the company involves it in some evaluation as to the chances of the company surviving. The real importance of such an evaluation at the stage of the petition for the appointment of the examiner goes no further than that a court should be very slow indeed to make an order pursuant to either of the sub-sections of s. 2, where it considers that there is no identifiable possibility of the survival of a company.
In this case Lardner J. in his judgment relating to the appointment of the examiner stated as follows:
“In some cases the evidence may make it clear that survival of the company is not a practical possibility and the order is likely to be refused. In other cases the evidence may give a strong possibility of requisite adjustment. With requisite adjustment the company will survive and prosper therein. Here, it may be clearly possible to make an order appointing the examiner. In other cases, such as the present, the evidence may not lead to a clear-cut conclusion. There may, as here, be a conflict of evidence on matters concerning the company’s affairs – in such a case by what standards should the court make its decision? It seems to me that the standard is this: does the evidence lead to the conclusion that in all the circumstances it appears worthwhile to order an investigation by the examiner into the company’s affairs and see can it survive, there being some reasonable prospect of survival?”
I am satisfied that this analysis of the situation arising under s. 2 and, in particular, the learned trial judge’s statement of the standard to be applied to the question in a case which was not clear-cut is correct, subject to the minor qualification that I would consider it more in accordance with my view of the true standard if the last line of this quotation were to read: “there being some prospect of survival”.
Applying that standard, together with the considerations which I have already outlined as to the interpretation of this section, to the facts established on either side before the learned trial judge which are carefully analysed and set out in his judgment, I conclude that not only did he pose himself the correct question, in a correct form, but that having regard to the evidence before him he correctly answered it as well. I would therefore dismiss the appeal against the appointment of the examiner in this case.
Order of the 21st November, 1991.
The next appeal of the Bank is against the order of the 21st November authorising the examiner to borrow monies not exceeding £429,000 for certain specified purposes, and declaring that so much of such money as was borrowed and expended pursuant to that order should be treated as expenses properly incurred by the examiner pursuant to the provisions of s. 29, sub-s. 1 of the Companies (Amendment) Act, 1990, and should be repaid in full out of the assets of the company in priority to any other claim, whether secured or unsecured, in accordance with the terms of s. 29, sub-s. 3 of the Act, provided they were appropriately certified by the examiner.
This order is firstly an exercise of the powers contained in s. 9 in so far as it gives to the examiner a power to borrow, that being one of the powers of the directors; secondly, it appears in so far as it deals with the method of borrowing and the purposes for which the borrowing should take place, to be an exercise by the court of its power under sub-s. 3 of s. 9 to attach conditions to the order; thirdly, it appears to have regard to s. 10, sub-s. 1 (ii) of the Act as amended; fourthly, it appears to be a decision that subject to appropriate certification by the examiner under s. 10, such expenditure, ranking as expenses under s. 29, will in the event of either a compromise or scheme of arrangement or receivership or a winding up of the company, be paid before any other claim, secured or unsecured. In the context of the judgment leading to this order it is clear that it rejects the case made in the High Court which was again made on this appeal, that s. 29, sub-s. 3 must be read as if it applied only to a claim secured by way of floating charge, as distinct from a claim secured by a fixed charge.
The first challenge to this order is on a detail, namely, a submission that payment of cheques issued before the receivership could not be a liability incurred during the period of protection. In my view, the liability is incurred when the borrowing is made and the borrowing agreement entered into and is therefore clearly incurred during the period of the protection. The second assertion is the repeat of the submission made in the High Court that the declaration was inappropriate to a case such as this where the bank has a fixed charge over all the assets of the company. I am quite satisfied this submission must be rejected.
It is impossible to construe s. 11 of the Act, as the appellants seek to do, as impliedly amending s. 29, sub-s. 3 by inserting into that sub-section, after the words “secured” and before the words “or unsecured”the phrase “by any means other than a fixed charge”. The learned trial judge was correct in reaching the conclusion that s. 11 and s. 29 were separate sections in the Act, s. 11 being a power in the court to enable the sale or disposal of assets under certain circumstances and subject to certain conditions by the examiner, and s. 29 being a provision automatically applying certain consequences to the repayment of the costs, expenses and liabilities incurred with the sanction of the court by the examiner. To insert a clause such as has been suggested, in sub-s. 3 of s. 29, would in my view clearly be to legislate and could not come under any doctrine or principle of interpretation. The phrase “before any other claim secured or unsecured” is unambiguous and must be given its literal meaning.
I am satisfied, therefore, that the learned trial judge was perfectly correct to make the declaration which he did and that the only conceivable criticism which could be made of it would be that it could be misconstrued if a person reading the terms of the order were unawarethat the payment of the costs and expenses of the examiner before secured or unsecured claims arose only under any compromise or scheme of arrangement, receivership or winding-up of the company. I would add those words to the declaration contained in the order by way of variation. The examiner in my view is clearly entitled to such a declaration at this stage so as to enable him to place before potential lenders to the company the conditions under which his proposed borrowing is taking place and the priority which its repayment would have in the event of the continued insolvency of the company.
With regard to the question of the reference in this order to the sum of £429,000 standing to the credit of the company in the Bank of Ireland and in Barclays Bank, the position falls to be dealt with in the appeal of the Bank and of the Bank of Ireland against two further orders made by the learned trial judge.
Order of the 22nd November, 1991.
The funds standing to the credit of the company in the sum of £429,000 in the Bank of Ireland are mentioned in two orders made by the learned trial judge. The first of those is an order dated the 22nd November, the relevant portion of which authorised the Bank of Ireland to have recourse to funds standing to the credit of the company’s accounts in the Bank of Ireland so far as it is necessary for the purpose of lending to the examiner pursuant to the order made on the 21st November, 1991. As already indicated, the order made on the 21st November authorised the examiner to borrow from the Bank of Ireland. On the 25th November a further order was made by the learned trial judge, simply directing the Bank of Ireland to pay to the examiner the monies ordered by the orders previously made on the 21st and 22nd November, 1991.
Counsel on behalf of the examiner does not seek on this appeal to defend this last-mentioned order of the 25th November, 1991. He does, however, defend the order made on the 22nd November and submits that the meaning and intention of it was that the Bank of Ireland should have recourse to the funds standing to the credit of the company in its books for the purpose of lending to the examiner in accordance with the powers of borrowing which had been given to him.
Quite clearly the power of the court to make an order of that description would depend on a specific power being exercised under the Act of 1990. It is submitted on behalf of the appellants that there is no authority in the court to make such an order, that if it were to be construed as an order made pursuant to s. 11 of the Act for the sale of property of the company by the examiner, which property was subject to either a fixed or floating charge, that the net proceeds of the disposal would have to be paid to them (the appellants) and that there would be no authority for directing them to be used as is covered by the combined orders being appealed against for the purpose of keeping the company going as a trading concern.
Counsel on behalf of the examiner defends the order on the basis that it is an exercise by the court of the discretion vested in it pursuant to sub-s. 3 of section 9. Sub-section 3 of s. 9 of the Act provides as follows:
“Where the court makes an order under subsection (1), it may, for the purpose of giving full effect to the order, include such conditions in the order and make such ancillary or other orders as it sees fit.”
Sub-section 1 of s. 9 empowers the court on the application of the examiner, being satisfied of certain matters, to “make an order that all or any of the functions or powers which are vested in or exercisable by the directors . . . shall be performable or exercisable only by the examiner.”It was pursuant to that sub-section that the order was made by the learned trial judge empowering the examiner to be the sole person to exercise the directors’ powers of borrowing.
I reject the submission of the appellants that the making of the order on the 22nd November authorising the Bank of Ireland to have recourse to the funds standing to the credit of the company for the purpose of granting a loan to the examiner is a purported exercise of the powers given to the court by s. 11 of the Act of 1990. I also reject the alternative way in which this submission was put on behalf of the appellants, namely, that it is an attempt to achieve what is provided for in s. 11 by a different manner.
The order of the 22nd November does not involve the disposal of any property of the company. As was clearly submitted on behalf of the examiner, it is interpreted by him as being merely a method of enabling the Bank of Ireland to grant what is described as “back-to-back” loans to the examiner.
The provisions of sub-s. 3 of s. 9 are wide, and quite clearly intended, as is stated, to enable the court to give full effect to an order such as the order made in this case giving to the examiner the directors’ power of borrowing.
As I have indicated in this judgment, in dealing with the position arising under s. 29, sub-s. 3 of the Act, in the eventual situation where the company remained unable to meet its debts which would result in a compromise, scheme of arrangement, liquidation or receivership, repayment of monies borrowed pursuant to the order directing the examiner to exercise powers of borrowing which had been sanctioned by the court as an expense pursuant to s. 29 of the Act, would clearly rank in priority to any claim of any form of secured creditor. Having regard to that legal position, it seems to me wholly consistent with the scheme of the Act that in a case such as this where the entire of the assets of the company are alleged to be secured to a creditor by a fixed charge, the power of the court under sub-s. 3 of s. 9 to give full effect by an ancillary order to the vesting in the examiner of the power of borrowing, would entail a clear jurisdiction to permit the examiner to use funds standing to the credit of the company, even though they be subject to a fixed charge in favour of the secured creditor for the purpose of obtaining a loan on the basis of back-to-back borrowing. Such an interpretation of s. 9 seems clearly to achieve the purpose of the Act as indicated in the sections to which I have referred, and any other interpretation would, in my view, leave a situation where effectively a secured creditor with a charge over the entire of the assets of a company which had become fixed could always prevent the provisions for the appointment of an examiner and other consequential provisions of the Act of 1990 from being operative in respect of that company at all. Such an interpretation, in my view, would not be consistent with the plain intention of the legislative provisions with which the court is concerned.
I would, therefore, dismiss the appeal against the order of the 22nd November, 1991, authorising the Bank of Ireland to have recourse to”the funds standing to the credit of the company”. As I have already indicated, having regard to the fact that the examiner does not now seek to defend the further order of the 25th November which directly ordered the payment out of these monies to the company, that order must be set aside and the appeal against it allowed. An issue was raised on the hearing of this appeal by the company as to whether these monies in the Bank of Ireland were the subject of a fixed charge as created. No such issue arose in the High Court and the orders of Lardner J. were made on the assumption that they were. I accordingly express no view on this issue.
Hederman J.
I agree with the judgment of the Chief Justice.
McCarthy J.
The section 2 order
The only positive requirement expressed in s. 2 is that is should appear to the court that the company is or is likely to be unable to pay its debts. Nothing further is required to justify the making of the order; and I am loath to express any criteria since to do so might circumscribe the discretion of the court. In the High Court, Lardner J., having examined the evidence in some detail, applied the standard: “Does the evidence lead to the conclusion that in all the circumstances it appears worthwhile to order an investigation by the examiner into the company’s affairs to see can it survive, there being some reasonable prospect of survival?” He quoted from Keane, Company Law in the Republic of Ireland (2nd ed.) at p. 455, where the author expressed the view that the court should consider that there is a real prospect that either the company will be rescued or that the interests of those financially interested in its future will be better served by such an order than by a winding up, before appointing an examiner. In contrast with the English Insolvency Act, 1986, which prescribes four stated purposes at least one of which must be served before the court will make the order, there is no criterion expressed in the Act of 1990. Sub-section 2 appears to require that the order be made if the court is satisfied that it will facilitate the survival of the company. I reject the “real prospect” test; I would adopt the test applied by Lardner J., omitting the words “there being some reasonable prospect of survival.” It is not that I consider such may not enter the equation, but it appears to me to be difficult to come to any firm conclusion on such a matter until the examiner has carried out his preliminary task within the first statutory period – that of three weeks.
It is, I believe, of great importance to bear in mind in the application of the Act that its purpose is protection – protection of the company and consequently of its shareholders, workforce and creditors. It is clear that parliament intended that the fate of the company and those who depend upon it should not lie solely in the hands of one or more large creditors who can, by appointing a receiver pursuant to a debenture, effectively terminate its operation and secure, as best they may, the discharge of the monies due to them, to the inevitable disadvantage of those less protected. The Act is to provide a breathing space, albeit at the expense of some creditor or creditors. The timescale is short; the role of the examiner is hedged around by duties and the restrictions of time. The court is not required to make up its mind about survival at the stage of the appointment under section 2. It may well be that the result of appointing an examiner will be to lessen the eventual return to the secured creditor, in the event of the company not surviving. In such an event, the damage to others, perhaps less equipped to bear the loss, will be far greater; if one has to balance rights or obligations, the protection afforded by the Act should, if at all possible, be provided if only for a very short time. It follows that I would dismiss the appeal against the order appointing the examiner.
The section 29 order
Section 29 enables the court, from time to time, to make such orders as it thinks proper for the payment of the expenses properly incurred by an examiner. They are to be paid out of the revenue of the business of the company or the proceeds of the realisation of assets (including investments); they are to be paid in full and before any other claim, secured or unsecured under any scheme of arrangement. Section 9 enables the court, amongst other things, to order, as here, that the borrowing powers of the directors should be performed by the examiner. Sub-section 3 of s. 9 enables the court to include such conditions in the order and to make such ancillary or other orders as it sees fit. Section 11 gives power to deal with charged property. In the case of a fixed charge, the court may authorise the examiner to dispose of the property as if it were not the subject of the security but requires as a condition of an order that the net proceeds shall be applied towards discharging the sum secured by the security with a provision for a shortfall. If s. 11 applies to the monies held in the Bank of Ireland on a deposit account of the company, as being book debts encompassed by the deed of charge, then s. 11 would have to be applied in respect of any order for the disposal of such property.
The order giving access to the monies in the Bank of Ireland was made, not under s. 11, but under section 29. Does s. 11 qualify or restrict the application of section 29? In my view, it does not.
I agree with the order proposed by the Chief Justice in respect of the examiner’s authority to borrow.
[1993]
2 I.R. In re Atlantic Magnetics Ltd. (In receivership)
O’Flaherty J.; Egan J. 580
S.C.
O’Flaherty J.
I agree with the judgment of the Chief Justice.
Egan J.
I agree with both judgments.
Springline Ltd., Re
[1997] IEHC 163; [1999] 1 IR 467; [1998] 1 ILRM 301
Shanley J
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.
Keane J SC
This case raises a net but important point of law. Shortly stated, the question is whether the remuneration, costs and expenses of an examiner of a company must be paid in full out of the assets of the company before any of the costs of a liquidator appointed by the High Court after the examiner has ceased to act.
In the present case, Mr. O’Ferrall was appointed to be the examiner of the company on the 26th February, 1996. Having examined the company’s affairs, the examiner concluded that it would not be possible to formulate a scheme of arrangement which would facilitate the survival of the company as a going concern and, accordingly, the court, having been so informed, ordered that the company should cease to be under the protection of the court. On the 10th June, 1996, the High Court ordered that the company should be compulsorily wound up and Mr. McSweeney was appointed the official liquidator.
On the 29th July, 1996 and the 9th October, 1996, the examiner applied to the High Court for orders sanctioning the payment to him of sums amounting to £54,210.28 (including V.A.T.) in respect of costs, remuneration and expenses. The liquidator then applied to the High Court for a determination, inter alia, as to the priority, if any, to be given in the winding up to that claim. In the course of his affidavit, the liquidator deposed that there was likely to be a shortfall in the assets realised in the winding up in the event of the examiner’s claims being discharged on the basis that they had priority over any other claim. He further deposed that, if that priority was granted, it would be unlikely that there would be sufficient assets to discharge his (the liquidator’s) remuneration, costs and expenses. In a reserved judgment, Shanley J. concluded that the examiner’s remuneration, costs and expenses did not enjoy priority over the remuneration, costs and expenses of the official liquidator. From that decision, the examiner now appeals to this Court.
The case turns on the construction to be given to s. 29(3) of the Companies (Amendment) Act, 1990, which is 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.”
The learned High Court Judge concluded that the remuneration, costs and expenses of a liquidator appointed by the court in a compulsory winding up could not properly be described as a “claim” or a debt and that, accordingly, the sub-section did not confer the priority claimed on behalf of the examiner.
Submissions on behalf of the parties
On behalf of the examiner, it was submitted that the word “claim” in s. 29(3) of the Act of 1990, should be given its ordinary and natural meaning. So construed, he said, it referred to a demand for something which was due and clearly applied to the liquidator’s entitlement to his remuneration, costs and expenses. He cited in support West Wake Price & Co. v. Ching [1957] 1 W.L.R. 45.
It was further submitted that the wording of s. 281 of the Companies Act, 1963, affording the liquidator’s costs in a voluntary winding up priority over “other claims” unquestionably treated the liquidator’s entitlement to his costs as a “claim”. It could not have been envisaged, he urged, that a distinction should be drawn in this connection between the costs in a voluntary winding up and one by the court.
Counsel for the examiner further submitted that the decision of the High Court did not take into account the fact that s. 29(3) gave priority to the examiner’s costs over secured as well as unsecured creditors and that it had been held by this Court in Re Holidair Ltd. [1994] 1 I.R. 416, that this meant that, where the unsecured assets of the company were insufficient to meet the examiner’s remuneration, costs and expenses, he could have recourse to the secured assets and thus obtain priority over the liquidator, since the latter was not entitled to avail of those assets. He said it would be an anomalous result if the examiner’s ability to recover these sums in priority to the liquidator depended on whether the company happened to have secured assets. He also relied on the decision of this Court in In re Don Bluth Entertainment Ltd. [1994] 3 I.R. 141.
On behalf of the liquidator, it was submitted that the word “claim” in s. 29(3) should be construed in the context in which it appears in the statute. He said that the reference in the subsection to a “claim, secured or unsecured” was a clear indication that the legislature was concerned with the claims of creditors rather than with the “operating costs” of a liquidation and that, in the context, the maxim noscitur a sociis should be applied, citing the decision of Barr J. in HMIL Ltd. v. Minister for Agriculture (Unreported, High Court, Barr J., 8th February, 1996).
Counsel for the liquidator further submitted that there was a distinction between the claims and debts provable in a winding up and the remuneration, costs and expenses of the liquidator. The former fell to be ascertained at the commencement of the winding up and, in the case of a compulsory winding up, were the subject of a specific procedural regime under the Rules of the Superior Courts. The liquidator’s remuneration, costs and expenses were dealt with entirely separately and it was clear from this distinction that the legislature could not have intended the priority afforded to the examiner in s. 29(3) to extend further than the claims of creditors, as distinct from the costs involved in the winding up itself. He submitted that his approach was reinforced by the dictum of McCarthy J. in In re Merchant Banking [1987] I.L.R.M. 260, that the inquiry conducted by the court into the liquidator’s remuneration, costs and expenses was “one of amount and not of nature or kind”.
It was further submitted that these conclusions were unaffected by the wording of s. 281 of the Act of 1963. The provision in s. 29(3), which was later in time, reflected, by the use of words “claim, secured or unsecured”, a different approach.
Counsel for the liquidator finally submitted that the court should have regard to the qualitative difference between the statutory responsibilities of an examiner which were intended to facilitate the rescue of a company in difficulties and went no further, and those of a liquidator who was responsible for the orderly disposition of a company’s affairs in their totality. He urged that giving s. 29(3) the meaning contended for on behalf of the examiner in the present case would in some cases at least present an insuperable obstacle to anyone’s agreeing to act as liquidator and hence to the orderly winding up of an insolvent company’s affairs required by the Act of 1963.
The applicable law
Section 29(3) of the Act of 1990, as already noted, provides that the remuneration, costs and expenses of an examiner which have been sanctioned by the court are to be paid in full and before “any other claim, secured or unsecured” under, inter alia, any winding up of the company. The expenses referred to include liabilities incurred by the company and certified by the examiner pursuant to s. 10(2) of the Act of 1990 as having been incurred in circumstances where, in his opinion, the survival of the company as a going concern during the protection period would otherwise be seriously prejudiced.
The provisions as to the priority enjoyed by the costs, remuneration and expenses of a liquidator in the winding up of a company must next be considered. Under s. 281 of the Act of 1963:-
“€¦ All costs, charges and expenses properly incurred in [a voluntary winding up], including the remuneration of the liquidator, shall be payable out of the assets of the company in priority to all other claims.”
There is no express provision in the Act of 1963 or any amending legislation affording a similar priority to an official liquidator in a compulsory winding up. However, in In re Red Breast Preserving Co. (Ir.) Ltd. [1958] I.R. 234, it was held that ordinarily the same rule should apply in a compulsory winding up. The machinery under which this is done is to be found in O. 74, r. 128 of the Rules of the Superior Courts.
It was held by this Court in Re Holidair Ltd. [1994] 1 I.R. 416, that the effect of s. 29(3) was that in a case where the unsecured assets were insufficient to pay the total remuneration, costs and expenses, the court might, and must if it had sanctioned them, direct that they be paid out of the secured assets. In that case, Finlay, C.J. with whom the other members of the Court agreed, said at p. 440:-
“€¦ (I)t is appropriate that we should approach [the appeal] on the basis that the intention of the legislature to be derived from the terms of the Act of 1990 was to provide a period of protection available for examination so as to try and ensure that if possible some scheme of arrangement might be made rather than an immediate liquidation or receivership of a company. It was also, I am satisfied, part of the intention of the legislature that if at all possible and if considered appropriate by an examiner, during the relatively short period of protection of the court provided for in the Act of 1990, that a company should be continued as a going concern and that where ambiguity or doubt arises concerning the construction of any sections in the Act, these two objectives should be borne in mind.”
As to the meaning to be attached to the word “claim”, Devlin J. in West Wake Price & Co. v. Ching [1957] 1 W.L.R. 45 at p. 55 said:-
“I think that the primary meaning of the word ‘claim’ – whether used in a popular sense or in a strict legal sense – is such as to attach it to the object that is claimed; and is not the same thing as the cause of action by which the claim may be supported or as the grounds on which it may be based. In the Oxford Dictionary ‘claim’ is defined as first, ‘A demand for something as due’; ‘an assertion of a right to something’, secondly: ‘Right of claiming; right or title (to something or to have, be or do something; also on, upon the person, etc., that the thing is claimed from)’.”
Conclusion
The word “claim” in s. 29(3) must, in the absence of any indication to the contrary, be given its ordinary meaning. There can hardly be any room for doubt that an official liquidator who in the course of his duties performs work or incurs liabilities in respect of which he is entitled to be remunerated or reimbursed would, in ordinary language, be properly described as having a “claim” to the relevant sums. It would not seem to be a relevant consideration that the machinery by which that claim is enforced – i.e. an order by the court sanctioning the payment of the relevant amounts – is not the same as that by which another claim or debt might be enforced.
That conclusion is reinforced by the construction of the word “claim” proposed by Devlin J. in the case to which I have referred. But it is put beyond doubt, in my view, by the wording of s. 281 of the Act of 1963. The use of the expression “all other claims” in that section makes it clear beyond argument that, in the case of a voluntary winding up, the entitlement of the liquidator to remuneration was regarded by the legislature as a “claim”. So much indeed was conceded by counsel for the liquidator. But it follows inexorably from that proper and unavoidable concession that the expression “claim” must be given the same meaning in s. 29(3) of the Act of 1990. Since, by virtue of s. 37(3) of the Act of 1990, the Act of 1963 and the Act of 1990 are to be construed together (along with the other amending legislation) “as one Act”, I can see no reason why the word “claim” should be construed differently in section 29(3).
Moreover, to construe the word “claim” as suggested on behalf of the liquidator would lead to the consequence that the examiner’s remuneration, costs and expenses would have priority over the remuneration of a liquidator in a voluntary winding up but not in a compulsory winding up. There appears to be no reason why the legislature should have made such a distinction between the two forms of winding up. It would also have the consequence that the examiner could achieve such a priority over the liquidator in a case where the company had secured assets, but not in a case, such as the present, where there were no such assets. Again, there is no apparent reason why that distinction should have been drawn.
As to the addition of the words “secured or unsecured” after “claim”,they may have been inserted by the draftsman simply in order to ensure that the construction adopted by the court in Re Holidair Ltd. [1994] 1 I.R. 416, prevailed. But, in any event, the liquidator’s claim to remuneration, costs and expenses, for the reasons I have already given, is perfectly properly described as a “claim” against the assets of the company and the addition of the adjective “unsecured” does not affect the aptness of its application to the liquidator’s entitlement.
There is undoubtedly some force in counsel for the liquidator’s submission that the result of this construction will create difficulties for liquidators in such cases and may have the consequence that a liquidation will not take place because the assets are insufficient to pay the costs after the examiner’s costs have been paid. But there must also be taken into account the underlying policy of the Act of 1990 which the court is bound to uphold and which, as stated by Finlay C.J., is particularly to be borne in mind where there are two possible constructions of a provision in the Act. The construction urged on behalf of the liquidator would undoubtedly present a serious disincentive to appropriately qualified persons to act as examiners and to possible suppliers of goods and services to the company who might be unwilling to afford the company the credit required to keep it in being as a going concern.
It only remains to add that this case affords another illustration of the regrettable fact that the Act of 1990, however well intentioned, is not as clearly drafted in some respects as one would wish, as witness the conclusion arrived at by the learned High Court Judge in a careful and considered judgment with which I find myself unable to agree. I would allow the appeal and substitute for the order of the High Court an order that the priority given by s. 29(3) of the Act of 1990 gives the examiner priority over the costs, expenses and remuneration of the liquidator in this winding up.
Murphy J.
I agree with the judgment delivered by Keane J.
Barron J.
I also agree.