The High Court dismissed an application by the solicitors who advised Compustore Limited before its creditors’ voluntary liquidation, ruling that their pre-resolution fees and expenses did not qualify for priority payment under section 281 of the Companies Act 1963.
The application asked the court to determine whether the legal costs were “expenses properly incurred in the winding up”. The solicitors said their fees should have that status. The company’s liquidator, David Hughes, argued that the work took place before the winding up began and did not qualify.
The company’s members passed the winding-up resolution on 9 November 2004, the date on which the winding up was deemed to have commenced. The solicitors had first been consulted on 18 October, solely to advise on the procedures for starting a creditors’ voluntary liquidation. Their account of the work, set out in an affidavit and not controverted, described advice to directors, preparation of documents for the creditors’ meeting and arrangements for the meeting. The company had more than 200 creditors, and its bankers would not permit the company to withdraw funds for an advance payment on account.
The solicitors were willing to have the amount of their bill determined by taxation. The judge said the application concerned the legal principle, not the amount claimed.
The court considered an English decision, Re A.V. Sorge & Company Limited, in which pre-resolution costs for steps required to carry out a voluntary winding up had been treated as costs incurred in the winding up. The judge did not find that reasoning persuasive. She held that section 281 covers costs properly incurred while the winding up is in being, after the resolution is passed. In her view, the section sets a firm time limit at that resolution.
The judge also said her conclusion would be the same under section 5 of the Interpretation Act 2005, although the application had been heard before that Act came into force. She found that section 281 was not obscure or ambiguous and that a literal reading did not produce an absurd result or fail to reflect the Oireachtas’s intention.
The application was dismissed. The ruling determined the priority status of the pre-resolution fees and expenses; it did not determine their amount.