The High Court has ruled on three issues arising from the receivership of three Red Sail companies, allowing certain employee claims to be paid as preferential debts, setting remuneration for the receiver and limiting the Bank’s claim for costs. The court left the precise form of its order in abeyance while the parties considered the judgment.
The case concerned Red Sail Frozen Foods Limited, Red Sail Kilmore Limited and Red Sail Exports Limited, all in receivership. Receiver and manager Tom Grace sought directions under section 316 of the Companies Act 1963. The receivership was nearing completion; Frozen Foods and Kilmore were insolvent. The judgment was delivered by Miss Justice Laffoy on 20 October 2006.
The first issue arose from cash payments made to employees of Frozen Foods and Kilmore before the receivership without PAYE or PRSI deductions. The receiver sought directions on whether preferential claims could be paid despite uncertainty about the enforceability of employment debts affected by that practice. The Department had paid employees for arrears of wages, holiday pay, minimum notice and unfair dismissal, and claimed priority through subrogation. The Department and Revenue Commissioners received notice of the proceedings but did not participate.
The court held it lawful to pay the unfair-dismissal and minimum-notice components as preferential claims, relying respectively on an amendment to the Unfair Dismissals Act and employment tribunal awards that stood as preferential debts. For arrears of wages and holiday pay, the court said it could not determine whether individual employees had knowingly and actively participated in the unlawful payment practice. Given the Department’s absence and the evidence before it, the court accepted the pragmatic approach it inferred the Department had taken. It held the receiver could pay the Department’s claims for those amounts and said residual employee claims should receive similar treatment if otherwise valid.
On remuneration, the court allowed the receiver commission resulting in payments of €841,283 from Frozen Foods, €211,450 from Kilmore and €33,324 from Exports. Out-of-pocket expenses and legal costs were payable separately under the relevant arrangements. The court did not decide distribution priority, and left any challenge to the amount of legal costs to the parties, including through taxation.
The Bank could recover reasonable costs associated with enforcing and preserving its security, including costs of appointing the receiver, subject to any dispute about amount. But the court held the settlement of earlier proceedings barred the Bank from recouping its €100,000 contribution to the plaintiffs’ costs or its own costs of those proceedings. It also rejected the Bank’s claim for other legal costs covered by a 2003 payment request, finding that general receivership advice was for the receiver’s account and could not be charged twice.
The court made no decision on whether the receiver could recover his own legal costs of defending those proceedings or remuneration for work connected with them. It invited further submissions on both matters.