Neumans LLP (A Firm) v Andrew Andronikou and Others
| Jurisdiction | England & Wales |
| Judge | Lord Justice Mummery,Lord Justice Rimer,Lord Justice Underhill |
| Judgment Date | 24 July 2013 |
| Neutral Citation | [2013] EWCA Civ 916 |
| Docket Number | Case No: A2/2012/3059 |
| Court | Court of Appeal (Civil Division) |
| Date | 24 July 2013 |
[2013] EWCA Civ 916
Lord Justice Mummery
Lord Justice Rimer
And
Lord Justice Underhill
Case No: A2/2012/3059
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
THE HON MR JUSTICE MORGAN
Petition No 22180 of 2009
Royal Courts of Justice
Strand, London, WC2A 2LL
MR RICHARD SNOWDEN QC and MR ALEX BARDEN (instructed by Neumans LLP) for the Appellant
MS HILARY STONEFROST (instructed by Walker Morris) for the Respondent
Hearing date: 24 th April 2013
Introductory
An application by a firm of solicitors for payment of their legal fees and disbursements as an expense of an out of court administration has raised a jurisdictional point on a priorities issue in the corporate insolvency of Portsmouth City Football Club Limited (the Company).
The appellants Neumans LLP acted for the Company in connection with its opposition to a winding up petition presented by Her Majesty's Revenue and Customs (HMRC). Neumans claim priority for payment, as an administration expense, of certain professional fees and disbursements (referred to as "solicitors' fees" in this judgment, as they were below) owed by the Company for those services. The Company eventually went into insolvent liquidation, but only after joint administrators had been appointed out of court and a creditors' voluntary arrangement (CVA) had failed.
Neumans wish to establish that the solicitors' fees are an administration expense because, on the completion of the administration, there were no funds left for the administrators to hand over to the liquidators. Neumans are unlikely to receive anything in the liquidation, if they fail in their primary contention that the solicitors' fees are an administration expense and can only claim them as a liquidation expense. At present Neumans have no more than a recently notified possibility of a dividend in the liquidation.
A jurisdictional objection was successfully taken before Morgan J by the respondents, who were the former joint administrators of the Company. Their objection was that the court has no jurisdiction to order payment of the solicitors' fees as an expense of the out of court administration of the Company. In the circumstances of this case, the court only has jurisdiction to allow the solicitors' fees as an expense in the subsequent liquidation of the Company. The respondents successfully argued that express provisions in the Insolvency Rules 1986 (the 1986 Rules) for payment priorities are exhaustive of those items properly payable as expenses of an out of court administration.
Neumans contend that the result is anomalous. If the administrators were appointed by the court, there would be no problem with payment of the solicitors' fees as an expense in the administration. It is often the case with administrations out of court that there is no further insolvency procedure, so that there would be no liquidation in which payment of the solicitors' fees could be made as an expense of the liquidation. In those circumstances it made sense that the solicitors' should be payable as an expense of the administration.
The broad approach advocated by Neumans is that, if a petition for a winding up order is suspended by the intervention of another type of corporate insolvency process [e.g. an administration out of court], the company's costs of defending the winding up proceedings that would be an expense of the winding up are, or should be treated as, an expense of the intervening process.
The administrators' response is that, in the case of administrators appointed out of court, the Company's costs of defending the winding up proceedings are not entitled to priority as costs properly payable as an administration expense, as the 1986 Rules make no express provision for that. The express provision in the 1986 Rules is for those costs to be paid as an expense in a liquidation: rule 4.218(3)(h).The policy, structure and content of the 1986 Rules indicate that in the case of an administration out of court the solicitors' fees are treated on the same footing as other unsecured claims in the administration.
The administrators point out that there is no injustice to solicitors rendering legal services in resistance to a winding up petition against a corporate client: they can protect their position by obtaining funding or indemnities from third parties standing behind the company, such its owners or their associates. If the 1986 Rules are productive of injustice in the case of an out of court administration, the answer lies in democratic correction by Rule change, not in-filling a lacuna by judicial decision.
The administrators accept that (a) the court can usually order that solicitors' fees incurred in the unsuccessful defence of a winding up petition be paid as a liquidation expense; and (b) if a winding up petition is overtaken by a court application for an administration order, the court can order that the costs of the petition be paid as an administration expense ahead of unsecured creditors as expressly authorised in the 1986 Rules, in particular rule 2.67. What is missing from the 1986 Rules is an express provision covering solicitors' fees as an administration expense in the case of administrators appointed out of court.
This appeal is from the order made by Morgan J dated 2 November 2012 ( [2012] EWHC 3088 (Ch); [2013] Bus. LR 374). He accepted the administrators' contention that the court has no jurisdiction to make an order that the solicitors' fees be paid as an expense of the Company's out of court administration. In this appeal by Neumans from that ruling, the liquidators of the Company have taken no part. They took no part in the hearing before Morgan J.
More background facts
Neumans acted for the Company from 15 December 2009 to 12 February 2010. During that period the Company defended the winding up petition presented by HMRC on 23 December 2009 on the ground of its inability to pay its debts, in this case a massive liability for unpaid VAT. The Company made an unsuccessful application to strike out the petition on the basis that it disputed the debt on substantial grounds. Morgan J found that those directing the Company at the time considered that it was in the best interests of the Company to oppose the petition in the way and on the grounds that it did and that the work done by Neumans was in the best interests of the Company.
Pending an appeal from the dismissal of the strike out application, for which Newey J gave permission, a new owner (a secured creditor) appointed administrators out of court on 26 February 2010. That resulted in the automatic suspension of the winding up petition: paragraph 40(1)(b) of Schedule B1 to the Insolvency Act 1986. The firms retainer was terminated. Neumans did not act for the Company or for the administrators in the course of the out of court administration. On the subsequent formal hearing following suspension of the petition in March 2010 Neumans were granted liberty to apply in respect of their costs.
The administrators proposed a CVA to compromise the claims of the Company's unsecured creditors, who approved it in May 2010. Neumans were not given notice of the meeting to approve the CVA, which did not deal with their claim and did not bind them. Neumans did not claim to be unsecured creditors of the Company, their position throughout being that the solicitors' fees should be paid as an expense in the administration of the Company, alternatively as an expense in the liquidation.
The administrators ran the football club until they sold it in September 2010. They were appointed supervisors of a CVA. As no agreement was reached between Neumans and the administrators, Neumans made an application to the court for payment of the solicitors' fees as an expense of the out of court administration. The court made an order in February 2011 terminating the administration and ordering the Company to be wound up on the original HMRC petition. Neumans' application for payment of their solicitors' fees was preserved and pursued.
Very substantial sums were paid to the administrators in respect of their fees and disbursements in the administration. The costs of the out of court administration devoured the Company's assets. Not even the administrators' solicitors have been fully paid their fees. No monies from which Neumans' fees and disbursements could be paid as an expense of the liquidation were handed over to the liquidators.
The result is that Neumans' claim for solicitors' fees totalling about £267,000 has not been paid in any of the insolvency proceedings. The order sought by them from Morgan J was that the Company's costs in relation to the winding up petition be paid by the Company from its assets in the hands of the administrators as an expense of the administration.
The essence of Morgan J's comprehensive judgment was that the 1986 Rules did not provide for the payment of solicitors' costs of defending the winding up petition as an expense in an out of court administration. Particular costs items incurred by the Company in defending the winding up petition were payable as an expense in the liquidation.
On the fullest possible consideration of submissions advanced by counsel the judge reached conclusions which I will state briefly.
Section 51 Senior Courts Act 1981
First, as a matter of the general law, there was no jurisdiction under s.51 of the Senior Courts Act 1981 (the 1981 Act) to make an order for...
To continue reading
Request your trial
-
Lenkor Energy Trading DMCC v Mr Irfan Iqbal Puri
...I can state my view shortly. As Mummery LJ said in Re Portsmouth City Football Club Ltd, Neumans LLP (a firm) v Andronikou [2013] EWCA Civ 916, [2013] Bus LR 1152, at [38]: “If the judgment in the court below is correct, this court can legitimately adopt and affirm it without any obligatio......
-
Scatliffe v Scatliffe (British Virgin Islands)
...than in a more considered, more comprehensive, form. In In re Portsmouth City Football Club Ltd, Neumans LLP (a firm) v Andronikou [2013] EWCA Civ 916, [2014] 1 All ER 12, Mummery LJ said at para 38: "If the judgment in the court below is correct, [an appellate] court can legitimately adop......
-
Forivermor Ltd v Anz Bank New Zealand Ltd (Formerly Anz National Bank Ltd)
...at [3.70]–[3.135]. 5 Compare Brumby v Milner (1975) 51 TC 583 (HL) at 612 per Lord Wilberforce and Neumans LLP (A Firm) v Andronikou [2013] EWCA Civ 916 at [36]–[40] per Mummery 6 Forivermor v ANZ National Bank Ltd, above n 1, at [100]–[101]. 7 Forivermor v ANZ National Bank Ltd, above n 1......
-
Karla Otto Ltd v Bulent Eren Bayram And Another
...are accustomed to act.” 35. A similar statutory definition appears in section 251 of the English Companies Act 2006. In Smithton v Naggar [2014] BCLC 1 602, Rose J summarised the authorities in England and the pithy recitation merits quoting in “54. The leading authority on shadow directors......