Roger Lindop V. Stuart Noble & Sons Ltd & Others
| Jurisdiction | Scotland |
| Judge | Lord Macfadyen |
| Date | 07 April 1998 |
| Court | Court of Session |
| Published date | 06 February 1999 |
| OPINION OF LORD MACFADYEN in the cause ROGER LINDOP (ASSISTED PERSON) Pursuer; against STUART NOBLE & SONS LTD & OTHERS Defenders: ________________ |
7 April 1998
The first defenders ("the company") are a company incorporated under the Companies Acts. The second defenders ("the receivers") were appointed joint receivers of the company in terms of an instrument of appointment dated 2 February 1996. The pursuer was from 28 September 1992 until 29 February 1996 managing director of the company in terms of a service agreement dated 25 September 1992. In this action the pursuer makes a number of claims arising out of his employment by the company and the termination of that employment by the receivers. In particular, in the first conclusion of the summons the pursuer seeks declarator that he is entitled to payment from the company of £64,965.02 with interest, upon averments that that sum represents the aggregate of (i) the salary and other benefits which he was entitled to receive on dismissal in lieu of notice, and (ii) his entitlement to a redundancy payment. In terms of the first conclusion the pursuer also seeks declarator:
"(2) that in respect of said sum the pursuer is a creditor in respect of a liability incurred by or on behalf of the second defenders as receivers of the first defenders in terms of Section 60(1)(c) of the Insolvency Act 1986; and (3) that the pursuer is entitled to the ranking accorded by said Section".
In the course of his submissions, however, Mr Drummond Young, senior counsel for the pursuer, made it clear that he did not maintain the claim to priority in respect of the pursuer's claim for a redundancy payment. The sum in respect of which priority is sought therefore falls to be reduced to £62,801.56. The defenders dispute the pursuer's claim to that ranking, and plead that the pursuer's averments are irrelevant. The issue of ranking of the pursuer's claim was appointed to debate.
The facts on which the issue turns are in narrow compass and are agreed. The pursuer was employed by the company as its managing director. He was so employed from 28 September 1992. On 2 February 1996 the receivers were appointed. They continued the employment of the pursuer for more than fourteen days. It is admitted that they thus adopted his contract of employment. They dismissed him on 29 February 1996. It is admitted by the defenders that in dismissing the pursuer the receivers were acting as agents of the company.
The statutory provisions on which the pursuer seeks to rely are contained in section 60(1) of the Insolvency Act 1986 ("the 1986 Act"), which is in the following terms:
"Subject to the next section, and to the rights of any of the following categories of persons (which rights shall, except to the extent otherwise provided in any instrument, have the following order of priority), namely -
- the holder of any fixed security which is over property subject to the floating charge and which ranks prior to, or pari passu with, the floating charge;
- all persons who have effectually executed diligence on any part of the property of the company which is subject to the charge by virtue of which the receiver was appointed;
- creditors in respect of all liabilities, charges and expenses incurred by or on behalf of the receiver;
- the receiver in respect of his liabilities, expenses and remuneration, and any indemnity to which he is entitled out of the property of the company; and
- the preferential creditors entitled to payment under section 59,
the receiver shall pay moneys received by him to the holder of the floating charge by virtue of which the receiver was appointed in or towards satisfaction of the debt secured by the floating charge."
In particular, the pursuer maintains that in respect of his claim for salary and other benefits in lieu of notice he comes within the scope of section 60(1)(c).
It is convenient at this stage to take note of certain other provisions of the 1986 Act (as amended). Section 57 provides inter alia as follows:
"(1) A receiver is deemed to be the agent of the company in relation to such property of the company as is attached by the floating charge by virtue of which he was appointed.
(1A) Without prejudice to subsection (1), a receiver is deemed to be the agent of the company in relation to any contract of employment adopted by him in the carrying out of his functions.
(2) A receiver (including a receiver whose powers are subsequently suspended under section 56) is personally liable on any contract entered into by him in the performance of his functions, except in so far as the contract otherwise provides, and, to the extent of any qualifying liability, on any contract of employment adopted by him in the carrying out of those functions.
(2A) For the purposes of subsection (2), a liability under a contract of employment is a qualifying liability if -
- it is a liability to pay a sum by way of wages or salary or contribution to an occupational pension scheme,
- it is incurred while the receiver is in office, and
- it is in respect of services rendered wholly or partly after the adoption of the contract.
...
(3) A receiver who is personally liable by virtue of subsection (2) is entitled to be indemnified out of the property in respect of which he was appointed.
(4) Any contract entered into by or on behalf of the company prior to the appointment of a receiver continues in force (subject to its terms) notwithstanding that appointment, but the receiver does not by virtue only of his appointment incur any personal liability on any such contract.
(5) For the purposes of subsection (2), a receiver is not to be taken to have adopted a contract by reason of anything done or omitted to be done within fourteen days after his appointment."
In opening the debate Mr Howlin, junior counsel for the defenders, recognised that the pursuer's contention could be simply stated, and appeared prima facie persuasive - the pursuer was a creditor of the company in receivership in respect of his claim for salary and other benefits in lieu of notice, a claim in effect for damages for termination of his employment without the period of notice to which he was contractually entitled; the liability of the company in receivership to meet that claim was a liability incurred by the receivers, since it was the receivers, acting as agents for the company, who effected the dismissal; the claim therefore fell within the scope of section 60(1)(c), and attracted priority accordingly. Before turning to an analysis of the section, however, Mr Howlin warned against a literal interpretation of its terms. He pointed out that if the pursuer's approach was correct, employment for only a little more than fourteen days after the appointment of the receivers could, in the case of a fixed term contract, say for five years, confer priority on a very substantial claim. He illustrated the need to go beyond the literal language of the section by pointing out (i) that "creditors" in section 60(1)(c) had to be read as "creditors of the company"; (ii) that the reference in paragraph (d) to the receiver's liabilities had to be read as including only his liabilities incurred as receiver, and excluding liabilities of a personal nature; and (iii) that the words "except to the extent otherwise provided in any instrument" at the beginning of subsection (1) could not be read literally, since a unilateral declaration by the receiver could not be sufficient to deprive an otherwise qualified person of the priority which the section conferred.
Mr Howlin then turned to section 57 (as amended), and drew attention in particular to (i) the introduction by the Insolvency Act 1994 ("the 1994 Act") of subsection (1A) which, without prejudice to the deemed agency created by subsection (1), specifically deemed the receiver to be the agent of the company in relation to any contract of employment adopted by him in the carrying out of his functions; (ii) the limitation applied at the same time to the personal liability of the receiver under subsection (2) on any contract of employment adopted by him, confining it to the extent of any qualifying liability, as defined in subsection (2A); and (iii) the receiver's entitlement to indemnity in respect of any personal liability out of the property in respect of which he was appointed. The result was that a receiver who adopted a contract of employment became personally liable on it, but only to the extent of any qualifying liability, and in that respect was entitled to indemnity from the company. The employee's claim, to that limited extent, then came to enjoy indirectly a priority in the distribution of the receivership funds by virtue of section 60(1)(d). That was the nature and extent of the practical priority which Parliament had given to the claims of employees in receivership, i.e. through the medium of the receiver's personal liability and indemnity, but to the extent only of any qualifying liability. The present pursuer fell outwith the scope of that scheme, since his claim was not in respect of a qualifying liability.
Mr Howlin went on to make a number of points against the pursuer's construction of section 60(1)(c). He pointed out that since Parliament has restricted the receivers' personal liability on adopted contracts of employment to qualifying liabilities, it would be odd if section 60(1)(c) were to have the meaning contended for by the pursuer, since the result would be to subvert the restriction on personal liability by conferring on other aspects of the employee's claim an even higher priority by an indirect route. He suggested, too, that since the receivers' agency extends to other types of contract as well as contracts of employment, the ranking argued for by the pursuer under section 60(1)(c) could impose enormous burdens on the receivership in the context of other types of contract. The broad reading of section 60(1)(c) could thus be seen to be inconsistent with the...
To continue reading
Request your trial