Receiver Costs And Expenses Have Priority Over Preferential Creditors

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Created: Thursday, February 25 2021 16:02

The High Court recently refused an application by Revenue to declare that the Joint Receivers to a company failed to properly discharge monies from the receivership of the company. The Court held that the Joint Receivers were entitled to repay loans, which the Joint Receivers had taken out to fund the progress of the receivership, ahead of the preferential creditors to the company.

The essence of the argument advanced by Revenue was that the Joint Receivers had failed to properly prioritise the Revenue’s status as preferential creditor under section 440 of the Companies Act 2014 (“the 2014 Act”). Section 440 provides that where a Receiver of the property of a company is appointed in respect of a floating charge, then the preferential payments “under the provisions of Part 11 relating to preferential payments” shall be paid by the Receivers in priority to any claim for principal or interest in respect of the floating charge. Revenue’s argument was that section 440 gives preferential debts priority over the costs and expenses of a Receivership.

Mr. Justice Keane in the High Court refused Revenue’s application. Keane J. approved a summary of the applicable law set out in the leading textbook Corporate Insolvency and Rescue by Lynch-Fannon and Murphy, which was that “the costs of preserving and realising the assets by the receiver and the receiver’s remuneration, costs and expenses may be paid first out of the proceeds of the assets before preferential debts are paid”.

Keane J. further summarised that the priority accorded to the proper costs and expenses of a receivership over all other claims against the assets covered by it derives from “either the law of contract (that is, the binding terms of the debenture) or the common law on receivers (as described in Buchler v Talbot)”. No matter which way the issue was addressed, the costs and expenses of a receivership were afforded priority.

The court also rejected Revenue’s claim for directions on the conduct of the Joint Receivership under section 438 of the 2014 Act, which were sought as a preliminary step towards a wider review of conduct of the Joint Receivership. The Court upheld previous case law that an applicant was required to show some form of prejudice, and that the Court could not simply review the Receivership in a broad manner. Keane J. stated that the application for a wider review was “at best, premature and, at worst, misconceived”.

This judgment constitutes good authority for the proposition that a Receiver’s costs and expenses, including the repayment of loans, rank ahead of preferential creditors (such as Revenue debts).

MacSweeney & Company was glad to advise the Joint Receivers in this application.