Irish Reel Productions Ltd v Capitol Films Ltd

During the morning of 2^nd February 2010 I made an Administration Order in relation to Capitol Films Limited (“the Company”). I also dismissed a winding-up petition against the Company which had been presented on 21^st August 2008, and in which Irish Reel Productions Limited (“Irish Reel”) had become petitioner by substitution. Application was made by counsel for Irish Reel for an order that its costs of the petition be paid as an expense in the Administration of the Company. I was also asked to direct pursuant to rule 2.67(3) of the Insolvency Rules 1986 (“the Rules”) that Irish Reel’s costs should be paid out of the assets of the Company in priority to the Administrators’ expenses and the cost of any security provided by the Administrators.

Counsel for the Company submitted that I had no jurisdiction to make either of those orders. Since neither counsel could direct me to any authority on that question, albeit that both acknowledged that there was a practice in the Companies Court to make such orders, I reserved judgment on that issue. My decision on it now follows.

Rule 2.12(1) permits ten different classes of person to appear at the hearing of an administration application including, at subparagraph (e), any person who has presented a petition for the winding-up of the company. Rule 2.12(3) provides as follows:

“If the court makes an administration order, the costs of the applicant, and of any person whose costs are allowed by the court, are payable as an expense of the administration.”

Rule 2.67(1) provides that the expenses of the administration are payable in the following order of priority

“(c)

where an administration order was made, the costs of the applicant and any person appearing on the hearing of the application….”

Mr Calland for the Company submitted that, in relation to a person who had presented a winding-up petition, and appeared at the hearing of an administration application, those provisions related only to that person’s costs of appearing at the hearing of the administration application, rather than to any other costs, and in particular, not to that person’s costs in the winding-up proceedings.

The only authority to which I was referred was Re Gosscott (Groundworks) Ltd [1988] BCLC 363, in which Mervyn Davies J held that the court had jurisdiction to order that the costs of administration proceedings overtaken by a compulsory liquidation could be ordered to be treated as costs in the winding-up. He based himself upon the broad discretion provided by section 51 of the Supreme Court Act 1981. That decision was subsequently approved by HH Judge Norris (as he then was) in Unadkat & Co (Accountants) Ltd v. Bhardwaj & anr [2006] EWHC 2785 (Ch), as supportive of the view that section 651 of the Companies Act 1985 was broad enough to enable the court to order that the costs of having the dissolution of a company declared void be treated as an expense in the winding-up, notwithstanding the decision of the House of Lords in Re Toshoku Finance UK plc [2002] 1 WLR 671 that Rule 4.218 contained an exhaustive statement of liquidation expenses.

Rule 4.220(2) expressly provides that nothing in Rules 4.218 and 4.219 affects the power of any court in proceedings by or against the company to order costs to be paid by the company or the liquidator. There appears to be no precisely equivalent provision in relation to administration expenses, for which there is a comprehensive categorisation in Rule 2.67(1).

In my judgment the solution to this conundrum lies in a properly purposive reading of Rule 2.12. The facts of the present case demonstrate that an administration on the application of the company may be the last stage in a long process whereby the company comes to be subjected to an insolvency process in the interests of its creditors, the earlier stages of which may include the bringing of a winding-up petition, and the prosecution of that petition in the face of dogged resistance by the company itself. In my judgment one of the purposes for which Rule 2.12(1)(e) permits a person who has presented a winding-up petition to appear at the hearing of an administration application is to enable that person to seek an order for the costs of that petition, which will ordinarily be dismissed at the hearing of the administration application, if an administration order is made.

It follows in my judgment that the phrase “the costs … of any person whose costs are allowed by the court” in Rule 2.12(3) comprehends not merely that person’s costs of appearing at the hearing of an administration application, but that person’s costs of any petition which is dismissed at the same time, where the court thinks fit to make such an order. The remaining words of Rule 2.12(3) then automatically provide for such costs to be payable as an expense of the administration, and fall within the words in Rule 2.67(1)(c) “the costs of … any person appearing on the hearing of the application …”.

I am satisfied in the present case, as a matter of discretion, that Irish Reel’s costs of prosecuting the petition after being substituted as petitioner ought to be payable as an expense of the administration. I need not set out my reasons for that conclusion since the objection taken by the company was purely in relation to jurisdiction. I have concluded that I have jurisdiction to make such an order, for the reasons given above. I therefore so order.

I am not however persuaded that there is any good or sufficient reason to vary the priority in which those costs are to be paid, pursuant to Rule 2.67(3), in what appears to be the extremely unlikely event that the assets will otherwise be insufficient to satisfy that liability applying the priority afforded by rule 2.67(1)(c).