The Gazette 1982

CIA/E T N

JANUARY/FEBRUARY 1982

What of Solicitors' costs in arranging for the winding

up of the Company, their Client? There is no doubt that

if a Solicitor, being awre that a Company is about to

wind up, recovers his

general

costs this would be a

fraudulent preference, as recently decided by Mr.

Justice Costello in an unreported judgement given on

24th March 1981

(Frank E. Be/ton and Liquidator of

the Bandon Milling Company Limited .v. Patrick J.

O'Driscoll)

and on the principles of fraudulent

preference, as laid down in the unreported judgement of

Mr. Justice McWilliam of 8th September, 1975 in the

case of

Corran Construction Limited (in voluntary

liquidation) - v - Bank of Ireland Finance Limited;

Solicitor may, of course, have a lien on certain

documents for his costs (a solictor has a general lien)

but this will not be established until after the

commencement of liquidation. It is the view of the

writer that a Solicitor engaged by a Company for the

purpose of the advising on a liquidation is entitled to his

costs, if they are paid prior to the winding up. For

instance, where a Company is commencing to wind up

where it cannot continue its business by reason of its

liabilities and the directors have a statutory obligation

to prepare a Statement of Affairs and if they pay legal

costs, to comply with this statutory obligation, then this

is a legitimate payment - see the case of

Barleycorn

Limited

[1970] Ch. 465, which related to a similar

position concerning payment to the auditors of the

Company for preparing a Statement of Affairs in the

case of an Offical Receivership in England. Once the

winding up resolution has been passed and the

liquidator appointed, however, any pre-liquidation

costs incurred can not rank as anything other than an

unsecured debt in the winding up; the Solicitor's only

protection will be whatever lien he may have for his

costs on the documents of the Company (other than the

Statutory Books).

Admission to the Meeting:

In passing, it is interesting to note that Statutory

Instrument No. 28 of 1966 provides that where a

Company has its registered office in the County

Borough of Dublin or in the County Borough of Cork,

every meeting should take place in such County

Borough and, in every other case, wherever "in the

opinion of the person convening the same is most

convenient for the majority of the Creditors or

contributories or both". The Solicitors to the Company

should ensure that some person is in attendance at the

entrance to the Meeting to ensure that the name and

address of every person entering, together with details

as to who they represent and the amount of the debt due

should be recorded.

Persons wishing to attend the Meeting can be loosely

categorised as follows: -

(a)

Creditors:

Obviously Creditors who attend on

their own behalf are entitled to be admitted. There

seems to be no provision in Instrument No. 28 to

exclude "advisors" from the Creditors' Meeting,

but clearly such persons have no right to vote and

the writer considers that they have no entitlement

to speak at meetings; a strict interpretation of the

Companies Act and of the Statutory Instrument

would suggest that, as the meeting is called for the

Creditors, presumably Creditors only and their

properly appointed proxies should be entitled to

attend and speak.

(b)

Proxies:

Proxy forms which are not lodged within

the time provided in the notice convening the

Meeting (providing) the time limited is in accord

with the provisions of Statutory Instrument No.

28) are invalid

Shaw

.v.

Tati Concessions

[1913] 1

Ch. 292. If the proxy is incorrectly executed, it is

invalid. The Chairman of the Meeting has the

ultimate decision in this regard but, once the

proxy is accepted, the proxy is entitled to vote,

even at an adjourned Meeting

(Marx .x. Estates

and General Investment Limited

[1976] 1WLR

380).

(c)

Press:

Unless the liquidation is that of a public

company, neither members of the press nor the

public at large have the right to attend the

Creditors' Meeting.

Conduct of the Meeting

A Director of the Company, appointed by his fellow

Directors, must preside at the Meeting (Section 266 (4)

of the Companies Act, 1963). Normally a chairman of a

Creditors' Meeting is elected by the Creditors, as

provided in rule 62 Statutory Instrument No. 28, but

this rule also specifically excludes its application to

Meetings called pursuant to Section 266 so, once the

chairman is appointed under Section 266 (4) of the

Companies Act, 1963 to preside then he must chair the

Meeting to the end and it is doubtful whether he can be

removed from such position by the Meeting. Equally,

the chariman cannot delegate his duties to some other

person, e.g. his solicitor, as it is quite clear that the

Companies Act 1963 imposes this duty on the director,

as chairman, presiding at the Meeting. Many Creditors'

Meetings seem to revolve around the value of the assets

(!) rather than the statutory purposes of the meeting;

strictly, however, the Creditors' Meeting has three

purposes only and they are:

(a) to consider the Statement of Affairs produced at

the meeting;

(b) the election of a liquidator;

Inspection.

A Solicitor advising a company or its directors should

have regard to the reasons for calling the Creditors'

Meeting and it is important to advise that the Chairman

of the Meeting should be prepared to give some

explanation as to why the Company became insolvent

and to answer any reasonable questions relating directly

to the Statement of Affairs. The Chairman is obliged to

take and certify minutes of the Meeting (Rule 74 (1)

Statutory Instrument No. 28 of 1966) and a Solicitor

advising the Chairman should warn the Chairman not

to say anything that could incriminate him.

The appointment of a liquidator is always a thorny

problem. At the outset of the Meeting the Chairman

should point out that the Company is already in

liquidation (Sections 251 and 253 of the Companies Act,

1963), that the Company has appointed a liquidator,

but that the Creditors have the right to nominate their

own liquidator. Section 267 (1) is unequivocal in stating

that if "the Creditors and the Company nominate

different persons, the person nominated by the

Creditors shall be Liquidator and if no person is