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; a 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; (c) to nominate creditors to the Committee of 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

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