Costs orders made in favour of claimants in proceedings brought by liquidators against claimants - liquidators' legal costs not constituting 'expenses incurred in the winding up' - normal rule that court costs order took precedence over all such expenses applying

Digital Equipment Co Ltd and others v Bower and others: ChD (Mr Justice Laddie): 4 December 2003

Various costs orders were made in favour of the claimants after proceedings brought against them by the liquidators of a company placed in voluntary liquidation had failed.

The claimants applied for payment of 60,000 held in the insolvency services account of the company, arguing that the payment should take priority over all the general costs and expenses of the litigation, in particular over legal costs which the liquidators had incurred in bringing the failed proceedings.

Although the liquidators did not oppose the application, the solicitors instructed on their behalf and joined as a party to the action did, on the grounds that the money in the account was held for them on trust; or that, if no trust existed, the court should exercise its discretion pursuant to section 112 of the Insolvency Act 1986 to order the payment out of the company's assets of the 60,000 as 'expenses incurred in the winding up' to them in preference to the claims of others.

Philip Marshall QC (instructed by Baker & McKenzie) for the claimants; Christopher Pymont QC (instructed by Withers) for the firm; the first three defendants did not appear and were not represented.

Held, granting the claimant's application, that costs payable by liquidators who engaged in litigation as a result of a court order made against them were not 'expenses incurred in the winding up' under section 112 of the Insolvency Act 1986; that it was not possible to use section 112 to change the normal rule that a court costs order took precedence over all such expenses; and that it followed that the court had no power to alter the priorities of payments out of the company's assets.