Company - winding up - liquidators' expenses - not payable out of assets comprised in crystallised floating charge

Buchler and another v Talbot and others: HL (Lord Nicholls of Birkenhead, Lord Hoffmann, Lord Millett, Lord Rodger of Earlsferry and Lord Walker of Gestingthorpe): 4 March 2004

In 1992 a company that was a member of a group of companies granted debentures to O to secure money loaned to the group.

The debentures contained a floating charge over substantially the whole of the company's assets.

In 1993 the group collapsed and O appointed joint administrative receivers, whereupon the floating charge crystallised into a fixed charge.

In 1996 the company went into voluntary liquidation, and the liquidators' costs and expenses far exceeded the amount realised in the liquidation.

The liquidators applied for a declaration that the expenses of the liquidation, including the liquidators' remuneration, should be paid out of the proceeds of realisation of the company's assets, including those assets which were subject to the floating charge and were currently in the hands of the receivers, and in priority to all other claims.

The judge granted the declaration and held that by virtue of section 175(2)(b) of the Insolvency Act 1986 the liquidators were entitled to be paid their expenses out of the crystallised floating charge.

The Court of Appeal upheld that decision.

O appealed.

Geoffrey Vos QC and Alan Griffiths (instructed by Freshfields Bruckhaus Deringer) for O; Richard Snowden (instructed by Hammond Suddards Edge) for the liquidators.

Held, allowing the appeal, that section 175(2)(b) did not authorise any of the costs and expenses of a winding up to be paid out of the assets subject to a floating charge; that if a company was in both administrative receivership and liquidation, its former assets were comprised in two separate funds; that each fund bore its own costs of administration and neither was required to bear the costs of administering the other, and in particular the assets comprised in a floating charge were not required to bear the costs and expenses of winding up as well as those of the receivership; that In re Barleycorn Enterprises Ltd [1970] Ch 465 was wrongly decided and should not be followed; and that none of the costs and expenses of winding up the company were payable out of the assets subject to the floating charge until the whole of the principal and the interest charged thereon had been paid.

(WLR)