Neumans LLP (A Firm) v Andrew Andronikou & Ors

Unpaid solicitors’ fees for unsuccessfully opposing a winding-up petition may be allowed as an expense of a subsequent liquidation. They are not, however, an expense of an intervening out-of-court administration unless they fall within the exhaustive categories prescribed by the Insolvency Rules 1986.

The court cannot supplement those categories through statutory construction, its inherent supervisory jurisdiction, or section 51 of the Senior Courts Act 1981. Fees owed by the company are not themselves “costs” within section 51. Any perceived anomaly or omission in the statutory scheme requires legislative amendment.

A firm of solicitors acted for a company in unsuccessfully resisting a winding-up petition. A secured creditor subsequently appointed administrators out of court, automatically suspending the petition. After a failed creditors’ voluntary arrangement, the administration ended and the company entered liquidation, but the administration had exhausted its assets.

Morgan J held in [2012] EWHC 3088 (Ch); [2013] Bus LR 374 that the court could allow specified fees as liquidation expenses, but lacked jurisdiction to make them expenses of the out-of-court administration. The solicitors appealed, relying on section 51 of the Senior Courts Act 1981, statutory and inherent supervisory powers, and an alleged lacuna in the Insolvency Rules 1986. The central issue was whether any of those sources empowered the court to confer administration-expense priority on the fees.

1. Appeal dismissed. Mummery LJ, with whom Rimer and Underhill LJJ agreed, adopted Morgan J’s judgment without reservation and affirmed his order. The specified solicitors’ fees could be allowed as expenses of the liquidation, but not as expenses of the preceding out-of-court administration.
2. The Insolvency Rules 1986 provide the governing priorities for liquidation and administration expenses. Rule 2.67 contains a complete list of the expenses permitted where administrators are appointed out of court. Fees owed for work done before that appointment in opposing a winding-up petition did not fall within the list. By contrast, rule 4.218(3)(h) expressly empowered the court to allow appropriate fees as expenses of the subsequent liquidation, even though the opposition to the petition and the application to strike it out had failed.
3. The court could not fill the asserted lacuna through purposive construction or judicial legislation. If the distinction between court-ordered and out-of-court administrations created an anomaly, correction required an express amendment to the legislation or Rules. Solicitors acting for an insolvent or potentially insolvent company could seek third-party funding or indemnities to protect themselves.
4. The court’s inherent jurisdiction to direct administrators as officers of the court could not be exercised inconsistently with the exhaustive statutory list. The fees had not been incurred in performing the administrators’ functions, were not necessary or incidental to their duties, and were not incurred for the purpose of the administration. The solicitors’ retainer had ended before the administration began.
5. Section 51 of the Senior Courts Act 1981 supplied no direct or indirect route to administration priority. The solicitors sought payment of fees owed by the company, not an order for costs which they had incurred. Section 51 could not require either the company or the administrators to pay those fees as an expense of the out-of-court administration.
6. Even if a relevant jurisdiction had existed, the court would not have exercised it. Payment would not have benefited the administration and would have prejudiced unsecured creditors or persons holding valid claims for administration expenses.

1. Court of Appeal (Civil Division): In [2013] EWCA Civ 916, the court unanimously dismissed the solicitors’ appeal, adopted Morgan J’s reasoning and affirmed his order.
2. High Court, Chancery Division, Companies Court: Morgan J held in [2012] EWHC 3088 (Ch); [2013] Bus LR 374 that the fees could be allowed as expenses of the liquidation but could not be made expenses of the out-of-court administration.