The Supreme Court held yesterday that the costs of an examiner of a company must be paid in full out of the company's assets before any of the costs of a liquidator appointed by a court after the examiner has ceased to act.

Mr Justice Keane said there was "some force" in arguments that the court's construction of Section 29.3 of the Companies Act 1990 will create difficulties for some liquidators and may lead to liquidations not taking place.

Mr Justice Keane made the comment when giving judgment on an appeal against a High Court decision concerning the issue of remuneration of an examiner to a company.

He said the appeal taken by Mr Rory O'Ferrall, who had been appointed examiner of Springline Limited (in liquidation), raised "an important point of law".

This was whether the costs of an examiner to a company must be paid in full out of the company's assets before any of the costs of a liquidator appointed by the High Court, after the examiner has ceased to act.

Mr O'Ferrall was appointed examiner to Springline in February 1996 and, after examining its affairs, concluded it could not survive as a going concern. The High Court then ended the company's protection and in June 1996 ordered it should be wound up and appointed Mr Patrick McSweeney as official liquidator.

The examiner later that year applied to the court for payment of some £54,000 in costs, remuneration and expenses. The judge said the case turned on the construction of Section 29 (3) of the Companies Act 1990. It stated: "The remuneration, costs and expenses of an examiner which have been sanctioned by order of the court shall be paid in full and shall be paid before any other claim, secured or unsecured, under any compromise or scheme of arrangement or in any receivership or winding up of the company to which he has been appointed."

The High Court found that the costs of an examiner appointed by the court in a compulsory winding up could not properly be described as "a claim" or a debt and that Section 29 (3) did not confer the priority claimed by the examiner.

The court allowed the appeal and made an order that the priority given by Section 29 (3) gives the examiner priority over the costs, expenses and remuneration of liquidator in the winding up.