In the Matter of H. Williams (Tallaght) Ltd (in Receivership and Liquidation).

And in the Matter of the Companies Acts 1963-1990.

Winding up - Preferential creditor - Receivership - Creditor had claimed priority in a receivership which had occurred prior to the liquidation of the company - Creditor claiming priority in liquidation - Statutory time limit for notification of the debt to the liquidator or for the liquidator to become aware of the debt - Companies Act 1963 (No 33) sections 98 and 285(14).

The High Court (before Mr Justice Geoghegan); judgment delivered 7 October 1996.

A CREDITOR who claimed a preferential debt in a receivership will not be prohibited from claiming a preferential debt in the event of a company going into liquidation at a later date provided that the liquidator is notified or becomes aware of the creditors claim within the six month statutory time limit pursuant to section 285(14) of the Companies Act 1963. The liquidator's knowledge must be actual knowledge and not constructive knowledge.

The High Court so held in allowing the Revenue Commissioners to claim a preferential debt in respect of corporation tax in liquidation proceedings despite having already claimed a preferential debt in respect of PAYE and PRSI in a prior receivership, but refusing to admit the claim on the grounds that the six month time limit to notify the debt to the liquidator had expired and the liquidator did not have actual knowledge within that time limit.

Ian Finlay SC and Brian Farren BL for the liquidator; Anthony Aston BL for the Revenue Commissioners

MR JUSTICE GEOGHEGAN noted that H. Williams Ltd went into receivership on 22 September 1987, at which time a receiver was appointed on behalf of debenture holders secured by a floating charge. Pursuant to section 98(1) of the Companies Act 1963, the Revenue Commissioners were treated as preferential creditors in relation to debts of the company in respect of PAYE and PRSI as regards assets coming into the receiver's hands upon the realisation of the property the subject matter of the floating charge. The judge noted that the receiver had sufficient funds following this payment to discharge in full the debt owing to the debenture holders and as a result had no further function to perform. On 1 July 1991, the company went into liquidation.

Mr Justice Geoghegan said that the Revenue Commissioners were claiming to be a preferential creditor pursuant to section 285 of the Companies Act 1963 in respect of the company's corporation tax liability. The liquidator of the company claimed that such a preferential claim could not be permitted. The judge noted that it was submitted on behalf of the liquidator that it was not intended under the Companies Acts 1963-1990 that the same creditor could make a preferential claim in a receivership and then claim preference again in a subsequent liquidation and that as a result section 98 of the 1963 Act when read in conjunction with section 285 of the same act should be construed as precluding such a double preference. In the alternative, it was submitted that even if this view was incorrect, the claim by the Revenue Commissions was in any event statute barred.

Mr Justice Geoghegan referred to section 98 of the 1963 act which provides inter alia: "Where a receiver is appointed on behalf of the holders of any debentures of a company secured by a floating charge... then, if the company is not at the time in the course of being wound up the debts which in every winding up are, under the provisions of Part VI relating to preferential payments to be paid in priority to all other debts, shall be paid out of any assets coming to the hands of the receiver...in priority to any claim for principal or interest in respect of the debentures".

He also referred to section 285(2) of the 1963 which provides inter alia that "there shall be paid in priority to all other debts .... all assessed taxes, including income tax and corporation profits tax assessed on the company up to the 5th April next before the relevant date and not exceeding in the whole one year's assessment."

The judge stated that the only link between section 98 and section 285 was that both sections referred to the same debts that were to be preferred. However, he said that there was nothing in section 98 which in any way suggested that once a preferential creditor had been paid his preferential debt in a receivership he could not subsequently make a claim in respect of a preferential debt if the company went into liquidation.

Mr Justice Geoghegan said that although there was no case in point, he had been referred to United Bars Ltd (in Receivership) v Revenue Commissioners [1991] IR 396, where Mr Justice Murphy expressed the view that the purpose of section 98 of the 1963 act was to equate the rights of preferential creditors in a receivership with those in a liquidation and not to improve on these rights. However, the judge said that that case was not in point as what was in issue there was whether assets realised by a receiver on foot of a fixed charge as distinct from a floating charge were to be used for the purpose of discharging preferential creditors when in a liquidation such assets could not be so used. Mr Justice Geoghegan said that it was in this context that the issue of equality was addressed. As a result, the priority of the Revenue Commissioners was well founded.

As regards the issue of the claim by the Revenue Commissioners being statute barred, Mr Justice Geoghegan referred to section 285(14) of the 1963 Act which provides: "The priority conferred by sub section 2 shall apply only to those debts which, within the period of six months after advertisement by the liquidator for claims in at least two daily newspapers circulating in the district where the registered office of the company is situated, either (a) have been notified to him; or (b) have become known to him."

Mr Justice Geoghegan said that advertisements for creditors of the company were published in July 1992. It was not until 16 December 1994 that the liquidator was informed of the Revenue's claim. As a result, it was claimed on behalf of the liquidator that the time limit of six months had expired before notice was given to him.

Mr Justice Geoghegan said that a statutory time limit cannot be extended by a court unless the statute permits an extension (In Re Oakthorpe Holdings Ltd [1989] ILRM 62). He said that no power was conferred on the court either expressly or by implication to extend the time limit imposed by section 285(14).

It was noted by Mr Justice Geoghegan that it had been submitted on behalf of the Revenue Commissioners that the tax liability concerned must have become known to the liquidator within the time limit. It was further submitted that the affidavit filed on behalf of the liquidator did not say that it was not known to him and did not set out sufficient facts to support a plea of statute bar.

Mr Justice Geoghegan rejected this submission. He said that the liquidator's affidavit, when read in context, made it clear not only that he had not been notified within six months but also that the debts to the Revenue were not known to him within that time limit. The judge said that the words "have become known to him" in section 285(14) could not be extended to include constructive knowledge. What was required pursuant to the subsection was actual notification or actual knowledge. As a result, Mr Justice Geoghegan said that the claim of the Revenue Commissioners was out of time.

Solicitors: A & L Goodbody for the liquidator; the Revenue Solicitor for the Revenue Commissioners.