Statement on behalf of HM Revenue & Customs and the DTI Insolvency Service (The Crown Departments)

The House of Lords judgment on 4 March 2004 in the case of ‘Leyland Daf Limited’

This statement is issued on behalf of the Crown Departments in light of the judgment made in the House of Lords on 4 March 2004. The judgment alters the way in which liquidators of companies may attempt to recover the payment of liquidation expenses and pay the (liquidation) preferential creditors, where the companies have granted floating charges over their assets.

In cases where the company has granted a floating charge, the costs and expenses of the liquidation will rank after sums payable to both the preferential creditors and to holders of a floating charge and will not be payable ahead of the floating charge security. We are aware of the implications of this decision on insolvency practitioners, who face the prospect of not being paid their costs and expenses, in respect of the winding up.

The Crown Departments, whilst understanding the predicament that the insolvency practitioners may find themselves in, wish to make it clear that we cannot deviate from the underlying principles of this judgment. However, because we have been asked to confirm our policy, we are issuing this statement by way of clarification, to confirm how we will apply the judgment to cases being worked by insolvency practitioners.

In practice we will take no action to disturb cases where costs/fees etc. were paid before the date of the House of Lords judgment. But if other creditors take such action, which results in payment of a Crown dividend, the payment will be accepted. In all other instances we expect the terms of the judgment to be strictly applied.

Signed on behalf of the Crown Departments by

Paul Heggs (HM Revenue & Customs)
Mike Lowell (DTI Insolvency Service)