Determining the priority of payments in an insolvency (Oldham v Katz (acting as joint liquidator of MK Airlines))

Determining the priority of payments in an insolvency (Oldham v Katz (acting as joint liquidator of MK Airlines))

Tina Kyriakides, barrister (and counsel for the appellant) at Radcliffe Chambers highlights the importance of separate funding arrangements when there are no funds to pay administrators’ remuneration.

Re MK Airlines Ltd (in liquidation); Oldham v Katz (acting as joint liquidator of MK Airlines) and another [2018] EWHC 540 (Ch) [2018] All ER (D) 126 (Mar)

What are the practical implications of this case?

This case was concerned with the situation where a company in administration, MK Airlines Limited (MKA) had no funds—and was highly unlikely to have funds in the future—to pay administration expenses, including administrators’ remuneration. Although this case was decided on its facts, it highlights the importance of carefully drafting any agreement for funding the payment of administration expenses and, in particular, administrators’ remuneration, so as to ensure that the monies advanced for these purposes never become company monies, thereby avoiding the consequent risk of an administrator acting in breach of the priority rules under rule 2.67(1) of the Insolvency Rules 1986, SI 1986/1925 (IR 1986).

Further, it highlights how, in such circumstances, it is advisable to use a separate account solely for the purpose of receiving such funds and making payments from them.

What was the background?

MKA went into administration in 2008. Michael Oldham was one of the administrators. MKA, the administrators and a funder entered into a deed of indemnity (the deed), under which the funder agreed to pay MKA’s administration expenses if MKA did not have sufficient funds to do so, with the administrators’ remuneration being paid in priority to the other expenses. The monies drawn down under the deed were paid into MKA’s bank account. Subsequently, MKA went into liquidation and the liquidators brought misfeasance proceedings agains

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