Solicitors' costs in defending winding-up proceedings - get paid first!

The Court of Appeal in Neumans LLP v Andronikou and others [2013] EWCA Civ 916 [2013] All ER (D) 284 (Jul) has confirmed that the costs of the company’s solicitors in defending a winding-up petition would not be payable as an expense of the administration where the administrators had been appointed via the out of court route.

In dismissing the applicant solicitor's firms appeal held that, as a matter of construction of the Senior Courts Act 1981 and the Insolvency Rules 1986, the judge had been right in law to rule that the solicitors' fees in relation to the defence of a winding up petition had been payable as an expense of the liquidation, and were not payable as an expense in the out of court administration of the company.

What were the key features of the appeal?

The Court of Appeal heard an appeal by a firm of solicitors, Neumans LLP, who appeal against the decision of Morgan J given in November 2012 (Neumans LLP v Andronikou and others Re Portsmouth City Football Club Ltd (in liquidation)  [2012] EWHC 3088 (Ch), [2012] All ER (D) 34 (Nov)).

The Court of Appeal decided the first decision was 'dead on' and no further analysis of the legal position or the facts would be needed. Mummery LJ, who gave the lead judgment, very helpfully set out the legal principles for similar types of application. The principles are summarised in para [41] of the judgment. In particular, it should be noted that fees owing to solicitors by a company, for which they have acted in unsuccessfully opposing a winding up petition against it, may be payable as an expense of the subsequent liquidation of the company—there is no general principle of law or statutory provision making those fees payable as an expense of the administration of that company out of court.

What should lawyers be aware of?

This simply reaffirms the position from the High Court where solicitors should ensure they implement practical policies to ensure they get paid. This can be by payment in advance. It’s difficult when there is a winding-up petition as there is a risk that payments could be reclaimed by a liquidator. It may be that solicitors need to get payments from a director or a third party.

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