Q&As

A firm of solicitors (S) represented a company prior to the company entering administration. S holds a sum of money belonging to the company in its client account. S claims to be owed money by the company and argues that it would be entitled it to a charge pursuant to section 73 of the Solicitors Act 1974 and so it may set off the sums due and prove for balance. The company in administration has not issued any notice of intention to distribute, therefore administration set-off does not apply. S argues that not allowing the set off would give the company a windfall. The administrators argue such a course of action would be in breach of the moratorium and/or the pari passu principle. Is there any case law/guidance on this position?

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Published on LexisPSL on 28/01/2020

The following Restructuring & Insolvency Q&A provides comprehensive and up to date legal information covering:

  • A firm of solicitors (S) represented a company prior to the company entering administration. S holds a sum of money belonging to the company in its client account. S claims to be owed money by the company and argues that it would be entitled it to a charge pursuant to section 73 of the Solicitors Act 1974 and so it may set off the sums due and prove for balance. The company in administration has not issued any notice of intention to distribute, therefore administration set-off does not apply. S argues that not allowing the set off would give the company a windfall. The administrators argue such a course of action would be in breach of the moratorium and/or the pari passu principle. Is there any case law/guidance on this position?

Section 234(2) of the Insolvency Act 1986 (IA 1986) provides that:

‘Where any person has in his possession or control any property, books, papers or records to which the company [in administration] appears to be entitled, the court may require that person forthwith (or within such period as the court may direct) to pay, deliver, convey, surrender or transfer the property, books, papers or records to the office-holder property of the company.’

Section 73 of the Solicitors Act 1974 (SA 1974) applies where a solicitor ‘has been employed to prosecute or defend any suit, matter or proceedings’ and entitles the solicitor to apply to court for a charge on ‘any property recovered or preserved...for his assessed costs in relation to that suit, matter or proceeding’. You do not specify the circumstances in which the firm

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