Legal Digest. Personal Liability Of Judicial Managers And Receivers Under The Companies Act. Lee Eng Beng

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1 An online repository of various articles published by our lawyers Personal Liability Of Judicial Managers And Receivers Under The Companies Act Lee Eng Beng 1 Rajah & Tann 4 Battery Road #26-01 Bank of China Building Singapore Tel: Fax: eoasis@sg.rajahandtann.com Website:

2 Personal Liability Of Judicial Managers And Receivers Under The Companies Act Lee Eng Beng * Section 227I Companies Act and the English case of Powdrill v Watson are considered in this article which argues that the test in Powdrill of when a judicial manager can be said to have adopted a contract such that he incurs personal liability for the contract applies equally in Singapore. The article also looks at the position of the creditor in respect of contracts entered into by the judicial manager under section 227J Companies Act, and concludes that this section gives it a right to bring a claim directly against the company once the judicial manager has ceased to act as a judicial manager. Lastly, the article considers section 218 Companies Act as to whether a receiver is personally liable under employment contracts. Powdrill v Watson By express statutory provision under the Companies Act, personal liability is imposed on judicial managers and receivers of companies under certain circumstances in respect of transactions into which they cause the company to enter. Pursuant to section 227I(1)(b), 1 a judicial manager is personally liable on any contract, including any contract of employment, entered into or adopted by him in the carrying out of his functions, unless such personal liability is excluded by the contract or by a notice given to the other party. 2 He is however entitled to an indemnity in respect of that liability out of the company s property in priority to unsecured debts and debts secured by a floating charge. 3 The personal liability of a company receiver is governed by a different formula; section 218(1) provides that a company receiver shall be liable for debts incurred by him in the course of the receivership or possession for services rendered, goods purchased or property hired, leased, used or occupied. With respect to section 227I(1)(b), the concept of adoption used in that provision is found in certain English statutory provisions of the Insolvency Act 1986 relating to administrative receivers and administrators. 4 An administrative receiver in England is personally liable on any contract entered into by him in the carrying out of his functions (except in so far as the contract otherwise provides) and any contract of employment adopted by him in the carrying out of his functions, and * LL.B. (Hons) (NUS); BCL (Oxon); Lecturer, Faculty of Law, National University of Singapore. Unless indicated otherwise, all references to statutory provisions are with respect to the Companies Act (Cap 50). Sections 227I(1)(b) and (2) of the Companies Act. Note that in the case of a contract entered into by the judicial manager, the exclusion of personal liability must be contained in the contract itself; where the contract is one adopted by him, he can exclude personal liability by serving a notice on the other party. Section 227I(1)(c). For the purposes of this note, it is enough to appreciate that an administrator is the approximate English equivalent of the judicial manager, while an administrative receiver is essentially a company receiver given special statutory powers. Page 1

3 he is entitled to an indemnity out of the assets of the company in respect of this liability. 5 Though superficially similar, section 227I(1)(b) is different in two key respects. Firstly, the judicial manager is personally liability on all contracts adopted by him and not only contracts of employment. Secondly, the judicial manager s personal liability may be excluded for all contracts whether entered into or adopted by him. 6 The concept of adoption also appears in the English legislation with respect to administrators and administrative receivers. With respect to administrators, the rule is that any sums payable in respect of debts or liabilities incurred while a person is an administrator of a company, under contracts of employment adopted by him, shall be charged on and paid out of the company s property in priority to even his proper remuneration and expenses. 7 In the case of an administrative receiver, he is personally liable on any contract of employment adopted by him, though he is entitled, in respect of such liability, to an indemnity which is charged on and paid out of the company s property. 8 Adoption is a concept that has given rise to much litigation in England. In Powdrill v Watson 9, the House of Lords, after a series of controversial decisions in the lower courts, 10 finally had the opportunity to address the questions of when a contract of employment is adopted by an administrator or administrative receiver of a company and the consequences of such adoption. The case arose from a combined hearing of three appeals, one involving a company in administration and the other two involving companies in administrative receivership. In each case, the administrators or the administrative receivers wrote to the company s employees stating that the company will continue to employ them but that they were not adopting the contracts of employment. The first question for their Lordships decision was whether there had been adoption of the contracts of employment notwithstanding the protestations of the administrators and administrative receivers to the contrary. This question was answered in the affirmative. Lord Browne-Wilkinson, with whom the other Law Lords agree, held that adoption in the context of the English provisions connoted some conduct by the administrator or administrative receiver which amounted to an election to treat a contract of employment with the company as gi ving rise to a separate liability in the administration or receivership. There could not be conditional or qualified adoption. If employment was continued for more than 14 days 11 after the appointment of the administrator or the administrative receiver then there has been Section 44(1) of the Insolvency Act This indemnity is charged on and paid out of any property of the company in his custody or under his control in priority to any security held by his appointor: section 45(3) of the Insolvency Act It is puzzling why the legislation should impose personal liability on the judicial manager and at the same time provide that he is free to exclude such liability. Which properly advised judicial manager would not exclude his personal liability? There is no advantage to be gained or detriment to be avoided by his assumption of personal liability. Surely it cannot be said of a judicial manager that he is irresponsible, negligent or unfit for his appointment simply because he is reluctant to assume personal liability. Section 19(5) of the Insolvency Act Sections 44(1) and 45(3) of the Insolvency Act [1995] 2 WLR 312, [1995] 1 BCLC 386. Re Specialised Mouldings Ltd (13 February 1987, ChD, unreported); Powdrill v Watson [1994] 2 All ER 513, [1994] 2 BCLC 118, [1994] ICR 395; Re Leyland DAF Ltd (No 2), Re Ferranti International plc [1995] 2 WLR 312, [1994] 2 BCLC 760. Pursuant to sections 19(5) and 44(2) of the Insolvency Act 1986, nothing done or omitted to be done within 14 days of the appointment of the administrator or administrative receiver shall amount to adoption of a contract. In Singapore, section 227I(3) provides that nothing done or omitted to be done within 28 days after the making of a judicial management order shall constitute adoption of a contract. Page 2

4 adoption of the contract of employment. With regard to the local position, the rule in Powdrill v Watson that continuation of employment equals adoption of the contract of employment would probably apply to section 227I(1) in so far as contracts of employment are concerned. However, as mentioned above, the test of adoption in section 227I(1)(b) applies to all contracts to which the company is a party and not only to contracts of employment. With respect to other types of contracts, one can only refer to the general test of adoption put forward by Lord Browne-Wilkinson, that is, whether there is conduct by the judicial manager which amounts to an election to treat a contract with the company as giving rise to a separate liability in the judicial management. One suggestion may be that, by analogy with the treatment of contracts of employment in Powdrill v Watson, the judicial manager should be treated as having adopted a contract if he allows the contract to remain on foot and takes no steps to repudiate it. This approach would be misconceived. Unlike a receiver, a judicial manager is a true agent of the company and is generally not at liberty to act in disregard of the company s contractual obligations. 12 He should not be taken to have adopted a contract merely because he refrains from repudiating it or performs the company s side of the bargain; such conduct is consistent with his agency and, in the absence of any other factors, cannot constitute an election to treat the contract as givi ng rise to a separate liability. Unequivocal conduct, such as an express or implied declaration of adoption, would be required. A contract of employment attracts the application of apparently different rules because it is usually determinable by either side upon the giving of notice; the company is under no obligation to continue the employment indefinitely. Thus, the continuation of employment amounts to a decision not to exercise the company s right to terminate the employment and this, as held in Powd rill v Watson, would be an election to treat the contract of employment as giving rise to a separate liability in the judicial management. The dichotomy, then, is not really between contracts of employment and other contracts. The critical question is always whether there has been an election by the judicial manager. If a contract is not determinable other than by its breach or by the assumption of some liability by the company, its continuation by the judicial manager can never in itself constitute adoption. If, on the other hand, a contract may be terminated by the company without any consequential liability, whether by virtue of a contractual stipulation to that effect or a repudiatory breach by the other party, so that the decision whether to so terminate merely involves an exercise of managerial discretion, the judicial manager s restraint from terminating the contract would constitute adoption of the contract. 13 The second aspect of Powdrill v Watson which bears mention is the holding that, although the administrators and administrative receivers were taken to have adopted the contracts of employment, the consequence of such adoption applied only to liabilities arising during the period 12 Astor Chemicals Ltd v Synthetic Technology Ltd [1990] BCLC 1. Note that unlike a liquidator, a judicial manager has no statutory right to disclaim a contract. There may be situations where a judicial manager would be justified in causing the company to breach a contract, but in all probability these would be exceptional cases where, on balance, the benefit to the company and its general creditors far outweighs the detriment caused to the other party to the contract. A prudent judicial manager, it is suggested, would not cause such a breach without first seeking the sanction of the court. Page 3

5 while the respective administrators and administrative receivers held office. In the context of administration, section 19(5) of the Insovlency Act 1986 provided that any sums payable in respect of debts or liabilities incurred while a person was administrator, under contracts entered into or contracts of employment adopted by him in the carrying out of his functions shall be charged on and paid out of the company s property in priority to certain debts. Lord Browne- Wilkinson held that this provision applied only to debts or liabilities which had become due, though not necessarily immediately payable, during the period of administration; debts or liabilities which had become due before or after the period of administration were excluded, even though they arose under a contract entered into or adopted by the administrator. Moreover, the Apportionment Act 1870 applied in respect of arrears which accrued before the appointment of the administrator but which were not immediately payable. A similar conclusion was reached with respect to the position of the administrative receivers. Section 44(1)(b) of the Insolvency Act 1986 which made an administrative receiver personally liable on any contract entered into by him or any contract of employment adopted by him was held to be similarly restricted in its application to liabilities incurred under the contract during the period of administrative receivership. In Singapore, section 227J(3)(a) provides that, where a person ceases to be judicial manager, any sums payable in respect of any debts or liabilities incurred while he was a judicial manager shall be charged on and paid out of the property of the company in priority to unsecured debts and debts secured by a floating charge. This provision is similar to section 19(5) of the Insolvency Act However, one notable distinction is that section 227J(3)(a) goes on to qualify that the relevant debts or liabilities must be incurred only under contracts entered into by the judicial manager in the carrying out of his functions, and not contracts adopted by him. 14 No charge on the company s property is given in respect of debts or liabilities incurred under contracts adopted by the judicial manager. 15 The significance of Powdrill v Watson in this context, then, is limited to debts and liabilities incurred under contracts entered into by the judicial manager: the payment of such debts and liabilities would be charged on the company s property only where they were incurred (in the sense of having accrued but not necessarily being immediately payable) before the discharge of the judicial management order, and the Apportionment Act 16 would be applicable where appropriate. Section 227I(1)(b) provides that the judicial manager is personally liable on contracts entered into or adopted by him and this has some parallels with section 44(1)(b) of the Insolvency Act The observations in Powdrill v Watson in relation to the personal liability of an administrative receiver on a contract entered into or adopted by him under section 44(1)(b) should thus be applicable here, and the temporal limitations described by Lord Browne-Wilkinson with respect to that provision should similarly restrict the scope of the personal liability by the A lease which is determinable by notice would be another example of such a contract. However, section 227I(4)(b) specifically excludes the judicial manager s personal liability with regard to the company s leases. Compare section 19(5) of the Insolvency Act which applies to debts or liabilities incurred under contracts entered into by the administrator or contracts adopted by him. This is unduly prejudicial to the creditors in respect of those debts or liabilities: see the concluding paragraph of the main text. Cap 8. Page 4

6 judicial manager under section 227I(1)(b). 17 Of course, unlike the English provision, section 227I(1)(b) allows the exclusion of liability by the judicial manager and if liability is so excluded then no issue of personal liability arises. There is, however, one possible qualification to this. Where the judicial manager has adopted a contract, the mode of exclusion of liability, pursuant to section 227I(2), is by the giving of notice but no time limit is prescribed for the giving of the notice. Presumably, the exclusion notice can only have prospective effect and a judicial manager may, in an appropriate case, be personally liable on an adopted contract in respect of liabilities which accrue during the period between the making of the judicial management order and the service of the notice. The preceding discussion reveals a rather curious feature in our legislation with respect to sections 227I(1)(c) and 227J(3). 18 Pursuant to section 227I(1)(c), the judicial manager is entitled to be indemnified, in respect of his personal liability, out of the property of the company in priority to unsecured debts and debts secured by a floating charge. Section 227J(3) states that, where a person ceases to be judicial manager, the payment of any debts or liabilities incurred while he was a judicial manager in respect of contracts entered into by him and his proper remuneration and expenses shall be charged on and paid out of the property of the company in priority to unsecured debts and debts secured by a floating charge. It is not entirely clear whether section 227J(3)(a) allows a direct claim to be brought by a creditor in respect of a contract entered into by the judicial manager against the company s property or merely provides, ex abundanti cautela, an additional avenue for the judicial manager to enforce his indemnity arising under section 227I(1)(c). It is submitted that the former interpretation is the more tenable one. The latter interpretation would render section 227J(3) superfluous as it covers ground already dealt with by section 227I(1)(c). More importantly, it would mean that the creditor in respect of a contract entered into by the judicial manager would be relegated to the position of an ordinary unsecured creditor if the judicial manager excludes his personal liability. If this were the consequence then, in practice, a person who is contemplating entering i nto a contract with a company under judicial management would insist that the contract should not exclude the judicial manager s personal liability, and this in turn would place the judicial manager in a difficult position and prejudice the conduct of the judicial management. This surely cannot be the legislative intention. Section 227J(3) must therefore be read so as to confer on such a creditor the right to bring a direct claim against the property of the company upon the cessation of the office of that judicial manager. 19 However, this interpretation raises a problem of priority between section 227J(3) and section 227I(1)(c), as the same priority is apparently given by the two sections to two different See also section 218(1) which deals with the liability of a company receiver. As the wording of that provision makes clear, the receiver s liability is subject to the same temporal limitations, that is, to debts incurred during the period of receivership only. By reason of the considerable differences in wording, no similar problem arises in England. In particular, sections 44(1) and 45(3) of the Insolvency Act 1986, which is the equivalent of section 227I(1)(c), apply only to an administrative receiver, while sections 19(4) and 19(5) of the Insolvency Act 1986, the equivalent of section 227J(3), apply only to an administrator. In England, therefore, the equivalent of sections 227I(1)(c) and 227J(3) operate in distinct regimes. Not so in Singapore, as sections 227I(1)(c) and 227J(3) both operate in the context of judicial management. Probably, if the cessation of the office of the judicial manager is not contemporaneous with the discharge of the judicial management order but another judicial manager is appointed, the creditor cannot bring an action immediately because of the continued operation of the statutory moratorium. However, section 227J(3) would render him a Page 5

7 sets of claims. Probably, it is a claim under section 227J(3) which should be given priority. Section 227J(3) states that the relevant debts and liabilities shall be charged on and paid out of the property of the company in priority to all other debts except those subject to a security under section 227H(2). A statutory charge is thus conferred on the creditor, though it is subordinated to any other security within the ambit of section 227H(2). 20 The statutory charge itself is nevertheless a security to which section 227H(2) applies, as it is clearly any other security under section 227J(3). Thus a claim under section 227I(1)(c) would be subject to this statutory charge. Furthermore, as noted above, the judicial manager s personal liability may be easily excluded and, as a matter of policy, it is difficult to justify his entitlement to priority or even a pari passu ranking in relation to a claim under section 227J(3) simply because he fails to so exclude. 21 In a normal case, he is under no pressure and has no incentive not to exclude his personal liability. A creditor in respect of a new contract entered into by the judicial manager would usually be satisfied with his rights under section 227J(3), 22 while creditors in respect of adopted contracts are in no position to demand that the judicial manager assume personal liability since they are already legally bound to perform. It should also be noted that giving preference to the judicial manager s indemnity rights does not in any way confer any real benefits on creditors in respect of contracts entered into or adopted by him, even if the judicial manager has not excluded his personal liability under that contract. 23 A final comment on Powdrill v Watson is the attention paid to the once controversial decision, in England at least, of Nicoll v Cutts. 24 In this case, the English Court of Appeal had to consider a previous English provision 25 the material part of which stated that a company receiver shall...be personally liable on any contract entered into by him in the performance of his functions. The Court declared that the consequence of this provision was that if a receiver, upon his appointment, did not terminate a contract of employment but continued to use the employee s services, the receiver was not personally liable on the contract as it was not entered into but merely continued by him. This decision has been statutorily overruled in England by section 44(1) of the Insolvency Act 1986 in relation to administrative receivers and, as noted by Lord Browne- Wilkinson, it was the mischief revealed by it that prompted the introduction of the concept of the secured creditor in respect of the company s assets as they existed at the time of the cessation of office of the first judicial manager. A potential difficulty with this interpretation may arise if there are two or more successive sets of claims arising under section 227J(3) by virtue of the cessation of office of two or more judicial managers. The statutory charge in respect of each set of claims would constitute any other security and each statutory charge would, according to a literal interpretation, be subordinated to the other. This creates an impossible situation and probably, by necessary implication of the appropriate words into the provision, they should be made to rank pari passu in so far as they relate to the same assets. It is not realistic to argue that the judicial manager s claim to an indemnity should be given priority so as to encourage him not to exclude his personal liability. An assurance of priority of payment up to the value of the company s free assets is far inferior to the alternative of not incurring personal liability in the first place. He may not be content with such rights if he feels that the company s assets are inadequate security. However, in such a case, it is also very unlikely that the judicial manager may be persuaded to assume personal liability, and he cannot be impeached if he declines to do so. See further, supra, note 6. Even in the very unlikely event that the judicial manager becomes insolvent, any amount recovered pursuant to the indemnity will have to be shared among his creditors. Furthermore, the amount of the indemnity would probably be limited to whatever payment that the creditor actually receives from the judicial manager s bankruptcy estate: see Jamieson v Trustees of the Property of Hotel Renfrew (1941) 4 DLR 470 and Philips & O Donovan, The Modern Contract of Guarantee (Second Edition, 1992) at 515. [1985] BCLC 322. This was a decision on section 369(2) of the Companies Act 1948 which made the receiver personally liable for contracts entered into by him. Section 369(2) of the Companies Act Page 6

8 adoption of contracts into the English legislation. Unfortunately, it is possible that this mischief continues to exist in Singapore. It will be recalled that section 218(1) provides that a company receiver shall be liable for debts incurred by him in the course of the receivership or possession for services rendered, goods purchased or property hired, leased, used or occupied. While this provision would clearly render a receiver liable on the contracts entered into by him, it may be arguable that, since the onset of private receivership does not terminate the company s existing contracts, 26 the reasoning in Nicoll v Cutts may apply here so that the receiver is not personally liable on a contract of employment, or indeed, any contract which is continued by him after his appointment. 27 It is, however, suggested that Nicoll v Cutts may plausibly be distinguished on the ground that section 218(1) speaks in terms of debts incurred, not contracts, entered into. As pointed out in Powdrill v Watson, a debt is incurred when it becomes due even though it is not immediately payable. It would surely follow that debts may be incurred by a receiver even though they are in relation to a contract which pre-dates his appointment. 28 But such debts must be causally linked to the actions of the receiver in order to be incurred by him, and the appropriate test, it is submitted, is that of adoption as formulated in Powdrill v Watson. If the receiver has elected to treat a pre-receivership contract as giving rise to a separate liability in the receivership, then any debts incurred under that contract during the continuance of the receivership may fairly be said to have been incurred by him. This is not to say that a receiver is in exactly the same position as a judicial manager with respect to the adoption of contracts. Unlike a judicial manager, a receiver may repudiate the company s pre-receivership contracts with virtual impunity because the debenture holder for whose benefit he was appointed is a secured creditor with priority over other creditors with mere contractual claims. 29 The receiver is bound by the company s contractual obligations only in special cases where the other party to the contract has a superior claim to the company s assets 30 or, possibly, where he can invoke the aid of equitable remedies to enforce his contractual rights. 31 Applying the reasoning set out earlier, where a contract is one which may be freely repudiated by the receiver, he will be taken to have adopted the contract if he knowingly refrains from repudiating it. 32 Accordingly, as compared to the position of a judicial manager, there is a much larger category of contracts, undoubtedly including contracts of employment, which the receiver must positively disclaim if he is not to be treated as having incurred the debts arising thereunder Parsons v Sovereign Bank of Canada [1913] AC 160; Associated Newspapers Ltd v Grinston (1949) 66 WN (NSW) 211; George Barker (Transport) Ltd v Enyon [1974] 1 WLR 462, [1974] 1 All ER 900; Nicoll v Cutts, supra, note 24. See O Donovan, Company Receivers and Managers (2nd Edition, 1992) at para , note 3. See section 19(5) of the Insolvency Act 1986 which clearly recognises that debts may be incurred not only under contracts entered into by an administrator, but also under contracts of employment adopted by him. Airlines Airspares Ltd v Handley Page Ltd [1970] 1 All ER 29, [1970] Ch 193; Re Diesel s Components Pty Ltd [1985] 9 ACLR 825; Hill & Partners v FNFC [1989] BCLC 89; Cater-King Pty Ltd v Westpac Banking Corporation [1989] 7 ACLC 993; Astor Chemicals Ltd v Synthetic Technology Ltd, supra, note 12. See for example George Barker (Transport) Ltd v Enyon, supra, note 26; Freevale Ltd v Metrostore (Holdings) Ltd [1984] Ch 199, [1984] 1 All ER 495; Telemetrix plc v Modern Engineers of Bristol (Holdings) plc [1985] BCLC 213, [1985] 1 BCC 99. See Schering Pry Ltd v Forrest Pharmaceuticals Co Pty Ltd [1982] 1 NSWLR 286 and Ash v Newman Creative Devices [1991] BCLC 403. It is however submitted that, on principle, this rule is doubtful in so far as it is applicable where the availability of the equitable remedy is not based on the existence of an equitable interest but merely on the ground that damages would be inadequate. See the comments of MacPherson J in Re Diesels & Components Pty Ltd (1985) 9 ACLR 825. Contrast Associated Newspapers Ltd v Grinston, supra, note 26, where it was held that section 218(1) does not apply where the receiver merely carries out an existing contract made by the company before the receiver went into possession. Page 7

9 This does not place the receiver in an unduly disadvantageous position. As alluded to above, in a normal case, a receiver is under no duty to perform the company s pre-receivership contracts. Further, he owes no duty of reasonable care to the company to trade and carry on the business of the company; 33 this duty is probably owed to the debenture holder who appointed him. 34 His primary duty is owed to the debenture holder and not to the company, 35 and this duty is to realize the company s assets, to distribute the proceeds to the debenture holders in satisfaction of their claims and to return any surplus assets to the company. 36 He is managing not on the company s behalf but in order to facilitate the exercise of the debenture holder s power to enforce the security, for the benefit of the debenture holder. 37 One would therefore expect that any debt incurred by the receiver would in truth be a debt incurred for the benefit of the debenture holder. The liability of such a debt should therefore rightly be borne by the receiver who in turn would be protected by the usual indemnity granted to him by the debenture holder. As a concluding observation, it may be appropriate to highlight the handicapped position of creditors in respect of a debt incurred by a judicial manager under an adopted contract as compared to similar creditors in the receivership regime. As discussed above, the latter have the assurance of the receiver s personal liability and rightly so. In the judicial management context, however, the statute has deemed it proper for the judicial manager to exclude his personal liability in respect of debts incurred during the judicial management under an adopted contract. If the judicial manage r, as he would invariably be minded to do, 38 excludes his personal liability in respect of the adopted contract, the creditor would be relegated to the position of a mere unsecured creditor. Powdrill v Watson has clarified that a judicial manager does not adopt a contract unless he elects to treat it as a separate liability in the judicial management. There is no such election unless he decides to allow the contract to continue when he is at liberty to terminate it. Consequently, if a contract is one which is adopted by the judicial manager, the debt arising thereunder is in all probability one incurred for the benefit of the judicial management. It is therefore unjust to deny to creditors in respect of adopted contracts any form of statutory priority over other creditors. A debt incurred by the judicial manager for the purpose of the judicial management is an expense of the judicial management and should be borne by those for whose benefit the judicial management is being conducted. 39 In this connection perhaps Powdrill v Watson may also stand as a timely reminder that the English legislation does not have this anomaly 40 and emphasise the need for legislative amendment of section 227J(3) Downsview Nominees Ltd v First City Corp [1993] 2 AC 295, [1993] 2 WLR 86. See R A Price v Henderson [1989] 2 NZLR 157. Re B Johnson (Builders) [1953] 1 Ch 634; Lawson (Inspector of Taxes) v Hosemaster Co Ltd [1965] 1 WLR 1399, [1965] 3 All ER 401; Gomba Holdings UK Ltd v Homan [1986] 1 WLR Tan Ah Teck (t/a Plumcorn Plumbing & Construction Co) v Coffral (Malaysia) Sdn Bhd [1992] 1 MLJ 553. Re B Johnson (Builders), supra, note 35. See supra, notes 6 and 22. See Re Atlantic Computers plc, [1992] Ch 505, [1992] 2 WLR 367, [1992] 1 All ER 476, [1990] BCC 859, [1991] BCLC 60, where the liquidation expenses principle was recognised to be applicable, albeit with qualifications, to the administration regime. Section 19(5) of the Insolvency Act 1986 confers priority in respect of all debts or liabilities incurred during the administration, whether under a contract entered into by the administrator or a contract of employment adopted by him. Page 8

10 This article was first published in the Singapore Academy of Law Journal, March Rajah & Tann is one of the largest law firms in Singapore. It is a full service firm and given its alliances, including US premier firm Weil, Gotshal & Manges, is able to tap into a number of countries. Rajah & Tann is firmly committed to the provision of high quality legal services. It places strong emphasis on promptness, accessibility and reliability in dealings with clients. At the same time, the firm strives towards a practical yet creative approach in dealing with business and commercial problems. The information contained in this newsletter is correct to the best of our knowledge and belief at the time of writing. Specific professional advice should be sought before any action is taken. In this regard, you may call the lawyer you normally deal with in Rajah & Tann or the Knowledge Management team at eoasis@sg.rajahandtann.com Rajah & Tann Knowledge Management. All rights reserved. Page 9