Preferential Creditor Status in Irish Corporate Insolvency Law: A Need for more Priorities?

• Author: Jonathan McCarthy
• Position: BCL, LLM, PhD
• Pages: 62-76

IRISH JUDICIAL STUDIES JOURNAL

[2020] Irish Judicial Studies Journal Vol 4(1)

62

PREFERENTIAL CREDITOR STATUS IN

IRISH CORPORATE INSOLVENCY LAW:

A NEED FOR MORE PRIORITIES?

Abstract: This article evaluates whether there is a need for further priorities within current preferential debts

under Irish corporate insolvency law. In acknowledging the choices facing the legislature when attempting to

achieve distributive justice, the article reflects on the reality of insolvency and whether according preferential

status to creditors is as significant in practice as might be imagined. The article reviews arguments regarding

preferential ranking of the Revenue Commissioners as creditors in insolvency. In light of recent proposals in

the UK, the article scrutinises claims to preference of other unsecured creditors, such as prepayment

consumers and, in particular, SME traders.

Author: Dr. Jonathan McCarthy, BCL, LLM, PhD.

Introduction

Even in the specific context of corporate insolvency, the order of priority to creditors’

claims in the distribution of payments in a company’s winding-up tends to be accepted as a

fact of life in law and practice.

1

There is little consideration as to why preferences enjoyed

by certain creditors are still justified relative to the legitimate claims of other creditors.

2

From time to time, there have been analyses of the value arguments for and against the

abolition of the Revenue Commissioners’ preferential status under Irish law. Rather than

concentrating on removing one group’s preference, there are no similar assessments of the

reasons for according other classes of creditors a preferential position in the statutory

ranking of creditors’ claims. A discussion of this nature is overdue in Ireland – especially in

light of recent developments in the United Kingdom relating to draft legislation enabling

partial reintroduction of the Crown preference in insolvency and to proposals for

preferential treatment of prepaying consumers’ claims.

This article commences by providing an overview of the current statutory preferences

under Irish corporate insolvency law. The article highlights how legislation – rather than

the judiciary – has proven to be the means by which the implementation of distributive

1

In Irish case law, the basis for the statutory priority of claims in distribution in liquidation was summarised by Laffoy J

in Re Greendale Developments Ltd. [1997] 3 IR 540, 547: ‘The winding-up process is the process of the administration of the

assets of the company, their collection, realisation and distribution in discharge of the liabilities of the company to the

creditors and of the entitlements of its contributories in accordance with the scheme of priorities provided in the

Companies Acts’.

2

Examples of academic studies on the preferential status of creditors generally include: Susan Cantlie, ‘Preferred Priority

in Bankruptcy’ in Jacob Ziegel (ed) Current Developments in International and Comparative Corporate Insolvency Law (Clarendon

Press 1994); Andrew Keay and Peter Walton, ‘Preferential Debts: An Empirical Study’ (1999) 3 Insolvency Lawyer 112;

Rizwaan Mokal, ‘Priority as Pathology: The Pari Passu Myth’ (2001) Cambridge Law Journal 581; Barbara Morgan, ‘Should

the Sovereign Be Paid First? A Comparative International Analysis of the Priority of Tax Claims in Bankruptcy’ (2000) 74

American Bankruptcy Law Journal 461; Morris Shanker, ‘The Worthier Creditors (and a Cheer for the King)’ (1976) 1

Canadian Business Law Journal 341; Christopher Symes, Statutory Priorities in Corporate Insolvency Law: An Analysis of Preferred

Creditor Status (Ashgate Publishing 2008); and Jacob Ziegel, ‘Preferences and Priorities in Insolvency Law: Is There a

Solution?’ (1995) 39 St Louis University Law Journal 793. In the Irish context, there has been consideration of statutory

priorities in: Company Law Reform Committee, Report of the Company Law Reform Committee (Stationery Office 1958);

Bankruptcy Law Committee, Report of the Bankruptcy Law Committee (Stationery Office 1972); Company Law Review Group

(CLRG), First Report (1994), Chapter 8; available at: accessed 22 July 2019; CLRG,

Annual Report 2007; available at: accessed 22 July 2019; Law Reform Commission

(LRC), Personal Debt Management and Debt Enforcement (LRC 100-2010); and in the textbooks of Irene Lynch Fannon and

Gerard Murphy, Corporate Insolvency Law and Rescue (2nd edn, Bloomsbury Professional 2012) and Mary Donnelly, The Law

of Credit and Security (2nd edn, Round Hall 2015).