Re Barleycorn Enterprises Ltd [1970] Ch 465 is a UK insolvency law case, concerning the priority of creditors in a company winding up.

This was overturned by the House of Lords in Buchler v Talbot, but reinstated by Parliament through an amendment to the Insolvency Act 1986 s 176ZA.

The directors had employed Cardiff based chartered accountants, Mathias and Davies, to prepare a financial statement for the company.

The judge at first instance, Sir Owen Temple Morris QC, held that the accountants had priority.

Section 267 applies in a compulsory winding up: "The court may, in the event of the assets being insufficient to satisfy the liabilities, make an order as to the payment out of the assets of the costs, charges and expenses incurred in the winding up in such order of priority as the court thinks just."

601; In re Oriental Hotels Co (1871) LR 12 Eq 126, 133; and In re Regent's Canal Ironworks Co (1875) 3 Ch D 411, 427, per James LJ.

I will read them as they now appear in the Act of 1948 and emphasise the significant words: Section 319 (1) to (4): "In a winding up there shall be paid, in priority to all other debts - " rates, taxes, wages and so forth.

"(5) The foregoing debts shall - (a) rank equally among themselves and be paid in full, unless the assets are insufficient to meet them, in which case they shall abate in equal proportions; and (b) in the case of a company registered in England, [or Scotland], so far as the assets of the company available for payment of general creditors are insufficient to meet them, have priority over the claims of holders of debentures under any floating charge created by the company, and be paid accordingly out of any property comprised in or subject to that charge; (6) Subject to the retention of such sums as may be necessary for the costs and expenses of the winding up, the foregoing debts shall be discharged forthwith so far as the assets are sufficient to meet them.

..." Those sections show quite clearly that since 1897 a debenture holder, who holds a floating charge, can no longer sweep up all the company's property for his own benefit.

As part of those costs, they take priority over the preferential payments for rates, taxes and wages, and over the debenture holder.

It is also confirmed by the statutory form which contains a note to the effect that the estimates for "unsecured creditors" are subject to the cost of winding up.

We were referred to two cases which were said to be to the contrary, namely, Westminster Corporation and United Travellers Club v Chapman [1916] 1 Ch.

The decision of this court in the present case will, I appreciate, have relatively far-reaching effects and will end a situation in which liquidators have in the past successfully taken a point which can be wholly destitute of merits, as was indeed conceded in the instant case, and one which can enure to the detriment of the public interest when there is a winding up order of the court.

That line is perhaps best illustrated in the judgments of Jessel MR and James L in In re David Lloyd & Co (1877) 6 ChD 339, 343, 345 which make plain that in those days judgments on points such as those in issue before this court today were given upon the basis that when a winding-up order took effect the assets of the company changed to being assets of the debenture holders and could not be touched.

One practical effect of the changes is that instructions given to accountants to compile a statement of affairs when once sanctioned (rule 56 ) by an official receiver, an officer of the court, cannot, as was here attempted, in future be disowned by the liquidator nor can the burden of compiling such a statement necessarily be transferred to public funds in the event of the directors failing to provide one.

I find it very difficult to defend the logic which would make the order of priority as between costs and preferential debts dependent upon whether or not there was a floating charge.

The point is emphasised when one looks at section 319 (5) (b), which is dealing with the position as between the preferred creditors and the debenture holders where there are no free assets to meet the claims of the preferential claimants; and it is provided that in the case of a company registered in England, so far as the "assets of the company available for payment of general creditors" - now, there is a phrase which clearly means free assets - "are insufficient to meet the foregoing debts, they have priority over claims of holders of debentures," and so on.

If that be right, it is perfectly clear that rule 195 requires that the assets of the company should be used to meet these costs in preference to the claims of either preferential creditors or debenture holders.