High Court of Ireland Decisions

G.W.I. Ltd, Re [1987] IEHC 30 (16 November 1987)\

1986 699p ct 5

THE HIGH COURT

IN THE MATTER OF G.W.I. LIMITED

AND

IN THE MATTER OF THE COMPANIES ACTS 1963 TO 1983

Judgment of Me. Justice Murphy delivered the 16th day of

November, 1987.

This is an application by Ere is Investments Limited (Err is) to have the rent payable by G.W.I. Limited under an Indenture of Lease dated the 12th day of August 1974 accruing during the period from the 28th of January 1986 to the 23rd day of July 1986 and amounting in total to £15,013.00 treated as an expense of the liquidation.

By the said Indenture of Lease dated the 12th of August 1974 Err is demised pact of the Kylemor e Industrial Estate at Ballyf er mot, Dublin, to Fc eedex Limited for the teem of 35 years subject to the cent of £16,711.80 or such greater rent as might be fixed in pursuance of the rent review provisions contained therein. The demised premises consisted as to 2,835 square feet of office accommodation and as the remaining 14,658 square feet of warehouse space.

It appears that by an Indenture of Assignment made in the month of December 1974 the interest of Freedex Limited in all of the premises demised by the said lease were assigned to and became vested in G.W.I. Limited.

By an Indenture of Underlease dated the 6th day of February 1980 made between G.W.I. Limited of the one part and Litho Studios Limited of the other part that portion of the premises demised by the said lease consisting of 2/835 square feet of office accommodation was subleased by G.W.I. Limited to Litho Studios Limited for the residue of the term granted by the headlease subject to the yearly rent of £5,670.00 or such greater amount as might be determined in accordance with the rent review provisions contained therein. The ownership of the warehouse space and the occupation thereof was retained by G.W.I.

On the 28th of January 1986 a petition was presented for the winding up by the Court of G.W.I. Limited and Mr. Tom Grace was appointed Provisional Liquidator thereof. On the 10th day of February 1986 an Order was made for the winding-up of G.W.I, and Mr. Grace was appointed Official Liquidator.

As at the date of the commencement of the liquidation the rent payable under the headlease was £33,000.00 per annum and had been paid up to the 31st of August of 1985. A further £22,000.00 had accrued due from that date to the date of the appointment of the Official Liquidator.

The undisputed facts are that on the 31st January 1986 Mr. Grace vacated that part of the demised premises of which the Company had the actual occupation. On the 22nd April 1986 the Solicitors on behalf of the Official Liquidator offered to surrender the interest of the Company under the headlease and that offer was not accepted. On the 23rd July 1986 the Liquidator, pursuant to the Order of this Court, disclaimed the interest of the Company under the headlease. The amount of the rent which would have accrued due under the headlease from the commencement of the liquidation to the date of the disclaimer was £15/013.03 together with interest payable in accordance with the provisions of the lease amounting to £1,708.10 making a total of £16,721.13. Litho Studios Limited retained possession and occupation of that part of the premises held by them under the sublease dated the 6th of February 1980. A sum of £3,999.96 was remitted to the credit of the G.W.I. Company's account under a Standing Order in existence prior to the commencement of the liquidation in respect of the rent payable under the sublease from the commencement of the liquidation until the date of the disclaimer of the superior interest.

In these circumstances the Official Liquidator contends that he did not at any time retain any part of the premises demised by the headlease for the benefit of the liquidation and on behalf of Erris it is contended that having regard to the receipt of the rent payable under the sublease the Official Liquidator has had the use and benefit not merely of the premises comprised in the underlease but all of the premises demised by the headlease.

In a line of authorities stretching from the decision of the Court of Appeal in England in Oak Pits Colliery Company 1882 21 Ch.D. 322 to the decision of Keane J. in Tempany and Royal Liver Trustees Limited 1984 I.L.R.M. 273 it has been established that where a Liquidator takes possession or remains in possession of leasehold property for the purposes of the winding-up the rent of the premises ought to be regarded as a debt contracted for the purpose of winding-up the company and ought therefore to be paid in full like any other debt or expense properly incurred by the Liquidator for the same purpose. This principle was discussed at some length by Plowman J. in ABC. Coupler and Engineering Company Limited 1970 A.E.R. 650 and V.C. Pennycuick In re Downer Enterprises Limited 1974 I W.L.R. 1460. The principle was clearly applied though without reference to any decided cases, In The Matter of M. Power and Sons Limited Grant .v. Aston 103 I.L.T.R. 39 where the late Mr. Justice Kenny made an Order directing a Liquidator to pay rent from the commencement of a liquidation to the date in which the property was disclaimed by him. Indeed this principle is reflected in the Rules of the Superior Courts (S. I. Number 15 of 1986) Order 74 Rule 106 (replacing Rule 107 of Order 74 introduced by S.I. Number 28 of 1966) which provides as follows:

"When any rent or other payment falls due at stated times and the Order or resolution to wind-up is made at any time other than at one of those times, the persons entitled to the rent or payment may prove for «. a proportionate part thereof up to the date of the winding-up Order or resolution as if the rent or payment accrued due from day to day. Provided that where the Official Liquidator remains in occupation of premises demised to a company which is being wound up, nothing herein contained shall prejudice or affect the right of the landlord of such premises to claim payment of rent during the period of the

company's or the Official Liquidator's occupation".

Both Plowman J. and Pennycuick V.C. cited with approval a passage from James L.J. In re Lundy Granite Company 1871 6 Ch. App. 462 at 466 in the following terms:

"But in some cases between the Landlord and the company, if the company for its own purposes, and with a view to the realization of the property to better advantage, remains in possession of the estate, which the lessor is therefore not able to obtain possession of, common sense and ordinary justice require the Court to see that the landlord receives the full value of the property".

Apart from the application of principles of commonsense and ordinary justice it is easy to see that commercial realities will frequently necessitate the continued payment of rent after the commencement of a liquidation. If the premises are held at something less than a rack rent it is probable that they will have some realizable value. Clearly if a Liquidator is to complete a sale he must discharge all of the arrears of rent. Even if the leasehold premises have no saleable value but the Liquidator is coerced into retaining occupation thereof for the purpose of carrying on a trade or otherwise for the advantageous winding-up of the company he would be faced with an application by a competently advised lessor with the threat of proceedings either for ejectment for non-payment of rent or perhaps distraint. It is difficult to see how a Court could refuse liberty to the lessor to exercise such rights if leasehold premises were being withheld by the Official Liquidator without paying any rent or fee for the occupation thereof. Indeed it appears that the duty to pay rent or a fee equivalent to the accruing rent was originally seen as the necessary corollary of a prohibition on the right of distress. On the other hand it was clearly held in the Oak Pits Colliery case that the right of the landlord to recover was not limited to the amount which could have been realized by a distress but should indeed extend to the full amount of the rent which accrued during the period over which the premises were retained by the Liquidator for the purposes of the winding-up of the company.

On the other hand it is equally clear that the Official Liquidator as such is not liable to pay rent. He could not be sued on foot on any covenant or agreement in that behalf. The liability to pay rent remains that of the corporate body and what the Courts have done is to operate, as as already been pointed out, a principle based upon commonsense and ordinary justice under which the lessor may be compensated for being kept out of his premises during the period whilst they are retained by the Liquidator for some benefit which he anticipates will accrue to the liquidation as a result of the retention thereof.

What the applicants contend in the present case is that the Liquidator in fact retained possession of the premises the subject matter of the underlease in the only way in which he could enjoy possession thereof, that is to say, by the receipt of the rent payable by the underlessee. The argument then goes on to claim that the receipt of the rent could only be justified or explained by a claim to the interest of the lessee under the headlease so that it followed that the Official Liquidator, Mr. Grace, was, notwithstanding his statement to the contrary, maintaining a claim to the entire of the premises for the benefit of the liquidation. The effect of this argument would be to compel the Official Liquidator to pay in full a sum in excess of £17,000.00 for the reason and only for the reason that he had received a sum just under £4,000.00. Such a consequence would not accord with the principles of commonsense and ordinary justice invoked by James L.J.

I am satisfied that Mr. Grace vacated, as he said he did, all of the demised premises which had physically been in the occupation of the Company within some weeks of his appointment as Provisional Liquidator. I accept that he made no positive efforts to collect the rent payable on foot of the underlease and I believe that he did not at any time anticipate that he could dispose of the leasehold interest with the benefit of the underlease on terms which would be advantageous to the creditors of the Company. If Err is had applied to the Court for liberty to institute proceedings for recovery of the premises for non-payment of rent or otherwise I anticipate that it would have been granted by the Court with the acquiescence of the Liquidator . I can see nothing in the actions or inactions of the Official Liquidator which would justify me in permitting him to make any payment to Err is in respect of the rent which accrued due on foot of the headlease subsequent to the commencement of the liquidation. On the other hand I do accept that the retention by the Official Liquidator of the rent of nearly £4,000.00 received by him from the under lessee would represent an injustice and that I should properly order the payment of that sum by the Official Liquidator to Erris.

The decision of the Court falls to be determined not by the particular provisions of any legislation but in accordance with the dictates of justice and commonsense as Lord Justice James pointed out or what Templeman J. (as he then was) describes as what was "fair "and reasonable" or what was "equitable" as between the Lessor and the creditors whom the Liquidator represents (see Re. H.H. Realisations Ltd. 31 P. & C.R. 249).

Applying these principles it seems to me that the appropriate order is to direct the Official Liquidator to pay to the Applicants all of the rent payable under the sublease which was received by him from the date of the commencement of the liquidation to the date on which the headlease was disclaimed.