RE CORDUROY FACTORY LTD

IN THE HIGH COURT OF JUSTICE

COMPANIES (WINDING-UP)

CWU NO. 287 OF 1986

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JUDGMENT

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1. By a tenancy agreement dated the 22nd December 1978 Winland Investment Limited (the applicant) agreed to let certain factory premises of which the applicant is the registered owner to a wholly owned subsidiary Corona Corduroy Factory Limited (the company) for a term of 12 years and 10 months at a monthly rental of $74,500. Another tenancy agreement was entered into between the applicant and the company on the 18th September 1979 for a lease of another portion of the same factory premises for the same period at a monthly rental of $12,500.

2. It is alleged that the company fell into arrear with payments of rent to an amount of $6,090,000 which was the sum outstanding in September 1986. On the 31st July 1986, a letter of demand was sent to the company which resulted in a payment of three months' rent. However, as no further payments were made, the applicant exercised its rights of forfeiture under the tenancy agreements. A petition to wind-up the company was presented on the 15th September 1986 by King's Dyeing & Weaving Factory Limited, another company in the same group and which was itself in liquidation. The Official Receiver was appointed to be the provisional liquidator of the company on the 18th September 1986. On the same day, a writ for forfeiture of the two tenancies was issued on behalf of the applicant on the grounds of arrears of rent. A letter was written to the Official Receiver on behalf of the applicant on the 22nd September 1986 exercising the applicant's right of re-entry under the tenancies on the grounds of the liquidation.

3. On the 30th October 1986, Mr. Dermot Agnew and Mr. Poon Hon-kam, partners in the firm of Chartered Accountants Deloitte, Haskins and Sells, were appointed by the Nanyang Commercial Bank Limited to be receivers under a debenture dated the 7th October 1975, and two later debentures which created a floating charge over the property and assets of the company.

4. By an assignment dated the let November 1986, the receivers assigned the benefit of the two tenancy agreements to Shaham Company Limited a wholly owned subsidiary of the company for a consideration of $1.

5. The company was wound-up by an order made on the 3rd November 1986.

6. By the present summons dated the 10th October 1986, the applicant seeks an order for possession of the premises the subject matter of the tenancy agreements together with mesne profits or in the alternative for leave to continue the proceedings commenced on the 18th September 1986 or to institute a fresh action. The summons was served upon the Official Receiver who took a neutual stance at the hearing. However, although they were not served, the receivers appeared and were represented by Mr. Barlow.  Mr. Swaine, counsel for the applicant challenged the receivers' locus standi but Mr. Hugo for the Official Receiver inclined to the view that as they were effectively in possession of the company's assets, they were entitled to be heard. Mr. Barlow drew any attention to Sowman & Ors. v. David Samuel Trust Limited (in liquidation) & Anor.⁽¹⁾ in which Goulding, J. considered the effect of a liquidation on the powers of a receiver appointed under a debenture. He held that although a winding-up deprived the receiver of the power to bind the company personally as its agent, his powers to hold and dispose of the company's property referred to in the debenture were not affected as that authority was acquired from the debenture. That case supports the receivers' entitlement to assign the tenancies but does not affect the landlord's right to apply for the orders sought by the present summons. Indeed, although I allowed Mr. Barlow to make a submission in opposition to the application, I do not think that it was in fact necessary to serve the receivers for by virtue of the compulsory winding-up order their agency was automatically terminated.

7. In his submission, Mr. Barlow agreed that an order be made for leave to continue or to commence fresh proceedings, but argued that an immediate order for possession should not be made as the receivers were not yet in possession of the final accounts of the company.

8. Mr. Swaine cited General Share and Trust Company v. Wetle Brick and Pottery Company⁽²⁾. In that case a lease of mines to a company contained a power of re-entry, if rents or royalties should be in arrear for 30 days, or if the company was wound-up compulsorily or voluntarily. The court made an order for possession holding that the landlord should not be put to the useless expense of bringing an action to which there was no defence. In his judgment at page 267 which was from an appeal of the Vice-Chancellor Hall, Jessel, M.R. said :-

"Under the terms of the proviso he was clearly entitled to re-enter, and could only be kept out of possession by the unlawful act of the tenant. The Vice-Chancellor thought that he ought not to be allowed to re-enter without establishing his right by an action. I see no reason for putting him to an action. I have often said both here and at the Rolls, that when in a winding-up a landlord comes to the Court asking for the possession of property which is under the control of the Court, and the claim is one against which the liquidator would have have no defence, the right course is to order the liquidator to give up possession. It would be a cruel hardship to put the applicant to the expense of bringing an action when the Court can see that there is nothing to be tried. He might lose his costs, as he might be proceeding against the liquidator of a company with no assets. No question arises here as to the construction of the proviso for re-entry so far as regards non-payment of rent. "

9. This case was followed by Oliver, J. as he then was in Re Blue Jeans Sales Ltd.⁽³⁾. Having made his decision to grant an order for possession against a company that was in liquidation on the grounds of non-payment of rent, Oliver, J. was subsequently concerned that matters of administrative inconvenience might arise with regard to the interests of third parties for relief against forfeiture if an order was made in the companies winding-up file. However, he summarised the position in his judgment at page 646 where he had this to say :-

"         After I considered the matter the other day, it occurred to me that, if it be the situation that when the landlord applies for the enforcement of the order of possession by the issue of a writ of possession, there is left an opportunity for third parties to apply to the Companies Court for relief from forfeiture, that would be an extremely inconvenient way of proceeding because it would mean that the registrar would be' trying, in effect, proceedings between third parties which really had nothing whatever to do with the company, the company being no longer concerned in the matter because the order for possession had been made against it. So far as it is concerned, the lease has been forfeited. But I am satisfied that that is not in fact the position. The only right that the third party whether he be a mortgagee or a sublessee, has to claim relief from forfeiture, (and that is really what all this is about) is the right which is conferred by s.146 of the Law of Property Act 1925 which enables such a person to apply for relief in the action of the landlord, if any, or otherwise by action of his own.

 

It is, I think, clear that a winding-up proceeding (and ex hypothesi the order here is made in the winding-up) is not an 'action' and therefore this is not a case where the sub-tenant or mortgagee could apply for relief in the landlord's summons in the winding-up. It is a case where, if relief is sought to be granted at all, it has to be applied for by a separate proceeding. That proceeding would be something taking place altogether outside the liquidation and therefore the registrar would not, as I see it, be concerned with the matter at all. "

10. Having regard to what was said in that case I am satisfied that no inconvenience should arise if an application is made for relief.

11. Mr. Barlow's objection to making an immediate order for possession is based upon the fact that it will be necessary for proper accounts to be prepared that the companies are associated companies and that it is not just and convenient to make an order as it will lead to further proceedings for relief against forfeiture. Nevertheless, it is clear that there is no dispute at least to the claim for mesne profits for the period of three months that have fallen due since September 1986 which amounts to $261,000. Those arrears alone are sufficient grounds for making an immediate order for possession. Further the applicant is plainly entitled to an order for re-entry under paragraph 4(a) of the tenancy agreements as the company has been wound-up. There is no defence available to the company with the result that it would be an unnecessary waste of time and money to compel the applicant to continue the action for possession or. to institute fresh proceedings. The receivers must tender the arrears and apply for an account if they intend to seek relief against forfeiture. As a result I am satisfied that the applicant is entitled to an order for possession on both grounds that have been advanced.

(1)    [1978] 1 W.L.R. 22
(2)    [1881] 20 Ch. D. 260
(3)    [1979] 1 All E. R. 641