Tenant entering into members’ voluntary liquidation – Liquidators disclaiming lease – Extent of loss or damage payable to landlord by tenant’s liquidators – Insolvency Act 1986 section 178 – Whether proof of debt to be calculated with discount for early receipt – Court of Appeal calculating amount without discount – Appeal allowed
The respondent landlord was the owner of offices at 48 Gray’s Inn Road, London WC1, and it granted a 25-year lease of the property to Park Air Services plc (the company) commencing 29 September 1989. Rent was payable quarterly in advance with provision for periodic upwards-only rent reviews. By the date of the first rent review, in September 1994, as a result of the decline in the property market, the rent payable was more than four times the rent that would have been obtainable in the open market. On 9 December 1994 the company entered into members’ voluntary winding-up and the appellants were appointed as liquidators. The following day they gave notice to the landlord, under section 178(4) of the Insolvency Act 1986, disclaiming the lease. By section 178(6) of the Act: “Any person sustaining loss or damage in consequence of the operation of a disclaimer under this section is deemed a creditor of the company to the extent of the loss or damage and accordingly may prove for the loss or damage in the winding up.”
The respondent submitted a proof of debt in excess of £5.3m. The sum represented the difference between: (i) the amounts receivable by the landlord in respect of rent, insurance rent and other sums payable under the lease for the residue of the term had there been no disclaimer; and (ii) the amounts that the landlord would have been likely to receive in respect of rent, insurance rent and other sums on a notional reletting or series of relettings for a similar term after the disclaimer. The liquidators rejected the amount on the ground that each of the relevant amounts ought to have been discounted for accelerated receipt. The judge (see [1996] 2 EGLR 49; [1996] 40 EG 136) assessed the landlord’s loss at £1.053m with interest, calculated with a discount for accelerated receipt. The Court of Appeal ([1997] 30 EG 127; [1997] PLSCS 123 [1997] EGCS 68) allowed the landlord’s appeal and increased the amount for which it was entitled to prove to £2,548,899 with interest. The liquidators appealed.
Held: The appeal was allowed.
1. The right conferred by section 178(6) of the Act was a statutory right to compensation for the loss caused by the operation of the disclaimer that was to be assessed in the same way as damages. There was no justification for employing a different approach than would be employed if the claimant were claiming damages for breach of a contract that had been wrongly terminated. In assessing such damages, allowance would have to be made for accelerated receipt of any sums that had not fallen due at the date of breach. An award of compensation that failed to take that into account would overcompensate the claimant.
2. The landlord was not a secured creditor within section 248 of the Act, and, thereby entitled only to prove for the whole of the debt as if it was unsecured. Section 248 defined “secured creditor” as a creditor of the company who held a security over the property of the company. A secured creditor who did not realise or voluntarily surrender his security must put a value on his security and prove only for the balance as an unsecured creditor, and, accordingly, those provisions were not capable of applying to the landlord’s right of re-entry.
3. The judge been right to hold that r 11.13(3) of the Insolvency Rules (SI 1986 no 1925) did not apply to the landlord’s claim for loss and damage under section 178(6) of the Act. Such a proof was not a proof for a debt of which payment was not due when the company went into liquidation. Therefore, the order of the judge was to be restored with a discount rate of 8.5%.
Terence Etherton QC and Peter Griffiths (instructed by Memery Crystal) appeared for the landlord; Jonathan Sumption QC and Richard Atkins QC (instructed by Lawrence Graham) appeared for the liquidators.
Thomas Elliott, barrister
