Building society owning subsidiary company – Subsidiary carrying on business of estate agency – Subsidiary taking leases of properties – Society selling subsidiary – Subsidiary failing to pay rent and going into liquidation – Whether society liable for unpaid rent by virtue of Building Societies Act 1986 – Whether liabilities of subsidiary accrued before association between subsidiary and society ceased – Building society not liable
A company, known at the time as Northern Rock Properties Services Ltd, the tenant, operated an estate agency which was a wholly owned subsidiary of the defendant. By leases dated January 12 1990 the tenant rented five properties from the plaintiff, each for a term of 12 years. On September 18 1992 the defendant sold all the issued shares in the tenant. By December 1992 the tenant had failed to pay rent in respect of all five leases and went into creditors’ voluntary liquidation. The liquidator of the tenant disclaimed the leases and the plaintiff re-entered the five properties.
The plaintiff issued proceedings against the defendant claiming that it was liable for the tenant’s unpaid rent by virtue of section 22(1) of the Building Societies Act 1986 (subsequently repealed but preserved in part by article 5 of the Deregulation (Building Societies) Order 1995) which stated “If a body corporate . . . is a subsidiary of the society, then, . . . the building society is under an obligation by virtue of this section to discharge the liabilities of that associated body in so far as that body is unable to discharge them out of its own assets”. It was common ground that the tenant was a subsidiary and an associated body of the building society up to and including September 18 1992, but not thereafter. The issue was whether, as the defendant contended, the statutory obligation imposed by section 22(1) of the 1986 Act applied only to liabilities which had become due by September 18 1992 or whether, as the plaintiff contended, it applied to any prospective or existing liabilities identifiable at that date, even if they only fell to be discharged after the association between the bodies had ceased.
Held Judgment was given for the defendant.
1. If on or before September 18 1992 the tenant had accrued liabilities which it had been unable to pay, the defendant society would have become subject to an obligation under section 22(1) of the Act, since at that point the obligation would have crystallised, and it would not be effected by any subsequent change in the relationship between the two bodies.
2. However, the clear implication of the words “unable to discharge [the liabilities]” in the context of a specific debt, as opposed to the trading position of a company in general, was that liability had become due for discharge at the relevant time, otherwise inability to pay was of no concern. Therefore the obligation under section 22(1) of the Act did not apply to liabilities which had only become due after September 18 1992, the date upon which the relevant association between the tenant and the defendant had ceased.
Robin Hollington (instructed by Berrymans) appeared for the plaintiff; Richard Sheldon QC (instructed by Dickinson Dees, of Newcastle Upon Tyne) appeared for the defendant.