Landlord and tenant — Insolvency — Whether landlord entitled to distrain for arrears of rent when interim order under section 252(2) of the Insolvency Act 1986 in force in respect of tenant’s affairs
By a lease dated
November 27 1981 the respondent tenants held the term of retail premises owned
by the applicant landlords at a passing rent of £15,000. On November 26 1992,
and following a voluntary arrangement proposed by the respondent and his wife,
Mr and Mrs C, Luton County Court made an interim order under section 252(1) of
the Insolvency Act 1986; this was subsequently extended. On January 14 1993
bailiffs acting for the landlords entered the premises and distrained for
arrears of £15,000 by taking possession of a quantity of jewellery. Following
an order of the district judge of
applied to discharge that order on the ground that leave of court is not
necessary to levy a distress when an interim order is in force.
of the Insolvency Act 1986, that no proceedings and no execution or other legal
process may be commenced or continued against a debtor without leave of the
court, do not cover the common law remedy of distress. The distress was
therefore lawful.
The following
cases are referred to in this report.
Bellaglade
Ltd, In re [1977] 1 All ER 319
Bishopsgate
Investment Management Ltd v Maxwell [1993]
Ch 1; [1992] 2 WLR 991; [1992] 2 All ER 856, CA
Bristol
Airport plc v Powdrill [1990] Ch 744; [1990]
2 WLR 1362; [1990] 2 All ER 483, CA
Debtor,
A, Re (No 1 of 1987) [1989] 1 WLR 271, CA
Exchange
Travel Agency Ltd v Triton Property Trust plc
[1991] 2 EGLR 50; [1991] 35 EG 120; [1991] BCLC 396
Exhall
Coal Mining Co Ltd, Re (1862) 4 DJ&S 377
Fanshaw
& Forston, In re, ex parte Birmingham & Staffordshire Gaslight Co (1871) LR 11 Eq 615
Herbert
Berry Associates Ltd v IRC [1977] 1 WLR 1437
International
Tin Council, In re [1987] Ch 419; [1987] 2 WLR
1229; [1987] 1 All ER 890
Lancashire
Cotton Spinning Co, Re, ex parte Carnelly (1887) 35
ChD 656
Memco
Engineering Ltd, In re [1986] Ch 86; [1985] 3 WLR
875; [1985] 3 All ER 267
Naeem (a
bankrupt), In re [1990] 1 WLR 48
Olympia
& York Canary Wharf Ltd, Re [1993] BCC 154
Roundwood
Colliery, Re [1897] 1 Ch 373
Seagull
Manufacturing Co Ltd, Re [1993] BCC 241, CA
Smith (a
bankrupt) v Braintree District Council
[1990] 2 AC 215; [1989] 3 WLR 1317; [1989] 3 All ER 897, HL
Winterbottom
(G) (Leeds) Ltd, Re [1937] 2 All ER 232
This was an
application by motion by the applicant landlords, McMullen & Sons Ltd, to
determine the validity of a distress levied on property of the respondents, Mr
and Mrs Cerrone.
Nicholas
Peacock (instructed by McLellans, of Hertford) appeared for the applicants;
Martin Collier (instructed by Pellys, of Bishop’s Stortford) represented the
respondents.
Giving
judgment, MR ROGER KAYE QC said: The matter before me raises a question
of the true construction of the provisions of section 252(2) of the Insolvency
Act 1986. The question, which can be shortly stated, is can a landlord exercise
the ancient self-help remedy of distress for arrears of rent when an interim
order is in force under that section?
Section 252
provides as follows:
(1) In the circumstances specified below [that is
a reference to section 253] the court may in the case of a debtor (being an
individual) make an interim order under this section.
(2) An interim order has the effect that, during
the period for which it is in force —
(a) no bankruptcy petition relating to the debtor
may be presented or proceeded with, and
(b) no other proceedings, and no execution or
other legal process, may be commenced or continued against the debtor or his
property except with the leave of the court.
The facts
giving rise to this question are not in dispute. The applicants are the
freehold owners and landlords of retail premises at 36 Bucklersbury, Hitchin.
They demised those premises to the respondents, Mr and Mrs Cerrone, under a
lease dated November 27 1981 and a supplemental lease dated November 15 1985.
The current passing annual rent under both leases is £15,000. The premises were
used by Mr and Mrs Cerrone for the purposes of running a jewellery business, trading
as ‘Hamilton Cerrone’.
The business,
although initially successful, did not prosper. It declined through 1990 and
1991 and by November 1992 Mr and Mrs Cerrone found themselves in real financial
difficulties. They proposed an individual voluntary arrangement under the
provisions of Part VIII of the Insolvency Act 1986. On November 26 1992 Luton
County Court made an interim order under section 252(1) of that Act. That, of
course, would have lasted only 14 days (see section 255(6)), but the order was
subsequently extended to January 14 1993 and on that date extended still
further (no doubt under section 256(4) or section 256(5)). There seems some
doubt as to the exact date to which it was ultimately extended and, moreover,
it seems now to have expired without being further extended, but it is common
ground that at all material dates for the purposes of the matter before me the
order was in force. Moreover, what the fate was of the proposed voluntary
arrangement itself is unclear.
By the end of
November 1992 the arrears of rent owing by Mr and Mrs Cerrone to their
landlords had risen to £16,500 odd. At that stage the landlords appear to have
been ignorant of the interim order. In view of the size of the amount owing
they resolved to distrain for the arrears by seizing goods on the demised
premises. On November 30 bailiffs were instructed and they visited the premises
on December 4 1992. During that visit they discovered the existence of the
interim order, but in view of certain proposals made by Mr and Mrs Cerrone for
payment of the current rent over the Christmas period the landlords instructed
the bailiffs to withdraw. Following that withdrawal the landlords received a
cheque from Mr and Mrs Cerrone for some £1,600 odd which they appropriated in
reduction of the arrears, leaving some £15,000 odd still owing.
Unfortunately,
the Christmas period did not prove to be profitable for Mr and Mrs Cerrone. On
January 8 1993 the nominee under the proposed voluntary arrangement wrote to
the landlords’ solicitors informing them that the business had not done as well
as expected and that it was proposed to close down the business on January 16
and sell the stock.
The landlords
thereupon decided to act quickly and to distrain for the arrears. On January 13
they reinstructed the bailiffs to distrain for the arrears of £15,000. On
January 14 the bailiffs entered the demised premises and took possession of a
quantity of jewellery.
Mr and Mrs
Cerrone immediately protested about the distress in view of the interim order.
The landlords disagreed, taking the view that, notwithstanding the order, they
were entitled to act as they did. They made plans to sell the goods at auction
on January 21 1993. Mr and Mrs Cerrone accordingly attended before the district
judge on January 20 and obtained an order restraining the continuation or
completion of the distress and an order that the goods be restored to them. The
district judge granted liberty to apply, but directed that any application
should be made to a judge of the High Court. It is not entirely clear to me
what jurisdiction he had to direct that unless it be under the provisions of
section 42(2) or (3) of the County Courts Act 1984.
On January 21
1993 the landlords applied to Ferris J to suspend the order of the district
judge. On the landlords’ giving undertakings in damages, to keep the seized
goods in safe custody and not to dispose of them, the judge suspended the
district judge’s order until January 28. On that day those undertakings were
continued before Mummery J pending the effective hearing of the landlords’
motion to discharge the order of the district judge. It is that motion which is
now before me.
I now turn to
the consideration of section 252. The starting point is the nature of the
court’s approach to construction of the Insolvency Act 1986. There are three
general points to make at the outset.
First, the
Insolvency Act 1986 is a consolidating Act. It consolidated the reforms of the
law of both individual and company insolvency reflected in the Insolvency Act
1985. It also consolidated, in the same Act, the retained provisions relating
to company insolvency found in the Companies Act 1985. It thus includes in one
single Act the principal statutory provisions relating both to individual as
well as company insolvency. It is well known that many of the reforms in the
1985 Act were passed in the light of the Report of the Review Committee on
Insolvency Law and Practice (1982, Cmnd 8558), under the chairmanship of
Sir Kenneth Cork (the Cork Report).
not all the recommendations of that report were accepted by Parliament. Two of
the reforms recommended were that both a company and an individual should be
able to promote a voluntary arrangement with their respective creditors under
the supervision of a provisional trustee: see chapter 7 of the Cork Report.
Here, again, much of the substance of the proposal, but not all the detail, was
accepted by Parliament. The reforms, as enacted by Parliament, permit both
companies and individuals to propose a voluntary arrangement with their
respective creditors under the supervision of a suitably qualified insolvency
practitioner called a supervisor. The scheme or code applicable to company
voluntary arrangements is to be found in Part I of the 1986 Act. That applicable
to individual voluntary arrangements is in Part VIII. There are many common
features to both codes: both involve supervision of the arrangement by a
supervisor, both require the convening of a statutory meeting of creditors,
both bind the creditors and the company to the arrangement (with or without
modifications) if approved by the creditors at the statutory meeting, both
entitle a challenge to be made if the arrangement is unfairly prejudicial to
the creditors or if there is some material irregularity at the meeting, and
both entitle applications to be made to the court for directions in certain
cases.
The section
that falls for construction in this case, section 252, falls within Part VIII
of the 1986 Act. Part VIII was first enacted in Chapter 1 of Part III of the
1985 Act. It is thus part of the new provisions and does not derive from any
previous legislation even if the language of certain of the sections, including
section 252, echoes words or phrases featuring in earlier insolvency legislation.
Accordingly, in my judgment, the task of the court must be to approach the
construction of the section afresh, unfettered by previous legislation or
decisions under earlier Acts. I am fortified in the view that this is the
correct approach in that this has been held to be the correct approach on
previous occasions in the construction of different parts of the 1986 Act,
different that is to Part VIII: see, for example, Re A Debtor (No 1 of 1987)
[1989] 1 WLR 271 CA at p276G-H; Bishopsgate Investment Management Ltd v Maxwell
[1993] Ch 1 CA at p21A-C; and Smith (a bankrupt) v Braintree District
Council [1990] 2 AC 215 HL.
Second, it is
apparent from the Act itself that the intention of Parliament was, so far as
possible, to harmonise the two systems of company and individual insolvency:
see, in this respect, Bishopsgate Investment Management Ltd v Maxwell
[1993] Ch 1 CA, at p21D; and Re Seagull Manufacturing Co Ltd [1993] BCC
241 CA at p242H. That, however, must not be taken too far, for the statutory
provisions may indicate from their very nature that Parliament intended that
the two systems, although to be similar in many respects, should differ in some
material respects. In the field of voluntary arrangements one noticeable
difference is the scope for interim orders. An interim order may be obtained in
connection with an individual voluntary arrangement, but not in the case of a
company. In the latter case a company voluntary arrangement may be entered into
where a winding-up order has been made or where an administration order is in
force: see section 1(3). But it may also be entered into outside these
circumstances: see section 1(1). Where a winding-up petition has been presented
the court has power to stay pending actions or proceedings: see section 126(1).
After the winding-up order no action or proceeding can be commenced or
proceeded with against the company without leave: section 130(2) and (3). In
the case where an administration order is in force the Act contains wide
provisions inhibiting the rights of creditors against the company: see section
11(3). But outside these circumstances, and in the absence of any agreement
binding the creditors to the voluntary arrangement, no power is conferred by
the Insolvency Act 1986 on the court to prohibit creditors from enforcing their
rights in whatever manner they may legitimately do so against the company or
its property. In the case of a proposal for an individual voluntary arrangement
the position is different. Here the court has power, pending approval or rejection
of the proposal, to make an interim order under section 252 prohibiting
creditors from acting in the manner prescribed by the section. Thus the two
systems of company and individual voluntary arrangements, while adopting a
common form or approach, are not entirely uniform.
Third, it is
axiomatic that in construing an Act of Parliament regard must be had to the
scope and purpose of the Act and of the part of the Act within which the
provision in question falls.
With these
preliminary points in mind I must now deal with Part VIII of the 1986 Act. The
scheme is clear. An individual who is a debtor may, as an alternative to
bankruptcy, propose an arrangement with his creditors. If he does, he may seek
and obtain an interim order under section 252: see section 253(1) and section
255. Even before obtaining that order he may, so long as he has applied for an
interim order, seek interlocutory relief, whereupon the court ‘may stay any
action, execution or other legal process against the property or person of the
debtor’: see section 254. The interim order, once obtained, lasts for 14 days:
section 255(6). The court may grant the order only if it thinks that it is
appropriate for the purpose of facilitating the consideration and
implementation of the debtor’s proposal: section 255(2). The 14-day period is
to enable the nominee, the qualified insolvency practitioner, to consider the
proposal and prepare an independent report to the court stating whether the
prescribed statutory meeting of creditors should be convened to consider it:
section 256. If the nominee requires more time, the court may extend the 14-day
period: section 256(4). If the nominee recommends a meeting be convened, the
court is to extend the interim order to enable that to happen: see section 256(5)
and section 257. If the debtor shows no real intention of carrying through with
his proposal, or if the nominee does not recommend a meeting, the interim order
may be discharged: section 256(6). Once the meeting has been held, the chairman
of the meeting (usually the nominee) must report the result to the court:
section 259(1). If the meeting approves the proposal, it becomes binding on the
creditors and the debtor (section 260(1),(2)) and the interim order ceases to
have effect on the expiration of a 28-day period running from the date the
chairman presents his report to the court: section 260(4). If the meeting does
not approve the arrangement, the interim order may be discharged immediately:
section 259(2). The approved arrangement, of course, binds only those creditors
who, in accordance with the rules (this is the Insolvency Rules 1986), had
notice of, and were entitled to vote at, the meeting: section 260(2)(b). Other
creditors are unaffected and can, subject to the limits of section 252 while
any interim order is in force, enforce their rights.
It is thus
clear that the purpose of the interim order is to protect and preserve the
debtor’s estate from claims of creditors for a relatively short period of time
to enable the creditors to consider the debtor’s proposals. Once they have had
that opportunity, if they approve the proposal there is no longer any need for
the interim order, for they will be bound by the arrangement and will all share
in the arrangement in a just and fair manner or at least in a manner which is
not unfairly prejudicial: see section 262(1)(a). In such circumstances
no creditor could present a bankruptcy petition in respect of any existing
debt, ie one which is subject to the terms of the arrangement. If, on the other
hand, the creditors decline to approve the arrangement, then there is likewise
no need for the order to continue, for the creditors, in those circumstances,
should be, and are, left free to pursue whatever remedy each considers
appropriate, including the presentation of a bankruptcy petition. Thus, the
voluntary arrangement is a true alternative to bankruptcy. That being so, it
is, I think, legitimate to see how the 1986 Act deals with the rights of
creditors in the interim period between presentation and disposal of the bankruptcy
petition which is, I think, the closest analogy to the period between the
initiation of the proposed voluntary arrangement and its disposal by the
creditors’ meeting. In this connection section 285(1) and (2) is relevant. The
remaining provisions of section 285 are not relevant for these purposes because
they deal solely with the situation after a bankruptcy order has been made.
The relevant
parts of section 285 provide as follows:
(1) At any time when proceedings on a bankruptcy
petition are pending . . . the court may stay any action execution or other
legal process against the property or person of the debtor . . .
(2) Any court in which proceedings are
pending against any individual may, on proof that a bankruptcy petition has
been presented in respect of that individual . . . either stay the
proceedings or allow them to continue on such terms as it thinks fit.
Emphasis
supplied.
Thus, an
application can be made either to the bankruptcy court to stay any
action, execution or other legal process or to any court in which proceedings
are pending to stay those proceedings. Again, however, what is
contemplated by the legislation, at least in the usual case, is that for the
relatively short period between presentation and hearing the rights of
creditors should be restricted. This is obvious for the scheme is again to
protect and preserve the estate for the benefit of all creditors should a
bankruptcy order be made: see, for example, section 284 restricting the
debtor’s right to dispose of his estate during the period between the
presentation of the petition and the vesting of the estate in a trustee in
bankruptcy.
Now it is true
that the wording of section 285 differs slightly from section 252. The former
refers to ‘action’ in subsection (1), whereas in section 252(2)(b) this
word is avoided, preferring instead the wider expression ‘other proceedings’.
In the latter case there can, I think, be no doubt to what ‘other proceedings’
refer. The word ‘other’ must be read in conjunction with what has immediately
preceded it, namely the reference to ‘bankruptcy petition’ in section 252(2)(a).
In my judgment, therefore, the words ‘other proceedings’ in section 252(2)(a)
are intended to relate solely to proceedings before a court, ie of a judicial
or adjudicative nature. They are not apt to cover the ancient self-help remedy
of distress for rent. This is entirely consistent with section 285(2), which
plainly refers only to such proceedings.
The words
‘execution or other legal process’ appear in both section 252 and section 285.
The word ‘execution’ is, I think, a term of art, meaning execution or
enforcement of some judicial process. It, too, is not apt to describe the
process of distress.
I thus turn to
the crucial words in this case: ‘or other legal process’. In both sections what
must be considered is ‘other legal process’ ‘against the property or person of
the debtor’ (section 285(1)) or ‘against the debtor or his property’ (section
252(2)), which is the same thing. A ‘process’ can be described as some course
of action, but it must be ‘legal’. That, I do not think, for one moment, is to
be used in contradistinction to the word ‘illegal’ or criminal for it is
self-evident that criminal acts could not be contemplated on any footing.
Additionally, some regard must be had to the word ‘other’ before the words
‘legal process’. I therefore reach the conclusion that it was plainly intended
that the word ‘legal’ in the context of para (a) of section 252(2) was
intended to colour the word ‘process’ and that the word ‘other’ was intended to
tie it to ‘proceedings’ and ‘execution’ giving the whole of the paragraph a
distinct flavour of judicial or enforcement proceedings or process. I do not
think that the word ‘legal’ is to be construed as wide as contended on behalf
of Mr and Mrs Cerrone, namely as meaning any lawful process or any process
recognised by the law or having a legal consequence. That, in my judgment, is
not justified and goes too far.
In my judgment,
therefore, section 252(2)(b) was intended to restrict only those rights
which a creditor could enforce by ‘legal process’ against the debtor or his
property, that is process of a judicial or adjudicative or quasi-adjudicative
nature and not rights which might be enforced without recourse to such process,
ie the distress in this case. Some support for this comes from the language of
section 254, dealing with the court’s powers to make an interlocutory order on
a pending application for an interim order, where the wording is clearly very
similar to section 285(1) and (2) but, at the same time, intended to complement
section 252 since it deals with what is to happen up to the effective hearing
of the application for an interim order. It would be surprising if the
jurisdiction under one section (section 252) was very different from the other
(section 254).
I must now
consider whether this view is affected by other analogous provisions or decided
cases to which I have been most helpfully referred by the researches of
counsel.
I must start,
I think, with Smith (a bankrupt) v Braintree District Council
[1990] 2 AC 215 HL for that was a decision on section 285(1). There the House
of Lords held that the words ‘or other legal process’ in section 285(1) were
apt to cover the process in Part VI of the General Rate Act 1967 for the
recovery of rates, including proceedings for committal under that Act. Under
section 96(1) of that Act the payment of unpaid rates may be enforced by
distress and sale under warrant issued by the magistrates’ court. If there is
insufficient distress the individual ratepayer may be liable to imprisonment.
Section 102 enables the court to issue a warrant for commitment where the
distress is insufficient. At p230F-G Lord Jauncey of Tullichettle (with whom
the rest of the House agreed) said:
My Lords, the
words ‘or other legal process’ must be construed in the context of the
underlying purpose of section 285, namely, the protection of the bankrupt’s
estate for all his creditors. It follows that proceedings by one creditor to
enforce payment to himself are the sort of proceedings contemplated by the
section. It cannot be in doubt that the issue of a warrant of distress would
fall within the description ‘or other legal process’ . . . It would be both
strange and illogical if the bankruptcy court could stay such proceedings but
had no power to stay the next stage of the proceedings when distress had not
been wholly successful. In my view, as a matter of pure construction, the words
‘or other legal process’ in section 285(1) are quite wide enough to comprehend
all the machinery provided by Part VI of the Act of 1967 for the recovery of
unpaid rates, including proceedings for the issue of a warrant of commitment.
Mr Martin
Collier, who appeared for Mr and Mrs Cerrone, relied heavily on that passage.
He submits that that is apt to describe the warrant, or authority, the
landlords issued to the bailiffs authorising them to enter the demised premises
to carry out the distress. But, as was pointed out by Mr Nicholas Peacock for
the applicant landlords, in that passage Lord Jauncey is referring to a warrant
for distress issued under section 96. The ‘next stage’ to which he is referring
is likewise the process of application to a judicial tribunal for a warrant of
commitment. In my view, therefore, this passage does not assist Mr and Mrs
Cerrone.
In ex parte
Birmingham and Staffordshire Gaslight Co (1871) LR 11 Eq 615 Sir James
Bacon, CJ, had to consider the words ‘execution or other legal process’ in
section 13(1), Bankruptcy Act 1869. That section, and its successor section
9(1), Bankruptcy Act 1914 were, in some respects, the precursors to section
285(1) of the 1986 Act. The question was whether the gas company could distrain
for rent under special powers conferred on them by the relevant Act of
Parliament enabling them to recover arrears for gas ‘by the same means as
landlords may recover rent in arrear’. The judge held:
I think it
quite plain that a distress for rent cannot be considered to be included in the
expression ‘legal process’, inasmuch as no legal process whatever is necessary;
and the landlord may, if he thinks proper, distrain with his own hands. As
little can it be called an execution, for an execution is the result of a
judgment which has been recovered in some Court of Law, but to a distress no
legal proceedings whatever are necessary.
Now that
decision is not, of course, binding on me since, as I have previously
mentioned, the provisions in the 1986 Act are to be construed afresh. It does
not, however, assist Mr Collier.
Finally, in
the realm of individual insolvency, Mr Collier relied on a decision of Hoffmann
J (as he then was) in In re Naeem (a bankrupt) [1990] 1 WLR 48. In that
case Hoffmann J allowed an appeal against the decision of the registrar to
revoke an individual voluntary arrangement entered into by a bankrupt. The
landlord had sought to revoke the arrangement on the basis that it was unfairly
prejudiced in that it could not forfeit the lease for arrears of rent. It was
held that the arrangement did not interfere with its proprietary right to
forfeit, but that it could forfeit only for the amount due to it under the
arrangement. At p5OD-H the judge said:
Of course the
effect of the interim order was to hold up the landlord’s right to forfeit, but
under section 260(4) of the Act of 1986 the interim order ceases to have effect
28 days after the date on which the report on the outcome of the creditors’
meeting has been given to the court under section 259. Accordingly the interim
order no longer applies and the landlord is free to commence such
That the
interim order held up the landlord’s right to forfeit seems to have been an
assumption of the judge and formed no part of the ratio of his decision.
Moreover, it is not entirely clear from the report precisely what type of
forfeiture was contemplated, by proceedings in court or by exercising a right
of re-entry without recourse to legal proceedings. If anything, the last
sentence of the passage quoted points to the former rather than the latter. If
so, then the passage quoted is entirely consistent with my construction of the
section. But, if I am right in my construction of section 252 so far, it is
also right to point out, as does Mr Collier, that this produces something of an
anomaly in that a landlord could not enforce his right to forfeit by court
action where an interim order is in force under section 252, but could by right
of re-entry. But I see nothing in the judgment of Hoffmann J compelling me to
reach a different conclusion to that reached so far.
I must now
consider the provisions applicable to the scheme of company insolvency. I have
already pointed out that there is no directly comparable provision in this
sphere for obtaining an interim order. But, again, as I have already pointed
out, a company voluntary arrangement may be proposed where an administration
order is in force. In such a case section 11(3), Insolvency Act 1986 applies.
This subsection provides as follows:
During the
period for which an administration order is in force —
(a) no resolution may be passed or order made for
the winding up of the company,
(b) no administrative receiver of the company may
be appointed,
(c) no other steps may be taken to enforce any
security over the company’s property, or to repossess goods in the company’s
possession under any hire-purchase agreement, except with the consent of the
administrator or the leave of the court and subject (where the court gives
leave) to such terms as the court may impose; and
(d) no other proceedings and no execution or
other legal process may be commenced or continued, and no distress may be
levied, against the company or its property except with the consent of the
administrator or the leave of the court and subject (where the court gives
leave) to such terms as aforesaid.
It is to be
noted that that subsection is in much wider terms than section 252. I must also
refer here to section 126 of the Insolvency Act 1986 which I mentioned above.
That section derived from section 251 Companies Act 1985 and in turn from
section 226, Companies Act 1948 and from earlier legislation. In many decisions
under that section (and under the predecessor to section 130(2) of the 1986
Act) it has been held that where a landlord has commenced his distress before
winding up, but not by the time of the order completed the distress by sale,
the court may restrain completion of the sale as a ‘proceeding’. It is clear,
however, from those decisions, that this construction reached in the course of
the last century has not been greeted with judicial favour but has, until the
1986 Act at least, been followed in view of the passage of time that the
construction stood: see Re Exhall Coal Mining Co Ltd (1862) 4 DJ&S
377; Re Lancashire Cotton Spinning Co, ex parte Carnelly (1887) 35 ChD
656; Re Roundwood Colliery Co[1897] 1 Ch 373; Re G Winterbottom
(Leeds) Ltd [1937] 2 All ER 232; In re Bellaglade Ltd [1977] 1 All
ER 319; Herbert Berry Associates Ltd v IRC [1977] 1 WLR 1437 HL
and In re Memco Engineering Ltd [1986] Ch 86. Thus, as it seems to me,
the intention of Parliament was quite plainly to leave no doubt, at least in
relation to administration orders (and, thereby, where relevant, any period
prior to approval of a proposal for a voluntary arrangement where an
administration order is in force), that distress was to be covered also in
section 11(3)(d). Nevertheless I was urged to follow this line of cases.
But they do
not, I think, assist Mr Collier. I have already considered that the word
‘proceedings’ in section 252(2)(b) does not cover distress and I see
nothing in these cases that affects that view. If anything it tends to show
that Parliament was alive to the point and intended, at least so far as
companies were concerned, specifically to deal with a point that had previously
given rise to judicial disfavour by express words. Since the opening words of
section 11(3)(d) so closely resemble that of section 252(2) it would
have been a relatively simple matter to have included in section 252(2) the
words ‘and no distress may be levied’. It is to be noted, too, that nothing
resembling section 11(3)(c) is to be found in section 252.
I was referred
to three cases on section 11(3)(d). The first is Bristol Airport plc
v Powdrill [1990] Ch 744. There the Court of Appeal held that the
detention of an aircraft under the provisions of the Civil Aviation Act 1982
was caught by section 11(3)(c). Sir Nicolas Browne-Wilkinson V-C added
that he did not consider that the right of retention fell within the concept of
distress in section 11(3)(d) nor did it fall within the words ‘other
proceedings’ which he considered referred to judicial proceedings: see
pp765-766.
Next I was
referred to Exchange Travel Agency Ltd v Triton Property Trust plc
[1991] BCLC 396* where Harman J, obiter, decided that a landlord’s right
of re-entry could be covered by the words ‘other legal process’ in section
11(3)(d). At p401 he said:
It is clear
that the terms of s130(3) provision, which I have already referred to as
providing for ‘proceedings . . . against the company or its property’, cover
the peaceable exercise of a right of re-entry pursuant to a proviso for
re-entry in a lease, and it seems to me astonishing if ‘other legal process’ in
s11(3)(d) do not also cover that step. It seems to me ‘legal process’ is
exactly how one would describe the exercise of a right by a person not in
contractual relationship with his tenant but holding a relationship by privity
of estate between them. In my judgment
it is a correct use of words to describe a landlord who has legal rights
arising out of the privity of estate which he exercises by the process of
peaceable re-entry as exercising ‘legal process’. It seems to me therefore that
if this exercise of the right of re-entry be not a security, it is quite
certainly the commencement of ‘other legal process’, and as I see it that must
have been one of the purposes for which Parliament plainly intended the Act to
operate.
*Editor’s
note: Also reported at [1991] 2 EGLR 50.
It would be
astonishing, in my mind, if Parliament has plainly prevented a landlord from
issuing a writ for forfeiture or taking steps in the courts to effect a
forfeiture and a re-entry, but has left entirely open and untouched the right
to effect a peaceable re-entry.
On that
passage, too, Mr Collier relied. He argues, with some force, that the
landlord’s right of distress may be regarded in the same light. It would be
anomalous, he submits, for a landlord enforcing a right of re-entry by action
to be restrained, but one enforcing a right by re-entry not to be. So, he
argues, by parity of reasoning, a landlord exercising his self-help remedy of
distress. He relies on the plain purpose of Part VIII of the 1986 Act, which is
to effect a complete moratorium on the rights of creditors pending the outcome
of the proposal while an interim order is in force.
This passage of
Harman J’s judgment has, however, been subjected to judicial scrutiny in Re
Olympia & York Canary Wharf Ltd [1993] BCC 154. There the question
arose whether the existence of an administration order, and the operation of
section 11(3)(d) of the 1986 Act in particular, prevented the service by
the applicant upon the respondent company (which was in administration) of a
notice to complete making time of the essence, or prevented the applicant
accepting a repudiatory breach of contract. Millett J held that the section did
not. Millett J entirely agreed with Harman J’s actual decision (that the right
of re-entry was covered by section 11(3)(c), but disagreed with his
approach on section 11(3)(d). After referring to section 9(1),
Bankruptcy Act 1914 (which, it will be remembered, is the precursor to section
285(1) and (2) and resembles the language of section 254) he said at pp156-157:
In sec 10 and
sec 11 of the 1986 Act, Parliament has effected certain modifications to sec 9
of the Bankruptcy Act 1914. The word ‘action’ has been replaced by the
more compendious expression ‘proceedings’ which is apt to denote any legal or
quasi-legal proceedings whether commenced by writ or otherwise; and a
prohibition on the levying of distress has been expressly included, thereby
dealing with a question which had previously caused difficulty.
In Stroud’s
Judicial Dictionary (5th ed, 1986) it is said that the word ‘process’ is:
‘the doing of
something in a proceeding in a civil or criminal court, and that
Therefore a
distraint, whether for rent or any other payment, and whether the right of
distress be given by common law, statute or, as it would seem, by any other
authority was not a ‘process’ nor was it an ‘execution, or other legal process’
within the Bankruptcy Act 1869.
Then, after
quoting the passage in In re Fanshaw & Forston, ex parte Birmingham and
Staffordshire Gaslight Co (1871) LR 11 Eq 615 I have set out above, he
continued:
The presence
of the word ‘stay’ in sec 9 of the Bankruptcy Act 1914, and the
insertion of the word ‘legal’ before ‘process’ in sec 11(3)(d) of the 1986 Act
support the impressions that the word ‘process’ in each of the Acts means a
process which requires the assistance of the court, and does not extend to the
service of a contractual notice, whether or not the service of such a notice is
a precondition to the bringing of legal proceedings.
He also
referred to his own judgment, in In re International Tin Council [1987]
Ch 419 at p453H, where he had to consider the meaning of the phrase ‘immunity
from suit and other legal process’ and considered ‘suit’ extended to all forms
of the adjudicative and the phrase ‘legal process’ as apt to describe all forms
of the enforcement, jurisdiction.
With this
reasoning I respectfully agree. It seems to be that the cases on the
construction of the language used in section 252, particularly on the phrase
‘other legal process’, if anything, supports the view that I have taken as to
the true construction of section 252(2). I must regretfully decline to adopt
Harman J’s approach. I can find, in particular, no good reason for
distinguishing the approach under section 285 to that under section 252. When a
comparison is made with section 11(3) it is noteworthy that Parliament sought
fit expressly to include provision for distress. Like both counsel before me,
however, I can discern no good reason for this distinction between the scheme
applicable to companies under the Act and that applicable to individuals. Given,
however, there is an express distinction on the wording and despite the clear
legislative purpose I have considered above I do not feel able to decide that
the words in section 252(2)(b) are apt to cover the common law remedy of
distress. That this produces anomalies I have no doubt, but to yield to the
temptation to include distress within the embrace of section 252 would, I
think, create greater uncertainties for there would then, I anticipate, be
great difficulty in drawing the line as to what was or was not included within
the phrase ‘legal process’. I can express only the hope that, at some stage,
Parliament recognises the anomaly of including express provision for distress
in section 11, but not in section 252. There seems no good reason why it should
not be expressly included in the latter.
I would
finally add that I have not found much assistance from the words ‘commenced or
continued’. Those words were thought to be of some influence in both Bristol
Airport plc v Powdrill [1990] Ch 744 and in Re Olympia & York
Canary Wharf Ltd [1993] BCC 154 as being indicative of the adjudicative
process. That I accept, but they are not entirely inapt to describe the
commencement of the process of distress (eg by entry) and its continuation (eg
by making arrangements for the sale of the goods seized).
In the result,
therefore, the judicial and legislative authorities cited to me have not caused
me to depart from my initial view that the distress was not prevented by
section 252, rather they have tended to reinforce this view. I therefore accede
to the application of the landlords.
