Liquidation expenses and rent priority: occupation of leased premises to preserve and sell assets can rank ahead of ordinary debts.
Where an official liquidator retains leased premises to preserve and sell company assets for the benefit of winding up, rent and mesne profits for that occupation are treated as expenses of liquidation and rank in priority over ordinary unsecured debts. The claim does not lose that priority merely because no fresh prayer for rescission of the lease is made after winding up if the tenancy had already been terminated before the winding-up order. The operative test is whether the premises were kept for the purpose of liquidation; if so, the resulting occupation charges assume liquidation-expense status.
Issues: (i) Whether rent and mesne profits payable for premises retained by the official liquidator to store and sell company assets constituted expenses of liquidation entitled to priority in payment; (ii) whether the landlord was disentitled to priority because no separate prayer for rescission of the lease had been made after winding up.
Issue (i): Whether rent and mesne profits payable for premises retained by the official liquidator to store and sell company assets constituted expenses of liquidation entitled to priority in payment.
Analysis: A claim for rent or mesne profits against a company in liquidation is ordinarily an unsecured debt. It acquires the character of liquidation expense only where the liquidator retains the premises for the purpose of liquidation, such as to preserve and sell the assets of the company and thereby secure a successful conclusion of the winding up. Where the premises are merely held in the ordinary course and are not used for liquidation, the claim remains an ordinary debt. On the facts, the liquidator expressly sought continued possession because the company's assets were lying in the premises, there was no alternative storage, and premature delivery would impair the value of the assets and prejudice creditors. Possession was thus retained to facilitate the sale of assets and the successful fruition of liquidation.
Conclusion: The rent and mesne profits were expenses of liquidation and were entitled to priority in payment.
Issue (ii): Whether the landlord was disentitled to priority because no separate prayer for rescission of the lease had been made after winding up.
Analysis: The lease had already been terminated by notice under section 106 of the Transfer of Property Act before the winding up order was made. Once the tenancy had been determined, there was no subsisting contract requiring rescission. The reasoning that the landlord should have sought rescission after winding up proceeded on an incorrect factual premise. The landlord's request to continue the possession suit did not alter the legal effect of the earlier termination of the tenancy.
Conclusion: The absence of a fresh prayer for rescission did not defeat the claim for priority.
Final Conclusion: The claim for rent and mesne profits was held to rank as liquidation expense, the denial of priority was set aside, and the matter was sent back for action in accordance with law.
Ratio Decidendi: Where a liquidator retains leased premises to preserve and realise company assets for the benefit of the winding up, the resulting rent or mesne profits are costs of liquidation and rank in priority over ordinary unsecured debts.
TaxTMI 
AI Drafter ✕
TaxTMI 
