Restoration of mortgaged assets after recall of winding up and limits on recovery of liquidator protection s

After recall of the winding up order and cessation of the Official Liquidator's provisional role, possession of mortgaged assets could be restored to the secured creditor because no legal impediment remained to return the assets. The decision also noted that expenses incurred by the Official Liquidator for protecting the assets had already been fastened on the company's directors under the recall order, so those costs could not instead be recovered from the sale proceeds of the assets. The material principle stated is that restoration of possession follows recall of winding up, while liability for protective expenses must conform to the existing allocation made by the recall order.

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Issues: (i) Whether the Official Liquidator was required to hand back the company's assets to RIICO after recall of the winding up order and in view of RIICO's powers over the mortgaged assets; (ii) Whether the expenses incurred by the Official Liquidator for protection of the assets while in possession could be recovered from the sale proceeds of the assets.

Issue (i): Whether the Official Liquidator was required to hand back the company's assets to RIICO after recall of the winding up order and in view of RIICO's powers over the mortgaged assets.

Analysis: RIICO had taken possession of the mortgaged assets in exercise of its statutory powers. The winding up order had been recalled, and the Official Liquidator was not continuing as provisional liquidator. In that situation, there was no legal impediment to restoring possession of the assets to RIICO.

Conclusion: The issue was decided in favour of RIICO. The Official Liquidator was directed to hand back possession of the assets to RIICO.

Issue (ii): Whether the expenses incurred by the Official Liquidator for protection of the assets while in possession could be recovered from the sale proceeds of the assets.

Analysis: The earlier order recalling the winding up had already fastened liability for such expenses on the directors of the company. In view of that direction, there was no occasion to direct recovery of those expenses from the sale proceeds of the assets by RIICO.

Conclusion: The issue was decided against RIICO. No direction was issued for recovery of the Official Liquidator's expenses from the sale proceeds.

Final Conclusion: The application succeeded to the extent that possession of the assets was restored to RIICO, while no separate relief was granted regarding recovery of the Official Liquidator's expenses from the assets.

Ratio Decidendi: Once a winding up order is recalled and the Official Liquidator is not continuing in a provisional capacity, possession of mortgaged assets may be restored to the secured creditor, and expenses earlier allocated by the recall order cannot be shifted to the sale proceeds contrary to that direction.

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