Liquidation surplus must first satisfy creditors' interest claims before preferential shareholders receive any distribution.

In liquidation, surplus funds remaining after payment of principal debts must first satisfy creditors' claims for lawful interest before any distribution to preferential shareholders. The stated principle is that creditors are not treated as paid in full until interest on outstanding debts has been discharged, and that claim ranks ahead of preferential shareholders' entitlement. As to rate, the contractual rate is not binding; where a qualifying contractual rate exists, 6 per cent was treated as appropriate, and where no contract for interest existed, 4 per cent was considered sufficient.

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Issues: Whether, in the winding up of a company, creditors were entitled to be paid interest on their outstanding debts out of the surplus before any distribution to preferential shareholders, and at what rate such interest should be allowed.

Analysis: The surplus remaining after payment of principal debts was treated as not fully available for distribution until the creditors' claim for interest had been satisfied. The entitlement to interest was recognised as a matter of fairness and supported by authority, with preference given to creditors over preferential shareholders. On quantum, the contractual rate was not treated as binding; where a contract for interest existed, 6 per cent was considered appropriate if the contractual rate was at least that much, and where no contractual rate existed, 4 per cent was considered sufficient.

Conclusion: The creditors were held entitled to interest before any payment to preferential shareholders, and the liquidators were directed to pay interest at 6 per cent in cases with a qualifying contractual rate and at 4 per cent where no contract for interest existed.

Final Conclusion: The surplus in liquidation was ordered to be applied first to the creditors' interest claims, with the preferential shareholders taking only after those claims were satisfied.

Ratio Decidendi: In liquidation, a company cannot be treated as having paid its creditors in full until lawful interest on outstanding debts has been satisfied, and such interest ranks ahead of any distribution to preferential shareholders.

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