Priority of creditor claims limited by twelve-month rule, so attachments must be released for pari passu distribution.

Attachments effected by creditors after commencement of voluntary liquidation must be released where the claims fall outside the twelve-month priority window, and execution proceedings restrained to permit pari passu distribution of the company's assets. The liquidator is entitled to seek discharge of attachments when no creditor holds a statutory or contractual priority over assets and competing claims arose more than twelve months before liquidation commenced. Consequently, affected executions should be stayed, assets distributed rateably among creditors, and costs awarded against the attaching respondents as justified by the facts.

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Issues: Whether attachments effected by certain creditors, including the income tax department, over company property after commencement of voluntary liquidation must be released so that the property may be distributed rateably among all creditors.

Analysis: The petition arises under the Companies Act where the company is in voluntary liquidation and certain creditors have attached company property. Section 230 of the Companies Act denies priority to debts which arose more than twelve months before the commencement of liquidation; accordingly such claims cannot take precedence over other creditors. The liquidator seeks release of the attachments to enable distribution of the assets rateably among creditors. Given that one creditor's liability (income tax) and another municipal claim both arose beyond the twelve-month priority window and the remaining creditor asserts no priority, the liquidator is entitled to have the attachments released and proceedings in execution restrained to permit pari passu distribution. The application for costs against the first and second respondents is justified on the facts.

Conclusion: The attachments are to be released, execution proceedings by the respondents restrained, and the property is to be distributed rateably among all creditors; the costs of the application are to be paid by the first and second respondents in equal shares in favour of the petitioner.

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