Creditor protection on capital reduction requires adequate landlord security; long, non-onerous leases usually need cover for future rent.

A direction under section 67(3) of the Companies Act 1948 may be made only where special circumstances show that the affected creditors will not be prejudiced. In the context of landlords with claims arising from leasehold covenants and future rent, the relevant claim is unascertained and must be protected on a notional winding-up basis. For long, non-onerous leases, the Court indicated that protection for about ten years' rent will ordinarily be sufficient, rather than coverage for the full remaining term. On the facts, the company's proposed protection fell short of that standard, so the statutory basis for dispensing with section 67(2) was not made out.

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Issues: Whether a direction under section 67(3) of the Companies Act, 1948 could properly be made so that section 67(2) would not apply to the company's landlords on a reduction of capital.

Analysis: A direction under section 67(3) is justified only where special circumstances show that creditors affected by the reduction will not be prejudiced. In assessing landlord claims arising from leasehold covenants and future rent, the relevant claim is unascertained and would ordinarily have to be protected by an amount fixed on the footing of a notional winding-up. Although the ordinary practice in some cases has been to require extensive coverage, the Court held that a realistic balance must be struck, and that for long leases where the tenancy is not onerous, protection for about ten years' rent will normally suffice. On the facts, however, the company's existing coverage did not extend far enough to protect the landlords to that standard.

Conclusion: The Court held that the statutory precondition for excluding landlords from section 67(2) was not satisfied on the material before it, and the requested direction could not be made as matters stood.

Final Conclusion: The application for a reduction of capital could not proceed in the proposed form because the company had not provided adequate protection for its landlords.

Ratio Decidendi: A direction dispensing with the creditor-protection procedure for a class of creditors under section 67(3) of the Companies Act, 1948 can be granted only if the Court is satisfied that the class will not be prejudiced, and for landlords with long but non-onerous leases, adequate protection will normally require coverage of future rent for a reasonable period, not necessarily the whole residual term.

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