Disapplication of creditor protection under section 67(3) denied where landlord coverage is insufficient; ten year rent benchmark required.

Whether s67(3) permits disapplication of s67(2) depends on whether creditors, here landlords, would be prejudiced; the court may disapply subsection (2) for a class of creditors in special circumstances but must ensure adequate appropriation for contingent or unascertained claims assessed on a notional winding up basis. Prospective landlord claims for future rent and covenant breaches require inquiry into likely retention period, realisable value or assignability; trustee securities, cash or guarantees can constitute special circumstances only if they secure such prospective claims. Application to disapply s67(2) was refused because demonstrated coverage did not meet the requisite protection (ten year rent benchmark for long leases ordinarily appropriate).

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Issues: (i) Whether, under section 67(3) of the Companies Act, 1948, the court can direct that section 67(2) shall not apply to the company's landlords where the company proposes a reduction of capital and relies upon existing cash and trustee securities coverage.

Analysis: Section 66 requires court confirmation for reduction of capital and section 67(2) entitles creditors who could prove in a winding-up to object, with section 67(2)(c) requiring the court to fix an amount to be appropriated to secure contingent or unascertained claims after inquiry as in a winding-up. Section 67(3) permits the court, in special circumstances, to disapply subsection (2) for any class of creditors. Coverage by cash and trustee securities or a satisfactory guarantee may amount to special circumstances if creditors will not be prejudiced. Prospective landlord claims for future rent and covenant breaches are contingent and must be assessed on the footing of a notional winding-up; the appropriate amount for appropriation depends on how long the company will remain in possession of the leaseholds and the likely ability to realise value or obtain assignees. Prior authority indicates landlords can prove for the value of lessee covenants but not for full future rent where assignees will meet obligations. Practical recognition of reality permits the court, in exercise of discretion under section 67(3), to require less than full unexpired-term rent where retention of leaseholds is unlikely to generate all future claims. A ten-year rent period is an appropriate normal benchmark for adequate protection in respect of long leases, subject to case-specific facts. In the present case the company's shown coverage does not extend to prospective rents for ten years for the leaseholds and is therefore insufficient to satisfy the protection required for landlords.

Conclusion: The application under section 67(3) to disapply section 67(2) as regards the company's landlords is refused because the existing coverage is insufficient to secure landlords' prospective claims; ordinarily ten years' rent coverage for long leases would suffice but is not demonstrated here.

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