D., an Arranging Debtor

• Jurisdiction: Ireland
• Judgment Date: 19 May 1927
• Date: 19 May 1927
• Court: Supreme Court (Irish Free State)

Supreme Court.

In re D., an Arranging Debtor.

In the MATTER of D., an Arranging Debtor

Bankruptcy - Arranging debtor - Rent - Threat to distrain - Agreement to pay compromised sum - Priority - Preferential debts - Local rates - Irish Bankrupt & Insolvent Act, 1857 (20 & 21 Vict. c. 60), sect. 347 -Preferential Payments in Bankruptcy (Ireland) Act, 1889 (52 & 53Vict. c. 60), sect. 4.

Appeal by the Corporation of Dublin from the ruling of the Chief Registrar in Bankruptcy, who ruled that the landlords of the business premises of D., an arranging debtor, were entitled to be paid in priority to the preferential creditors.

The rent of the debtor's premises was £450 per annum, payable in advance by quarterly instalments to the City Property Development Company (Ireland), Limited. On December 29th, 1924, the landlords' solicitors applied for the payment of a quarter's rent—as a matter of fact a half year's rent was then due—and threatened proceedings if the same was not paid. The debtor not having paid, a writ was issued against him on January 13th, 1925, for £225, a half-year's rent, but it was not served. On January 28th, 1925, the debtor's solicitor wrote informing the landlords' solicitors that the debtor had taken the protection of the Court. On or about January 30th, 1925, the landlords' solicitors received from the debtor's solicitor a notice, dated January 26th, of the First Private Sitting to be held on February 20th; and on February 5th they wrote to the debtor's solicitor that as the rent was payable in advance there were three quarters' rent due, not a half-year as previously stated, and that the amount was £337 10s.

On Saturday, February 14th, the landlords' solicitors wrote,"unless we have an assurance that this debt will be paid we shall put a distress in on Tuesday next." The ordinary creditors were anxious that a distraint should not be made, and, as the result of negotiations between their solicitor and the landlords' solicitors, it was agreed, as set out in the resolution hereinafter mentioned, that the landlords should get priority for rent in respect of the compromised sum mentioned in the resolution. At the adjourned First Private Sitting a resolution was passed to vest in the Official Assignee all the petitioner's estate (save excepted articles) for realisation, "the proceeds of such realisation after payments thereout of the Court fees and expenses and of the compromised sum of £262 10s. to the landlords of petitioner's business premises and of the costs of the petition and proceedings thereunder and such other costs, preference payments, and allowances as the Court may direct to be paid" to be distributed rateably amongst the creditors according to the course of the Court. The total sum realised was £184 5s. 11d. The arranging debtor owed the sum of £71 17s. 6d. to the Dublin Corporation for rates, for which the Corporation claimed priority under sect. 4 of Preferential Payments in Bankruptcy (Ireland) Act, 1889 (52 & 53 Vict. c. 60). The Corporation had notice of the resolution that was passed at the First Private Sitting, but did not appear at the Second Private Sitting to oppose it. The landlords claimed priority of payment for the rent, under the resolution.

The Chief Registrar ruled that the landlords were entitled to be paid the sum mentioned in the resolution in priority to the preferential creditors, and from his ruling the Corporation of Dublin appealed.

The Corporation of Dublin appealed to the Supreme Court (1).

Sect. 4, sub-sect. 1, of the Preferential Payments in Bankruptcy (Ireland) Act, 1889 (52 & 53 Vict. c. 60), enacts:—"In the distribution of the property of any bankrupt, notwithstanding anything in the 49th section of the Bankruptcy (Ir.) Amendment Act, 1872, or the 249th section of the Irish Bankrupt and Insolvent Act, 1857, and in the distribution of the assets of any company being wound up under the Companies Act, 1862, and the Acts amending the same; notwithstanding anything in any of the said Acts, there shall be paid in priority to all other debts"— then follows a 11st of the debts which includes local rates due from the bankrupt or the company. Sub-sect. 1 is, by sub-sect. 6, made applicable in the case of an arranging debtor under the provisions of the Irish Bankrupt and Insolvent Act, 1857, and the Bankruptcy (Ir.) Amendment Act, 1872, as if he were a bankrupt.

Sect. 347 of the Irish Bankrupt and Insolvent Act, 1857 (20 & 21 Vict. c. 60), provides that where three-fifths in number and value of the creditors of a petitioning trader who have proved debts to the amount of £10 agree at the Second Sitting to accept a proposal assented to at the First Sitting, the terms thereof shall be reduced into writing, and the creditors shall sign the same: and such resolution or agreement shall, subject to confirmation by the Court, be binding against all the creditors who had notice of the Sittings.

An arranging debtor owed, among other debts, three quarters' rent, amounting to £337 10s. He also owed the Dublin Corporation a certain sum for rates. The landlords had threatened to distrain, and, after negotiations, an agreement was reached whereby the landlords were to refrain from distraining and were to accept the reduced sum of £262 10s., and this reduced sum was to be paid as a preference claim. Accordingly a resolution was passed at the First Private Sitting, and was confirmed by the Court at the Second Private Sitting, which provided that all the estate of the debtor should vest in the Official Assignee as fully as in bankruptcy for realisation upon such terms as the Court should direct, the proceeds of such realisation "after payment thereout of the Court fees and expenses and of the compromised sum of £262 10s. to the landlords of the petitioner's business premises and of the costs of the petition and proceedings thereunder, and such other costs, preference payments, and allowances as the Court may direct to be paid" to be distributed rateably among the creditors. The total sum realised amounted only to £184 5s. 11d. Subsequently a sitting was held to ascertain the preferential debts and their priority, at which the solicitor for the Dublin Corporation attended and claimed that under sect 4 of the Preferential Payments in Bankruptcy (Ir.) Act, 1889, the first payment to be made was the sum due for rates. The Corporation had notice of the resolution that was passed at the First Private Sitting, but did not appear at the Second Private Sitting to oppose it. The Chief Registrar ruled that, having regard to the terms of the resolution in the matter, the landlords were entitled to be paid the sum mentioned in the resolution in priority to the preferential creditors; and as the sum to credit was insufficient to pay them in full, he had not ascertained the amount due to the preferential creditors. The Dublin Corporation appealed from this ruling, but it was affirmed by Johnston J. On appeal to the Supreme Court:

Held, that the decision of Johnston J. must be affirmed.

Per Kennedy C.J.: The Dublin Corporation were not bound by the resolution and the confirmation of it by the Court, and they did not thereby lose their statutory priority. But on the facts, the landlords did in effect distrain the debtor's goods and sold through the agency of the Court, and the Court was a trustee of the proceeds of the sale as regards the landlords, and the compromised sum for rent must be paid in the first instance out of the proceeds.

Per FitzGibbon J.: The proposal that was put forward was free from ambiguity, and as it was duly confirmed by the Court, without objection on behalf of the Dublin Corporation, who had full notice of it, it was binding and of full force against them under sect. 347 of the Irish Bankrupt and Insolvent Act, 1857.

Per Murnaghan J.: Confirmation of a proposal which altered the priorities given by the Preferential Payments in Bankruptcy (Ir.) Act, 1889, would not bind a preferential creditor who had not voted in respect of his preferential debt. But, on the facts, the compromised sum for rent must be treated as the property of the landlords and not as assets of the arranging debtor to be dealt with in the matter.

Cur. adv. vult.

Johnston J.:—

This application involves a question of some importance as between the landlords of certain premises of which the arranging debtor was tenant, and the Corporation of Dublin, who claim to be paid a sum in respect of rates in priority to the claim of the landlords for arrears of rent. The arranging debtor took the protection of the Court on January 26th, 1925. The First Private Sitting was passed on March 6th, and the Second on March 20th, 1925, and the debtor's proposal was duly confirmed by the Court. Among the creditors were the landlords of certain premises of which the debtor was the tenant. A large sum was owing for rent, in respect of which the landlords were entitled, and were about to exercise their common law and statutory rights to distrain. The ordinary creditors were anxious that a distraint should not be made, and accordingly negotiations took place between them and the landlords' solicitors for the purpose of effecting a compromise by which the landlords should get priority in respect of an agreed sum for rent, on the one hand, and, on the other, that the loss and expense that usually accompany a seizure and sale for rent might be avoided.

For the purpose of carrying out this object, a special form of resolution was devised which proposed to vest in the Official Assignee all the estate of the debtor for realisation, the proceeds of such realisation "after payment thereout of the Court fees and expenses and of the compromised sum of £262 10s. to the landlords of petitioner's business premises, and of the costs of the petition and proceedings thereunder, and such other costs, preference payments and allowances as the Court may direct to be paid," to be distributed rateably amongst...