and to pay them pari passu. A landlord who has not put in a distress before the commencement of the winding-up is an unsecured creditor. He can prove against the company under sec. 158 for all rent in arrear at the time of his proof, but his right to distrain is taken away by sec. 163, unless circumstances exist which, in the opinion of the Court, require it to give him. leave to distrain under sec. 87. In all cases, however, in which a landlord seeks to distrain after a winding-up order, or seeks to be paid his rent in priority to other creditors, he must show why he should have such an advantage over the other creditors. There are numerous decisions in the books relating to this subject, and to which it may be useful shortly to advert. They may be grouped into two classes, the first relating to rent in arrear at the commencement of the winding-up, the second relating to rent accruing subsequently to that date. "First as to rent in arrear at the commencement of the winding-up. 1. If the landlord is a legal creditor of the company in respect of rent in arrear at the commencement of its winding-up, he is not allowed to distrain for the arrears of rent but must prove his debt like any other creditor: In Traders' North Staffordshire Carrying Company (L.R. 19 Eq. 60), where the distress was for tolls in arrear; In re Coal Consumers Association (4 Ch. D. 625), where the liquidator retained possession, but not for any purpose of liquidation; Thomas v. Patent Lionite Company (17 Ch. D. 250), a case of voluntary winding-up followed by a compulsory order. 2. Moreover, in cases of this kind the circumstance that the liquidator has retained possession and carried on the company's works, has been held not to entitle a landlord or mortgagee (with a power of distress as and for rent) to distrain for rent in arrear in the winding-up: In re North Yorkshire Iron Company (7 Ch. D. 661); In re Brown, Bayley & Dixon (18 Ch. D. 649); In re South Kensington Co-Operative Stores (17 Ch. D. 161). 3. If, however, the landlord is not a legal creditor of the company by reason of the company not being his tenant, he is permitted to distrain even for rent in arrear at the commencement of the winding-up: In re Exhall Coal Mining Company (4 De G. J & S. 377). 4. And in such a case he will be allowed to distrain. although the liquidator offers to allow the arrears to be proved App. Div 1917 Re The City Canadian V. Potter Stuart, J. App. Div. 1917 Re The City Transfer Imperial Canadian Trust Co., Ltd. Potter Stuart, J. as a debt in the winding-up; In re Regent United Service Stores (8 Ch. D. 616). "Secondly as to rent accruing after the commencement of the Co., Ltd.: winding-up. 1. If the liquidator has retained possession for the purposes of the winding-up, or if he has used the property for carrying on the company's business, or has kept the property in order to sell it or to do the best he can with it, the landlord will be allowed to distrain for rent which has become due since the winding-up: In re Lundy Granite Company (L.R. 6 Ch. 462); In re North Yorkshire Company; In re Silkstone and Dodsworth Coal and Iron Company (17 Ch. D. 158); In re South Kensington Co-Operative Stores, and see In re Brown, Bayley & Dixon, per Fry, J. 2. But if he has kept possession by arrangement with the landlord and for his benefit as well as for the benefit of the company, and there is no agreement with the liquidator that he shall pay rent, the landlord is not allowed to distrain; In re Progress Assurance Company (L.R. 9 Eq. 370); In re Bridgewater Engineering Company (12 Ch. D. 181). "When the liquidator retains the property for the purpose of advantageously disposing of it, or when he continues to use it, the rent of it ought to be regarded as a debt contracted for the purpose of winding up the company, and ought to be paid in full like any other debt or expense properly incurred by the liquidator for the same purpose, and in such a case it appears to us that the rent for the whole period during which the property is so retained or used ought to be paid in full without reference to the amount which would be realized by a distress. This was the view taken by Lord Justice James in the case of the Lundy Granite Company (L.R. 6 Ch. 462) and by Mr. Justice Fry in In re Brown, Bayley & Dixon (18 Ch. D. 649), and by Mr. Justice Kay in the present case. But no authority has yet gone the length of deciding that a landlord is entitled to distrain for or be paid in full rent accruing since the commencement of the winding-up, where the liquidator has done nothing except abstain from trying to get rid of the property which the company holds as lessee. If the landlord had endeavoured to re-enter and the liquidator had objected, the case might be different, but having regard to the provisions of The Companies Act, 1862, we are of opinion that in the case now supposed the landlord must rely on his right, if any, to re-enter and prove for the arrears due to him, and that he is not entitled to anything more." The same general rules are to be found in Palmer, Part 11, at p. 471. It is to be observed however that the two sections I have quoted from the English Act and which as they stood in the Act of 1862 were referred to by Lindley, L.J. apparently refer to a company being wound up either compulsorily or according to the third English method "under the supervision of the Court." Nevertheless Palmer at p. 472 says: "Subject as above (i.e. to the exceptional cases where distress is allowed) the Court restrains distress, whether the winding-up be compulsory, under supervision, or voluntary." There is this difficulty, however, about adopting English decisions. There the voluntary winding-up provisions and the compulsory winding up provisions are comprised in one statute and that of the same legislature. An example of how different the situation might possibly be with us is presented by the decision in Thomas v. Patent Lionite Company, 17 Ch. D. 250; 50 L.J. Ch. 544; 44 L.T. 392. In that case after an extraordinary resolution for the voluntary winding up of the company had been passed but before a liquidator had been appointed a landlord distrained for rent. Before there was a sale certain debenture holders got an injunction restraining the landlord from proceeding. Then an order for the compulsory winding up of the company was made. The Court of Appeal held that the distress was void by virtue of sec. 163 (the present sec. 211 above quoted) unless sufficient grounds were shown for exercising the discretionary power given by sec. 87 (the present sec. 142 above referred to). But it will be observed that sec. 163 could only be held to avoid the distress if the words "after the commencement of the winding up" contained therein referred, not to the compulsory winding up, but to the voluntary winding up. The Court of Appeal took that view quite apparently and though the winding up had become compulsory yet they held the winding up had been App. Div. 1917 Re The City V. Potter Stuart, J. App. Div. 1917 Re The City Trust Co., Stuart, J. "commenced" when the resolution was passed for voluntary The decision in that case declares that a winding up order H App. Div. 1917 parties from sec. 211 (old sec. 163) of the English Act taken along with sec. 142 (old sec. 87) although there is I think a distinction as to the remedies which may be adopted to protect Re The City those rights. The general principle of pari passu distribution referred to by Lindley, L.J. as underlying compulsory winding up proceedings is expressly enacted in our ordinance by sec. 7 sub-sec. 2 which is taken indeed from the English Act but from that part of it which deals with voluntary winding up. It is obvious that a statutory direction of this kind is necessary in regard to voluntary winding up proceedings though unnecessary where the winding up is being carried on by the Court which will itself adopt the pari passu rule. This no doubt is the reason why the express rule is not laid down in the Dominion Act or in the compulsory provisions of the English Act. Under the English Act there is apparently a discretionary power to allow an actual distress which power will be exercised according to the principles laid down in Oak Pitts Colliery Case. But under our sec. 18, sub-sec. 7 I think the result is that an actual distress is not to be made at all even if there does continue to exist a right to a preferential claim. Instead of taking such a course there must be an application to the Court and the Court, instead of permitting a distress to be made as a remedy, will, in a proper case, and I think speaking generally, in accordance with the principles of Oak Pitts Colliery Case, simply direct the liquidator to allow the landlord's claim as a preferential one. In other words sec. 18, sub-sec. 7 deals merely with remedies and does not by itself alter any of the substantial rights of the parties. If, in order to determine the extent of a claimant's rights it turns out to be more convenient to allow an action to be brought then this may be done under sec. 22 (3) even if a general order has been made staying all actions and that I think notwithstanding anything that is involved in the phrase "not by any action" contained in sec. 18, sub-sec. 7 which deals only with such rights as are included in the term "remedies." The effect of sec. 7, sub-sec. 2 however is, I think, to destroy the right of distress and any right to preferential treatment Transfer Co., Ltd.: Imperial Canadian Trust Co., Ltd. V. Potter Stuart, J. |