Re Aro Company Ltd

JurisdictionEngland & Wales
Judgment Date22 November 1979
Judgment citation (vLex)[1979] EWCA Civ J1122-2
Docket NumberNo: 003853 of 1977
CourtCourt of Appeal (Civil Division)
Date22 November 1979
Re: Aro Company Limited
Appeal By Texaco Export Incorporated

[1979] EWCA Civ J1122-2


Lord Justice Stephenson

Lord Justice Brandon

Lord Justice Brightman

No: 003853 of 1977

In The Supreme Court of Judicature

Court of Appeal

On Appeal from The High Court of Justice

Companies Court

MR A. CLARKE, Q.C. and MR N. TEARE (instructed by William A. Crump & Son) appeared on behalf of the Appellants.

MR D. RICHARDS (instructed by Bentleys, Stokes & Lawless) appeared on behalf of the Liquidator.


I will ask Lord Justice Brightman to read the judgment of the court.


This is an appeal from an Order of Mr Justice Oliver dismissing an application by Texaco Export Incorporated ("Texaco") forrelief under Section 231 of the Companies Act 1948. So far as relevant for present purposes, this section provides that "when a winding-up order has been made……no action or proceeding shall be proceeded with or commenced against the company except by leave of the court……".


The relief sought by Texaco was leave to continue an Admiralty action in rem against the ship "ARO" and in personam against her owners ARO" Company Limited notwithstanding the compulsory liquidation of the company. The claim is for short delivery of cargo and breach of a contract of carriage, amounting to about $61,000. The claim dates back to 1974. In March 1977 Shell Company (Hellas) Ltd. ("Shell"), which has a claim for about $147,000 for bunkers supplied to the ship, issued a writ in rem against her. In May 1977 the ship was arrested at the instance of Shell, On 28th July Texaco, in order to protect its interests, filed a praecipe in the Admiralty Registry under Order 75, rule 14 of the Supreme Court Rules. Under this procedure a caveat is entered in the Caveat Book against the release of the arrested vessel, and against distribution of the proceeds of any sale.


On 29th July Texaco issued a writ. As this was a writ in rem against the "Aro" as well as a writ in personam against her owners, Texaco could have had the ship arrested. It is however unusual for a second claimant to have an arrested ship further arrested. The caveat procedure is considered to make this unnecessary. The costs of a second or subsequent warrant of arrest are not allowed unless justified by special circumstances. This is a matter to which it will be necessary to return in more detail later. Subject perhaps to one point, Texaco at this stage had taken every step which a maritime claimant might think necessary to protect its interests, having regard to the existence of the arrest by Shell. There was one step which Texaco did not take. It did not serve the writ on the ship.


On 29th November 1977, a petition was presented by a mutual underwriting association for the winding-up of the company. A winding-up order was made in January 1978. The liquidation accordingly commenced on the former date.


The status of Shell as a secured creditor is not challenged by the liquidator. Various orders were made by the Companies Court enabling Shell to continue with its action. Ultimately, in October 1978, the ship was sold by the Admiralty Marshal. She had been laid up in the Thames estuary since 1975.


With the leave of the Companies Court, Texaco's writ in rem, still unserved, was renewed from time to time. The writ in personam has been allowed to lapse. Successive caveats have also been entered at the request of Texaco, a caveat expiring after six months.


The net proceeds of sale available for distribution amount to about $240,000. If Shell is the only maritime claimant against this fund, its debt will absorb all except about $32,000, which will be available for division among the unsecured creditors. If however Texaco can establish its right to resort to this fund, Shell will share the fund with Texaco, and it seems unlikely that there will be anything for the unsecured creditors. The contest, therefore, is between Texaco on the one hand and Shell and the liquidator (for the unsecured creditors) on the other hand.


The liquidator was represented at the hearing in the Court below but owing to a shortage of funds in the liquidation he decided not to take part in the Appeal. Shell was not made a respondent to the Summons before the Judge, and is not a respondent to the Notice of Motion in this Court. The appellant's solicitors have been in touch with Shell's solicitors and invited it to take part in the appeal. Shell did not accept this invitation. We have accordingly heard argument only from the appellant's counsel. Although we would have welcomed argument on both sides we have not felt unduly embarrassed, first because the judgment under appeal contains a clear exposition of the argument against Texaco, and secondly because counsel has been at pains to draw our attention to points which are against him.


This case is directly concerned only with Section 231 of the Companies Act, but it will be convenient to consider the statutory provisions in greaterbreadth.


The basic scheme of the companies legislation is that the unsecured creditors of an insolvent company are to rank pari passu (subject to statutory provisions as to preferential payments); see in Re Redman Builders Ltd., (1964) 1 weekly Law Reports, 541. In order to achieve this result, there are provisions which restrict the right of a creditor to make use of procedures outside the liquidation. Secured creditors are not separately catered for by the Companies Act 1948 or its predecessors, except that the Bankruptcy Rules are expressed to apply to the respective rights of the secured and unsecured creditors; see Section 317 of the 1948 Act.


Section 228, sub-section (1) of. the Act provides that where a company is being wound-up by the Court, any attachment, sequestration, distress or execution "put in force" against the estate or effects of the company after the commencement of the winding-up shall be void to all intents. "Put in force" means, for example, seizure by the sheriff as distinct from a sale by him. The date of the commencement of the 'winding-up is the date of the presentation of the petition or of a preceding resolution for a voluntary winding-up.


This section, though absolute in terms, has been held to be subject by implication to the Court's dispensing power which is spelt out by Section 231. This is the section with which we are primarily concerned. It read.' in full: "when a winding-up order has been made or a provisional liquidator has been appointed, no action or proceeding shall be proceeded with or commenced against the company except by leave of the Court and subject to such terms as the Court may impose".


Sections 228 and 231 apply to secured as well as to unsecured creditors. But a secured creditor is in a position where he can justly claim that he is independent-of the liquidation, since he is enforcing a right, not against the company, but to his own property; see Re David Lloyd & Co. 6 Chancery Division 339, a case under the predecessor of Sectio 231. A striking illustration of this principle is to be found in in Re Wanzer (1891) 1 Chancery 305,under the same section. A landlord of Scottish property began proceedings after a winding-up order for sequestration of the company's goods on the premises in order to answer future rent, Mr Justice North allowed the sequestration to continue, being satisfied that under Scottish law the landlord was a secured creditor at the date of the commencement of the winding-up, and therefore in the same position as a mortgagee.


The foregoing sections date back to the Companies Act 1862. in terms they apply only to a compulsory liquidation, but the principle is equally applicable to a voluntary winding-up in the sense that the Court will exercise its power to stay under Section 307 in circumstances in which it would not exercise its dispensing power if the liquidation were compulsory; re: Roundwood Colliery Co. (1897) 1 Chancery, 373. Thus if a winding-up order has been made, proceedings are automatically stayed but the Court may on application by the creditor allow them to be continued? while in a voluntary winding-up, or where a petition has been presented but not adjudicated upon, there is no automatic stay but the Court may on application by an interested party restrain proceedings. The last mentioned case usefully summarises the Court's general approach at page 381: "The result, as I understand it, is this; that a creditor who has issued execution or a landlord who has levied a distress, before the commencement of the winding-up will be allowed to proceed to sale unless there is established the existence of special reasons rendering it inequitable that he should be permitted to do so. On the other hand the case of in re Lancashire Cotton Spinning Company shows that a creditor who does not issue execution or a landlord who does not levy a distress until after the commencement of the winding-up will not be allowed to proceed unless there are special reasons which render such a course inequitable".


These provisions are re-inforced by Section 325 of the 1948 Act, which was introduced by the Companies Act 1929, and applies to both voluntary and compulsory liquidations. This section is specifically directed to the case where the execution or attachment precedes the commencement of the winding-up. The effectof the section is that the creditor is expressly precluded from retaining the fruits of the execution or attachment unless (broadly speaking) the process has been completed prior to the commencement of the winding-up and (in the case of a voluntary liquidation) prior to his receiving notice of the convening of a shareholders' meeting to consider a winding-up resolution. A dispensing power was introduced by the 1948 Act, in the terms that the rights thereby conferred on the liquidator may be set aside by the Court in...

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