Re Farrow's Bank
| Jurisdiction | England & Wales |
| Date | 1921 |
| Year | 1921 |
| Court | Court of Appeal |
Company - Compulsory Winding Up - Lease - Covenant against Assignment without Consent - Power of Liquidator to assign.
A covenant in a lease to a company against assignment without the consent of the lessor is binding on the liquidator in a compulsory winding up of the company. There is no distinction for this purpose between a voluntary and a compulsory winding up.
So held by the Court of Appeal, reversing the decision of P. O. Lawrence J.
The cases in bankruptcy in which it has been held that a trustee in bankruptcy can assign free from the bankrupt's covenant against assignment without licence depend on the circumstance that the bankrupt's leasehold interest vests in his trustee by operation of law, so that he is not an assign of the bankrupt and consequently not bound by the covenant. These cases therefore have no application to a liquidator of a company, because the company's leasehold interest remains vested in the company after a winding up order and the liquidator acts on behalf of the company in assigning it.
SUMMONS.
By deed of lease dated November 23, 1910, Mrs. Clara Isabella Curtis demised to Farrow's Bank, Ld., 182, Balham High Road, in the County of London, for the term of 21 years, from December 25, 1910, at the yearly rent of 150 l. The lease contained a covenant by the lessees for themselves, their successors and assigns not to “assign the said demised premises or any part thereof without the previous consent in writing of the lessor first obtained” and a proviso for re-entry if (amongst other things) the company should enter into liquidation whether compulsory or voluntary by reason of insolvency.
By an order dated January 11, 1921, Farrow's Bank, Ld., were ordered to be wound up compulsorily, and the official receiver was appointed the provisional liquidator. On February 4, 1921, the lessor gave notice pursuant to s. 14 of the
On April 5, 1921, the provisional liquidator took out this summons asking (1.) for relief against the forfeiture and (2.) for a declaration that notwithstanding the covenant restrictive of assignment contained in the lease the applicant, as such liquidator, was entitled to assign the premises without the consent of the lessor. Relief was granted on terms against the forfeiture, and the only question calling for report is as to the power of the liquidator to assign without the consent of the lessor.
The summons was heard before P. O. Lawrence J. on May 3, 1921.
W. A. Greene for the liquidator. The question is whether a covenant restricting assignment is binding on a liquidator. The authorities show that a trustee in bankruptcy is not bound by such a covenant, the reason being that where an assignment is made necessary by law it is not a breach of a covenant against assignment. That is beyond question in the case of bankruptcy, but there has been no direct decision as to the position of a liquidator in the compulsory winding up of a company.
In In re Birkbeck Permanent Benefit Building SocietyF1 it was held that the liquidator in whom the property of the Building Society had been vested by a vesting order could assign a leasehold interest without committing a breach of a covenant against assignment. The only distinction between that case and the present is that a limited company's assets do not vest in the liquidator. That really makes no difference, as is shown by Cohen v. Popular Restaurants, Ld.F2, where Rowlatt J. while holding that a voluntary liquidator could not assign in breach of a covenant against assignment without consent, seems to suggest that this would not be so in the case of a liquidator in a compulsory winding up.
J. W. F. Beaumont for the lessor. The question is admittedly one of construction on the covenant. The reason a trustee in bankruptcy can assign without breach of covenant is that the bankrupt's property is vested in him by law, which is no breach of the covenant, and that he can then assign because he is not an assignee of the lessee and therefore not bound by the covenant. That is also the explanation of In re Birkbeck Permanent Benefit Building SocietyF3, where the property vested in the liquidator by virtue of a vesting order: compare Doe v. BevanF4, which was relied on in that case.
[P. O. LAWRENCE J. Although the actual decision in Doe v. BevanF4 may not apply here, there are references in that case to Doe v. CarterF5 which look as if that case might.]
Doe v. CarterF5 was the case of an assignment by a sheriff under an execution. The sheriff is not an assignee of the lessee whose leasehold property is taken in execution, and he sells in his own name and under his own seal: Doe v. Brawn.F6 Here the assignment would be by the company, and that would be a direct breach of the company's own covenant.
[P. O. LAWRENCE J. The assignment by the company would be involuntary.]
There is no ground for limiting the covenant as matter of construction to voluntary acts.
P. O. LAWRENCE J. [after stating the facts]. In these circumstances the liquidator applies to the Court to have it determined whether he can assign the property comprised in this lease without the consent of the lessor, notwithstanding the covenant against assignment without that consent.
Mr. Greene, in support of his argument, has relied upon the decisions in In re Birkbeck Permanent Benefit Building SocietyF3 and Cohen v. Popular Restaurants, Ld.F7 In the Birkbeck CaseF3 Neville J., following Doe v. BevanF4, held (inter alia) that the liquidator was not an assign of the building society within the meaning of the condition there in question, and that an assignment by him was outside of, and therefore not prohibited by, the condition. In that case, however, a vesting order had been made by the Court whereby the whole of the Building Society's property had been vested in the liquidator and in that respect it is distinguishable from the present case.
In Cohen v. Popular Restaurants, Ld.F8, Rowlatt J. held that an assignment by a voluntary liquidator without first obtaining the consent of the lessor constituted a breach of covenant not to assign without the consent of the lessor. The learned judge distinguished the Birkbeck CaseF9 on the ground that there a compulsory winding up order had been made, and that the assignment was by the officer of the Court, whereas in the case before him it was the act of the liquidator who had been brought into existence by the voluntary act of the company. The learned judge made no reference to the vesting order which had been made in the Birkbeck CaseF9, and therefore there is some justification for Mr. Greene's contention that the inference is that had the assignment been made by a liquidator in a compulsory winding up, the learned judge would not have held as he did.
The case of Doe v. BevanF10 which was relied upon by Neville J. in the Birkbeck CaseF9 is not strictly in point, because there the matter for decision was whether the assignees under a commission of bankruptcy to whom the property had been assigned by the Commissioners could assign it without the consent of the lessor, and it was decided that they could. In arriving at this decision the learned judges relied largely on Doe v. CarterF11, and at my invitation Mr. Beaumont has referred me to that case. In Doe v. CarterF11 a lease was taken into execution and sold by the sheriff without obtaining the lessor's consent, and it was decided that the sale was not within the terms of a covenant by which the lessee covenanted not “to let, set, assign, transfer, make over, barter, exchange, or otherwise part with this indenture or said messuage, lands, etc., hereby demised” without the consent of the lessor. The principle upon which that case was decided was that covenants of this nature are inserted in leases in order to guard against voluntary assignments by the lessees and do not, in the absence of an express provision to the contrary, apply to assignments made by a person acting paramount to the lessee in discharge of a duty cast upon him by the law.
The principle thus established is applicable, in my judgment, to the...
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