Re Modern Jet Support Centre Ltd
| Jurisdiction | England & Wales |
| Judge | THE HONOURABLE MR JUSTICE WARREN,Mr Justice Warren |
| Judgment Date | 21 July 2005 |
| Neutral Citation | [2005] EWHC 1611 (Ch) |
| Docket Number | Case No: 7745 of 2005 |
| Court | Chancery Division |
| Date | 21 July 2005 |
[2005] EWHC 1611 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
The Honourable Mr Justice Warren
Case No: 7745 of 2005
IN THE MATTER OF MODERN JET SUPPORT CENTRE LIMITED AND IN THE MATTER OF THE INSOLVENCY ACT1986
Miss Marcia Shekerdemian (instructed by Messrs Sprecher, Grier Halberstam LLP) for the Applicant
Mr Michael Gibbon (instructed by The Solicitor to Her Majesty's Revenue & Customs) for the Respondent
Hearing date: 12th July 2005
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Introduction
This case raises a short question of insolvency law of some general importance. It is whether the process of distraint against goods for unpaid tax under section 61 Taxes Management Act 1970 (" TMA 1970") is an "execution" within section 183 Insolvency Act 1986 (" IA 1986") which applies where a creditor has issued, but not completed, execution against the goods or land of a company which is subsequently wound up. The section prevents the creditor from retaining the benefit of execution unless the execution has been completed before the commencement of the winding-up. For this purpose, execution against goods is completed by seizure and sale or by the making of a charging order under section 1 Charging Orders Act 1979.
The facts
The facts are not in dispute and may be briefly stated.
a. As at 13 September 2004, Jet Support Centre Ltd (" MJSC") had liabilities to HM Revenue and Customs (" the Revenue") in respect of PAYE and NIC totalling £51,961.
b. On that date an officer of the Revenue (Kent Recovery Office) attended at MJSC's offices to distrain upon certain of its vehicles, machinery and equipment. MJSC entered into a "walking possession" agreement (the nature of which is succinctly described by Templeman J at first instance in In re Herbert Berry Associates Ltd [1976] 1 WLR 783). This enabled MJSC to retain use of the distrained assets whilst preserving the Revenue's rights as a result of having levied distress.
c. On 15 September 2004, notices convening meetings of shareholders and creditors of MJSC were issued and on 8 October 2004 MJSC went into creditors voluntary winding-up. The applicant, Mr Brenner, was appointed as liquidator.
d. According to MJSC's Statement of Affairs, there was, as at 8 October 2004, a deficiency as regards creditors of £2,428,196. None of the Revenue's debt has been paid.
The statutory provisions
A. TMA 1970
Section 61 TMA 1970 provides as follows:
a. Under subsection (1) "the collector may distrain upon the goods and chattels of the person charged (in this section referred to as "the person in default")". The quoted words were substituted in the subsection by Finance Act 1989.
b. Under subsections (2) and (3) provision is made for the breaking into any house or premises pursuant to a warrant issued by a justice of the peace, to be executed by or under the direction of the collector.
c. Under subsection (4), a distress levied by the collector shall be kept for five days following which, under subsection (5), the assets distrained are to be "appraised" and then sold by auction. The collector retains from the proceeds what is due plus various costs and charges, and accounts to the owner of the distrained assets for the balance.
IA 1986
Section 183 IA 1986 (whose predecessor was section 325 Companies Act 1948 (" CA 1948") and section 621 Companies Act 1985) is the provision which I have to construe. Subsection (1) provides as follows:
"(1) Where a creditor has issued execution against the goods or land of a company or has attached any debt due to it, and the company is subsequently wound up, he is not entitled to retain the benefit of the execution or attachment against the liquidator unless he has completed the execution or attachment before the commencement of the winding up."
By subsection (2)(b), a person who purchases in good faith under a sale by the sheriff any goods of a company on which execution has been levied obtains a good title against the liquidator. By subsection (3)(a), execution is completed by seizure and sale or by the making of a charging order under the Charging Orders Act 1979. And by subsection (4) "the sheriff" includes "any officer charged with the execution of a writ or other process".
As well as section 183, there are several sections of IA 1986 which need to be referred to, together with their statutory predecessors where appropriate.
Section 107 IA 1986 (whose predecessor was section 302 CA 1948) is the provision which deals with the distribution of a company's property where it is in voluntary winding-up (whether members' or creditors').
"Subject to the provisions of this Act as to preferential payments, the company's property in a voluntary winding-up shall on the winding-up be applied in satisfaction of the company's assets pari passu….."
Section 126 IA 1986 (whose predecessor was section 226 CA 1948) is a provision which applies where a petition has been presented for the winding-up of a company before a winding-up order has been made. It permits the company or any creditor or contributory to apply for a stay in the case of an action or proceedings in the High Court or the Court of Appeal or to apply to restrain further proceedings in any other action or proceeding against the company.
Section 128 IA 1986 (whose predecessor was section 228 CA 1948) applies where a company is being wound up by the court. It renders void "any attachment, sequestration, distress or execution put in force" after the commencement of the winding-up.
Section 130 IA 1986 (whose predecessor was section 213 CA 1948) provides by subsection (2) that, once a winding-up order has been made, "no action or proceeding shall be proceeded with or commenced against the company or its property" except with the leave of the court.
Section 175 IA 1986 (whose predecessor was section 319(5) CA 1948 and sections 89(1), (2) Insolvency Act 1985) is concerned with preferential debts and provides for such debts to be paid in priority to other debts.
Section 176 IA 1986 (whose predecessor was section 319(7) CA 1948 and section 89(3), (4) Insolvency Act 1985) applies only where the company is being wound up by the court and is expressed to be without prejudice to section 128 IA 1986. It applies where any person (whether or not a landlord) has distrained upon the goods or effects of a company in the period of 3 months ending with the date of the winding-up order (in contrast with the commencement of the winding-up), and gives the company a charge over the distrained assets for the preferential debts to the extent of any deficiency in the company's property available for meeting those debts.
Section 434 IA 1986 (whose predecessor was section 234 Insolvency Act 1985 and had no corresponding predecessor under CA 1948) expressly provides "for the avoidance of doubt" that provisions of IA 1986 which derive from the Insolvency Act 1985 (ie including sections 175 and 176 IA 1986) bind the Crown so far as concerns, among other matters, remedies against, or against the property of companies and priorities of debts.
Distress/distraint and execution
None of "distrain", "distress" or "execution" is defined in IA 1986 (nor were they defined in CA 1948).
The general legal meaning of distress or distraint is uncontroversial: it is described in Halsbury's Laws of England Vol 13 (4th ed Reissue) at para 601:
"The term "distress" primarily connotes a summary remedy by which a person is entitled without legal process to take into his possession the personal chattels of another person, to be held as a pledge to compel the performance of a duty, or the satisfaction of a debt or demand. By almost universal sanction the term "distress" is now used to designate both the process of taking, and the chattels taken, though originally it applied only to the taking. By statute, remedies referred to as "distress" have been introduced for the recovery of rates and taxes and for the enforcement of certain fines imposed by or orders of magistrates' courts….."
The ordinary meaning of "execution" is more open to question. No doubt the word, as used in IA 1986, takes its meaning from the context of the Act as a whole. It is, nonetheless, helpful to see what meanings it had taken in other contexts. In re Overseas Aviation Engineering(GB) Ltd [1963] 1 Ch 24, it was held by the majority that a charging order on land under section 35(1) Administration of Justice Act 1956 obtained to enforce a judgment debt was a form of "execution" for the purposes of section 325 CA 1948. At p 39 Lord Denning MR says this:
"The word "execution" is not defined in the Act. It is, of course, a word familiar to lawyers. "Execution" means, quite simply, the process for enforcing or giving effect to the judgment of the court: and it is "completed" when the judgment creditor gets the money or other thing awarded to him by the judgment. That this is the meaning is seen by reference to that valuable old book Rastill Termes de la Ley, where it is stated: "Execution is, where Judgment is given in any Action, that the plaintiff shall recover the land, debt, or damages, as the case is; and when any Writ is awarded to put him in Possession, or to do any other thing whereby the plaintiff should the better be satisfied his debt or damages, that is called a writ of execution; and when he heath the possession of the land, or is paid the debt or damages, or heath the body of the defendant awarded to prison, then he heath...
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LCP Retail Ltd v Richard Andrew Segal
...However, it was accepted before the Registrar that, in the light of Herbert Berry Associates Ltd v IRC [1977] 1 WLR 783 and In re Modern Jet Support Ltd [2005] BPIR 1382, distress was not a form of execution and section 183 was not therefore applicable. A second argument advanced by the liq......