In an earlier edition of Fully Secured (June 27, 2012 – Volume 3, Number 2), we reported on the Ontario Court of Justice decision in Snoek 7 where security granted by a borrower (“HSLP”) to a group of individual creditors (“B”) was held to constitute an improper preference and declared invalid following a challenge by the trustee in bankruptcy. B had been one victim of a Ponzi scheme involving numerous unsecured creditors of HSLP.
A question facing many landlords is whether, when a tenant company faces insolvency and shows no intention of continuing to trade from the premises, they should take back the property and seek to relet it?
There are several key issues here, including:
- rates liability
- mitigating losses
- ability to recover from third parties and former tenants.
A landlord's decision has often turned on the type of insolvency faced by the tenant.
If a liquidator disclaims the lease:
Case summary:
When a contractor failed to pay certain agreed invoices the sub-contractor issued a winding up petition. The contractor applied to halt the advertising of the petition on the grounds that the debts were bona fide disputed on substantial grounds as there was a cross claim which exceeded the amount claimed. The court refused to halt proceedings because the absence of a withholding notice under the HGCRA meant that there were no substantial grounds for disputing the petition.
Comment:
In Rhinegold Publishing Ltd v Apex Business Development Ltd, Rhinegold and another company owed debts to the defendant in the sums of approximately £22,000 and £31,000 respectively. The defendant presented a winding-up petition against both companies which resulted in settlement being reached. The settlement provided that the companies would pay off the debts owed in full by monthly payments and that no proceedings would be issued in relation to the debts referred to in the original statutory demand if payment was made.
For debtors with limited liabilities, little surplus income and minimal gross assets, the new Debt Relief Order (DRO) is a further tool to consider in managing their debts. DROs, which came into force on 6 April 2009, are aimed at those who find they are unable to pay off their debts within a reasonable time but for whom other forms of debt relief, such as bankruptcy or Individual Voluntary Arrangements, are unavailable, or perhaps unaffordable.
What are the criteria for a DRO?
A DRO can be applied for where the debtor:
The case of White v Davenham Trust Ltd, has reaffirmed that a creditor can choose its own method of enforcing a debt which has been guaranteed even where it might hold security for that debt.
Where the entirety of a debt is not included in an agreement to settle, a creditor can continue to prove in a bankruptcy for the balance.
The court has a limited discretion not to make a bankruptcy order where the debt is the subject of a statutory demand which has not been paid and is outstanding at the time of the bankruptcy petition hearing.
Where a debtor's assets exceed his liabilities, the onus is on the debtor to prove he can not pay his debts if a creditor seeks to annul the bankruptcy order.
In Paulin v Paulin and another, the defendant petitioned for his own bankruptcy claiming he was unable to pay his debts. The claimant applied for the order to be annulled claiming the defendant could afford to pay his debts and was deliberately attempting to defeat her claims in the matrimonial proceedings.
The EAT's judgment