LATHOM v. GREENWICH FERRY CO.

1895, April 23, 24, 25. KEKEWICH, J.

Company - Debenture-holders' Action Costs of "realization"- Advances to Receiver empowered to "raise" Money-Receiver's Charges-Priority.

A company worked a ferry across a river under a licence from the river conservators which reserved an annual payment. A debenture-holders' action was brought against the company, and a receiver and manager appointed, who obtained advances from a financial corporation on receipts purporting to give a first charge upon the assets, which advances, along with other money, he applied in preserving the assets. The assets being insufficient to meet all claims :

Held, that arrears due under the licence were costs of realization, and as such entitled to take precedence of the other claims; that the costs of preservation could not be treated as costs of realization; and that the advances from the corporation had priority over the debentures.

THE original Greenwich Ferry Co. (Limited) having been wound up, a new company having the same name and objects, hereinafter called "the company," was formed in 1890, under a scheme of reconstruction.

The company was in occupation of certain foundations and works on the River Thames, under a licence from the conservators of the river, reserving payment of an annual sum of 145l.

The company being in difficulties, the present action was brought against it by the debenture-holders, and on 28 September, 1892, Matthew MacIntyre was appointed receiver and manager of its property.

On 4 October, 1892, the London and Colonial Finance Corporation, who were debenture-holders of the company, advanced a sum of 4007. to the said receiver and manager, upon a receipt indorsed upon an office copy of the order by which he was appointed, stating that such sum should be a first charge upon the property of the company.

By an order made in the action on 14 October, 1892, it was ordered that the said receiver and manager should be at liberty "to raise not more than 2,500l. for the purpose of carrying on the business" of the company.

On 26 October, 1892, the corporation advanced a further sum of 300l., and on 8 November a further sum of 300l., to the said receiver and manager, on receipts indorsed upon the said office copy of the said order, which stated that such sums should constitute a first charge upon the property of the company. The sums so advanced by the corporation were used by the said receiver in carrying on the business of the company.

A resolution having been passed at a meeting of debentureholders of the company, that a sum of 5,000l. should be raised in priority to their charge on the company's property, and a circular, dated 8 November, 1892, having been issued pursuant thereto to each of the debenture-holders, requesting him to pay his proportion of 2,500l., part of the said sum, twenty-four of the said debentureholders thereupon advanced sums amounting in all to 1967.

By an order dated 16 January, 1893, Matthew MacIntyre was, at his own request, discharged from the receivership and managership, and Bradshaw Brown was appointed to the office, subject to the charge created by the debentures and to the rights of any prior incumbrancers, and also to manage and work the business and to negotiate for a sale of the property of the company, and the further consideration of the action was adjourned.

On 22 November, 1894, certain machinery and other property of the company were sold under an order of the Court, and a sum of 2,4797. 18s. thereby realized was now in Court.

By an order dated 7 December, 1894, it was declared that "the receiver is liable to pay unto the said conservators out of the proceeds of sale of the assets which have been directed to be sold and as part of the costs of realization, the annual sum of 1451. payable under the licence granted from the said conservators as from 28 September, 1892, to the date of the said sale in preference to the claims of the debenture-holders of the defendant company."

Claims were now made by summonses upon the proceeds of sale of the above-mentioned property by: (i.) The conservators in respect of the amount due to them under the said licence. (ii.) The London and Colonial Finance Corporation in respect of the sums advanced by them as aforesaid. (iii.) The debenture-holders who advanced the sum of 1961. in respect of that sum. (iv.) The receiver and manager,

Bradshaw Brown, in respect of his (a) costs of realization, (b) commission on the sale of the said property, (c) costs of preservation of the assets.

Hatfield Green, for the Thames conservators:

The sum claimed by the conservators represents costs of realization. Under Rule 31 of the Companies (Winding-up) Rules, 1890, such costs have priority over those of a liquidator, and a receiver is in no better position than a liquidator.

Renshaw, Q.C., and G. F. Hart, for the London and Colonial
Finance Corporation :

The receiver is no doubt entitled to priority in respect of costs of realization, but by that is to be understood only the costs of the actual sale Batten v. Wedgwood Coal & Iron Co. (1). He has no priority as regards his commission and costs of preservation. The corporation takes precedence of the debenture-holders: Strapp v. Bull (2). There was nothing in the order appointing MacIntyre receiver which negatived his right to borrow money. The receipts for the corporation's advances state that they are to be a first charge.

H. T. Eve, for the plaintiffs:

The receiver is entitled to priority in respect of his costs not only of realization but also of preservation: Batten v. Wedgwood Coal & Iron Co. (1), Strapp v. Bull (2), Batten v. Dartmouth Harbour Commissioners (3), In re Oriental Hotels Co., Perry v. Oriental Hotels Co. (4), Burt v. Bull (5), In re Regent's Canal Ironworks Co., Ex parte Grissell (6), In re Parker, Ex parte London Metallurgical Co. (Limited) (7).

The sum due to the conservators is not in the nature of rent:

(1) 28 Ch. D. 317; 54 L. J. Ch. 686; 52 L. T. 212; 33 W. R. 303.

(2) 98 L. T. Jour. 494.

(3) 45 Ch. D. 612; 59 L. J. Ch. 700; 62 L. T. 861; 38 W. R. 603. (4) 12 L. R. Eq. 126; 40 L. J. Ch. 420; 24 L. T. 495; 19 W. R. 767. (5) 14 R. (Feb.) 269; [1895] 1 Q. B. 276; 71 L. T. 810; 43 W. R. 180. (6) 3 Ch. D. 411; 45 L. J. Ch. 360; 24 W. R. 513.

(7) 13 R. (May) 226; [1895] 1 Ch. 758; 72 L.. T. 421; 43 W. R. 476.

Thames Conservators v. Commissioners of Inland Revenue (8). It was not intended that the order of 7 December, 1894, should give them the priority they now claim. The receiver's costs of preservation are as much costs of realization as a payment in the nature of rent.

As regards the advances, a receiver is not entitled to create a charge on the assets without express authority. Even if these advances were made under the order of 14 October, 1892, they are not part of the fund now being dealt with. They were not made under that order, but to meet the liabilities of the receiver.

Bethell, for the debenture-holders who advanced 1967. :

These debenture-holders are entitled to a first charge on the assets, which would have disappeared but for their money.

Renshaw, Q.C., in reply:

No case has gone so far as to put costs of preservation on the same footing as costs of realization. The latter have priority, because by them the fund is produced.

The corporation's advances were made to the receiver MacIntyre for the purpose of carrying on the company's business. The present receiver took office with notice of all that MacIntyre had done.

KEKEWICH, J.: There are two summonses before the Court. In each the applicants ask to be paid at once moneys alleged to be due to them out of the realized assets of this company, being not all, but a very large proportion, of the assets, not including the business, which is unsaleable, and to have that done in anticipation of further consideration reserved by the order of 16 January, 1893. There are cases in which applications in anticipation of further consideration are convenient by reason of not only saving time, but saving costs, which might otherwise be uselessly expended, and this is one of them, because if these applicants succeed in their claim for payment the result will be that there will be nothing left for the debenture-holders. This is a debenture-holders' action, and the inquiries

(8) 18 Q. B. D. 279; 56 L. J. Q. B. 181; 56 L. T. 198; 35 W. R. 274.

on which further consideration was reserved, are inquiries for the benefit of the debenture-holders; that is to say, to ascertain who they are, what is the character of their charge, and how much is due to them. To prosecute that to the end when, after all, there is nothing coming to the debenture-holders, would, of course, be worse than idle. Therefore, this is a case in which these anticipating summonses have been properly issued to try the question.

The first summons is that of the Thames conservators. They granted a license to the defendant company's predecessors in title, having the same name, and therefore practically the same company, to lay down certain stones and other things under the River Thames, in order to enable them to carry on their ferry business across the river opposite Greenwich, the license reserving rent. It was not a lease, but a license in the nature of a lease. On the company being unable to pay their debts, and a debenture-holders' action being commenced, and a receiver and manager appointed, that receiver and manager, I suppose with the leave of the Court, acting in the name of the company, and through the intervention of the debenture-holders, continued to use these foundations, which only existed by license of the conservators, and then being unable to obtain payment of their rent, the conservators came here and asked for payment or leave to distrain. I held that the conservators, though only licensors, and having no power of distress, were really in precisely the same position as the landlord of the company, having a right of distress; that is to say, under these cases, which determined that where after the winding-up of a company, the liquidator continues in occupation for the benefit of the shareholders and the creditors of the company, with a view to the best realization of the assets, or, as is sometimes said, continues in beneficial occupation, then the landlord is not put to his proof, but as regards the beneficial occupation is entitled to be paid in full, because his property has been held for the benefit of those who are interested in the company. In that view this order of 7 December, 1894, was made. [His Lordship read the order.] The dates therein mentioned were carefully arrived at to give them the right which I have mentioned, namely, the right of payment as distinguishe l from the right of proof during the beneficial occupation, and the words inserted, " as part of the costs of realization,"