A warning when completing a proof of debt form following the insolvency of a tenant. A failure to declare security for money owed by the tenant could be taken to be landlord’s consent that such security can be used for the general benefit of all creditors.

In the recent case of LCP Retail Limited -v- Segall a tenant fell into arrears. The landlord instructed bailiffs to distrain and a walking possession agreement – a WPA- was made. Certain goods were set to be removed from the premises and sold to discharge the arrears unless payment was received within a certain period. Only part payment was received following which the landlord inspected the property and agreed in correspondence with the tenant to market the property for re-letting but insisting the tenant first cleared it of everything.

The landlord did not highlight to the tenant in this correspondence that the goods against which he had a WPA had, some time prior to his inspection, been removed by the tenant in breach of the WPA. Subsequently the tenant called a creditors’ meeting and sent to the landlord a proof of debt for completion. Box 10 requires a creditor to state the particulars of any security held. The landlord did not complete this box.

It was held that both the correspondence with the tenant concerning the marketing of the property and the omission in the proof of debt amounted to an abandonment of the right of distress and surrender of the sale proceeds from the goods covered by the WPA for the general benefit of all creditors. It would require a court order that the omission was inadvertent or the result of an honest mistake to recover the position.

In a similar vein, landlords should also take care in completing proof of debt forms where rent deposits are involved.

Law:

LCP Retail Ltd -v- Segal [2006] All ER (D) 31 (Aug)
Rule 4.96(1) Insolvency Rules 1986

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The original publication date for this article was 23/08/2006.