Companies Act Section 333 — Disclaimer of onerous property

CHAPTER XX WINDING UP

Commercial / Corporate

Summary

Sub-section (1) allows the Company Liquidator to disclaim, or reject, certain types of property during a company's winding up. This applies to land with burdensome conditions, shares or stocks in other companies, property that cannot be sold easily because the owner must perform an onerous act or pay money, and unprofitable contracts. The Liquidator can do this even if they have already tried to sell the property, taken possession of it, or acted in relation to it. This power must be exercised with the permission of the Tribunal, in writing, and within twelve months of the start of the winding up, or within a longer period allowed by the Tribunal. If the Liquidator only learns of the property more than one month after the winding up begins, the twelve-month period starts from when they became aware of it.

Sub-section (2) states that a disclaimer ends the company's rights, interests, and liabilities in the disclaimed property from the date of the disclaimer. However, it does not affect the rights, interests, or liabilities of any other person, except to the extent needed to release the company and its property from liability.

Sub-section (3) gives the Tribunal the power, before or when granting permission to disclaim, to require notices to be given to interested persons, to impose conditions for granting leave, and to make any other order it considers just and proper.

Sub-section (4) restricts the Liquidator's ability to disclaim. If a person interested in the property makes a written application asking the Liquidator to decide whether to disclaim, the Liquidator must, within twenty-eight days of receiving the application (or a longer period allowed by the Tribunal), give notice that they intend to seek the Tribunal's permission to disclaim. If they do not do so, they lose the right to disclaim. If the property is under a contract and the Liquidator does not disclaim it within that period, the contract is deemed to have been adopted.

Sub-section (5) allows the Tribunal, on the application of a person who benefits from or is burdened by a contract made with the company, to order that the contract be rescinded. The Tribunal can set terms for payment of damages by either party for non-performance, or other terms it considers just and proper. Any damages payable under such an order can be claimed as a debt in the winding up.

Sub-section (6) permits the Tribunal, on the application of a person who claims an interest in disclaimed property or who has a liability related to it, to order that the property be vested in or delivered to a person entitled to it, or to someone as compensation for such liability, or to a trustee for that person. The Tribunal can set terms it considers just and proper, and once a vesting order is made, the property vests without any conveyance or assignment. However, if the disclaimed property is leasehold, the Tribunal cannot make a vesting order in favour of a person claiming under the company, such as an under-lessee or mortgagee, unless that person accepts the same liabilities and obligations the company had under the lease at the start of the winding up, or, if the Tribunal thinks fit, only the liabilities as if the lease had been assigned to them at that date. In either case, the lease is treated as covering only the property in the vesting order. Any mortgagee or under-lessee who refuses such terms is excluded from all interest in and security on the property. If no person claiming under the company is willing to accept the order, the Tribunal can vest the company's interest in the property in any person liable to perform the lease covenants, free from all estates, encumbrances, and interests created by the company.

Sub-section (7) provides that any person affected by a disclaimer is considered a creditor of the company to the amount of compensation or damages payable for that effect, and can claim that amount as a debt in the winding up.

Official Text

(1) Where any part of the property of a company which is being wound up consists of—

(a) land of any tenure, burdened with onerous covenants;

(b) shares or stocks in companies;

(c) any other property which is not saleable or is not readily saleable by reason of the possessor thereof being bound either to the performance of any onerous act or to the payment of any sum of money; or

(d) unprofitable contracts, the Company Liquidator may, notwithstanding that he has endeavoured to sell or has taken possession of the property or exercised any act of ownership in relation thereto or done anything in pursuance of the contract, with the leave of the Tribunal and subject to the provisions of this section, by writing signed by him, at any time within twelve months after the commencement of the winding up or such extended period as may be allowed by the Tribunal, disclaim the property:

Provided that where the Company Liquidator had not become aware of the existence of any such property within one month from the commencement of the winding up, the power of disclaiming the property may be exercised at any time within twelve months after he has become aware thereof or such extended period as may be allowed by the Tribunal.

(2) The disclaimer shall operate to determine, as from the date of disclaimer, the rights, interest and liabilities of the company in or in respect of the property disclaimed, but shall not, except so far as is necessary for the purpose of releasing the company and the property of the company from liability, affect the rights, interest or liabilities of any other person.

(3) The Tribunal, before or on granting leave to disclaim, may require such notices to be given to persons interested, and impose such terms as a condition of granting leave, and make such other order in the matter as the Tribunal considers just and proper.

(4) The Company Liquidator shall not be entitled to disclaim any property in any case where an application in writing has been made to him by any person interested in the property requiring him to decide whether he will or will not disclaim and the Company Liquidator has not, within a period of twenty-eight days after the receipt of the application or such extended period as may be allowed by the Tribunal, give notice to the applicant that he intends to apply to the Tribunal for leave to disclaim, and in case the property is under a contract, if the Company Liquidator after such an application as aforesaid does not within the said period or extended period disclaim the contract, he shall be deemed to have adopted it.

(5) The Tribunal may, on the application of any person who is, as against the Company Liquidator, entitled to the benefit or subject to the burden of a contract made with the company, make an order rescinding the contract on such terms as to payment by or to either party of damages for the non-performance of the contract, or otherwise as the Tribunal considers just and proper, and any damages payable under the order to any such person maybe proved by him as a debt in the winding up.

(6) The Tribunal may, on an application by any person who either claims any interest in any disclaimed property or is under any liability not discharged under this Act in respect of any disclaimed property, and after hearing any such persons as it thinks fit, make an order for the vesting of the property in, or the delivery of the property to, any person entitled thereto or to whom it may seem just that the property should be delivered by way of compensation for such liability as aforesaid, or a trustee for him, and on such terms as the Tribunal considers just and proper, and on any such vesting order being made, the property comprised therein shall vest accordingly in the person named therein in that behalf without any conveyance or assignment for the purpose:

Provided that where the property disclaimed is of a leasehold nature, the Tribunal shall not make a vesting order in favour of any person claiming under the company, whether as under-lessee or as mortgagee or holder of a charge by way of demise, except upon the terms of making that person—

(a) subject to the same liabilities and obligations as those to which the company was subject under the lease in respect of the property at the commencement of the winding up; or

(b) if the Tribunal thinks fit, subject only to the same liabilities and obligations as if the lease had been assigned to that person at that date, and in either event as if the lease had comprised only the property comprised in the vesting order, and any mortgagee or under-lessee declining to accept a vesting order upon such terms shall be excluded from all interest in, and security upon the property, and, if there is no person claiming under the company who is willing to accept an order upon such terms, the Tribunal shall have power to vest the estate and interest of the company in the property in any person liable, either personally or in a representative character, and either alone or jointly with the company, to perform the covenants of the lessee in the lease, free and discharged from all estates, encumbrances and interests created therein by the company.

(7) Any person affected by the operation of a disclaimer under this section shall be deemed to be a creditor of the company to the amount of the compensation or damages payable in respect of such effect, and may accordingly prove the amount as a debt in the winding up.