BURHAN J
- The Petitioner Seaview Investment (Seychelles) Limited (hereinafter, ‘Petitioner’) filed an application and notice of motion under Section 162(1)(a) of the Insolvency Act 2013 against the Respondent Waterside Property Limited seeking the following reliefs:
- An order that the Respondent surrender the assets and movables to the liquidator
- An order that the Respondent pay costs of this application, and
- Any other order that the court deems fit, appropriate and reasonable in the circumstances.
- The application and motion is supported by an affidavit by Brijesh Jivan, who avers that he was appointed the Liquidator of the petitioner company by an order of the Supreme Court dated 10 June 2022 and therefore vested with the powers to wind up the affairs of the Petitioner and distribute the assets of the company. It is averred in his affidavit that the Petitioner was a tenant of the Respondent and indebted for arrears of rent in the sum of SCR 4,912,650.13 and a further sum of SCR 423,2448.24 in utilities. He further avers in his affidavit that the Petitioner admits to rent arrears owed to the Respondent, however the said sum has not been admitted. He further states that the Respondent seized all movable assets, furniture and fittings at Waterside Restaurant for the purpose of recovering the alleged outstanding debts to it. Proof of this seizure is attached to the affidavit as Exhibit 2.
- In his affidavit Mr Jivan further states that the Petitioner has debts which in terms of section 340 (1) and (2) of the Insolvency Act requires that priority be given to income taxes, wages and salary, remuneration in respect of persons who should have been given notice under the Employment Act and has creditors such as Mauritius Commercial Bank. Two exhibits attached to the affidavit, namely a letter from Ministry of Employment stipulating that the Petitioner is to effect salary payment from January 2021 to April 2021, and a letter from Mauritius Commercial Bank wherein the bank lodges a creditor’s claim for funds held and collected during liquidation. It is averred in the affidavit of Mr Jivan that the Respondent acted ultra vires to section 340 (7) of the Insolvency Act when it distrained the assets and movables of the Petitioner as the Respondent had neither distrained nor enforced its privilege within three months next prior to the date of the winding up order. The said winding up order was made on 10th June 2022 and the seizure was enforced on 14 October 2022. The affidavit further states that therefore the Respondent’s claim ranks equal with the claims of the persons referred to in section 340 (1) and (2) of the Insolvency Act.
- Therefore the Respondent is legally obligated to surrender all the said assets and moveable properties to the Deponent who is the court appointed liquidator, thus permitting winding up of affairs of the Petitioner including to distribute the proceeds in accordance with the law.
- The Respondent has resisted the petition and filed its affidavit in reply deponed by Aarti Kerai, the director of the Respondent company. It is averred that the Petitioner was a serial bad payer and left rent arrears in the sum of SCR 4,912,659.13 and utility bills in the sum of SCR 423,248.24. It is further averred that the Respondent enforced its privilege under Article 2102 (1) (a) of the Civil Code and distrained the movable assets of the Petitioner left on the premises rented to it within the time limits set by law. It is also averred that the letter of 14 October 2022 was written simply to give notice of this fact to the Liquidator and not as evidence of the date when the assets were distrained. It is averred that the use of the words ‘have been encumbered’ in the second paragraph of the letter do not suggest that the distraint occurred at the time of the letter being sent, otherwise a different tense would have been used. The Respondent prays that the petition be dismissed with costs.
- The matter was taken up for hearing on 10 May 2024. Mr Brijesh Jivan testified that he is the Liquidator for the petitioner company, appointed in terms of the Insolvency Act. It was his testimony that his appointment was gazetted and following the same, he contacted all creditors to notify them of his appointment to ensure that the assets of the Petitioner are liquidated and subsequently to distribute the money realised from liquation to all creditors according to their ranking. Mr Jivan testified that he knows the Respondent as the former landlord of the Petitioner. It was Mr Jivan’s testimony that on 4 October 2022, he wrote asking the Respondent to provide access to the assets of the Petitioner for liquidation purposes. In response to this the Respondent wrote a letter dated 14 October 2022 which is exhibited as P2. During cross examination, Mr Jivan testified that the distraining of assets by the Respondent did not occur before the liquidation.
- Ms Aarti Kerai gave evidence on behalf of the Respondent and stated that Petitioner brought its own furniture and equipment to the rented premised of the Respondent. She also testified that the Petitioner delayed meeting rent obligations, stopped altogether paying rent and is presently not a tenant at said premises. It was the testimony of Mrs Kerai that there are arrears in rent that is approximately SCR 2 million. She also testified that the petitioner company stopped operating in 2020 during the COVID-19 lockdown and since then, the equipment and furniture remained in the rented premises. When asked what happened to the furniture and equipment, it was the testimony of Ms Kerai that the Respondent had to clean out the premises and not much of the equipment and furniture is left. She also testified that some of the furniture and equipment had to be disposed of while some of it was used to offset rent owed to the Respondent.
- In cross-examination, Ms Kerai testified that the Respondent made an inventory of all the movables that were in the restaurant. She reiterated that some of the furniture and equipment was disposed of while that furniture and equipment which is usable is still on the premises. She also stated that she the Respondent did give notice of distraining by writing other than the letter dated 14th October 2022 marked as P2. However, upon being asked if there are copies of letters she purports to have sent to the Petitioner about notice of distraining, Mrs Kerai was evasive and provided no answer but maintained she did write first to the petitioner company
- I have considered the evidence led by both parties and the submissions made in writing. The Respondent in submissions draws the attention of Court to Articles 2092 and 2093 of the Civil Code of Seychelles which states that the debtor of an obligation puts his or her property at risk of having the same used to discharge the obligation incurred. Further the property is used in common for all of the creditors and the property is used for the payment of creditors proportionately to their credits while some creditors enjoy priority.
- The Respondent in submissions also refers to Articles 2094, 2095 and 2099 of the Civil Code and submits that that these provisions set out legal priorities called privileges which can exist over movable and immovable property in certain instances and these privileges take priority over debts secured by mortgages.
- It is further submitted by the Respondent that Article 2102 (a) of the Civil Code recognises the privilege of a landlord in respect of rent of immovable property. On a reading of Article 2104 (1) it can be assumed that the privileges are over both movable and immovable property. On this basis the read with Article 2101, the Respondent maintains it has a right to enforce its privilege in respect of rent due to it as the distraining was done three months prior to the winding up order when the Petitioner occupied the premises in 2021 and took over all the equipment furniture and effects.
- It is the contention of the Petitioner in submissions that Section 340 (7) of the Insolvency Act prohibits the distraining of assets by a landlord if made three months prior to the insolvency of a company or bankruptcy of a person. It is submitted that the Respondent only put the Petitioner to notice that its assets were distrained in a letter dated 14 October 2022. The Petitioner further contends that it is trite law in civil law jurisdictions that documentary evidence is preferred over oral evidence and therefore this Court must attach more weight to the letter dated 14 October 2022 than the oral evidence of Mrs Kerai. Further it is submitted that Ms Kerai could not state in certain terms state when the Respondent had distrained the assets of the Petitioner and if this was done prior to the winding up order of 10 June 2022. It was submitted therefore that the Respondent did not comply with the strict provisions of Section 340 (7) of the Insolvency Act.
- The Petitioner explains that Section 340 (7) of the Insolvency Act is to stop the landlord from abuse of their privilege under Article 2102 of the Civil Code to frustrate the claims of other priority or privileged creditors. It was submitted that the Respondent was free to distrain the assets at any point in time within the three months prior to the winding up order. The failure of the Respondent to have distrained assets three months prior to the winding up order, results in the Respondent having to hand over all such assets to the Petitioner for distribution amongst the creditors in accordance with the order of priority.
The Law
- Article 2102 (1) of the Civil Code reads as follows:
(1) (a) The rent of immovable property is a debt that carries privilege.
(b) Sub-paragraph (a) includes everything that is due or will become due if the tenancy is concluded by an authentic document or by a document under private signature whose date is certain.
(c) Creditors other than the landlord may re-let the house or the farm for the remainder of the tenancy to satisfy their claims on the tenancies, if they pay the landlord all that is still due.
(d) If there is no authentic document or no document under private signature that has a certain date, the creditors are able to re-let for a year from the end of the current year.
(2) The principles in paragraph (1) apply to the tenant's repairs and everything concerning the performance of the tenancy agreement, and to any claim, whether of the landlord or the tenant, arising from the occupation of the premises.
(3) The owner may seize the furniture of the house or the farm equipment if it has been moved without consent, and shall retain privileges over it where the owner has made a claim within 40 days for furniture or 15 days for farm equipment.
- It is pertinent at this stage to recall what a privilege is and according to the Civil Code, it is a right which confers priority on a creditor over others including those debts secured by a mortgage: vide Article 2095 of the Civil Code. These articles cannot however be read in isolation to the Insolvency Act.
- Section 340 of the Insolvency Act provides for preferential payments, including that related to when the liquidated company owes rental sums to the landlord which is most relevant in the present case since the Respondent is a landlord. Section 340 (7) in particular provides:
340 (7) Preferential payments
- In the event of a landlord or other person having distrained or enforced a privilege under article 2102 of the Civil Code on any goods or effects of the company within 3 months next prior to the date of a bankruptcy or winding up order or winding up resolution, the debts to which priority is given by this section shall be a first charge on the goods or effects so distrained on or over which the privilege is exercised or the proceeds of the sale thereof:
Provided that, in respect of any money paid under any such charge, the landlord or other person shall have the same rights of priority as the person to whom the payment is made.
- Giving due consideration to the evidence led and the submissions made, I am inclined to agree that the law provides a landlord a privilege by virtue of Article 2102 (a) of the Civil Code, and such a right takes precedence over other creditors as Article 2095 of Civil Code so provides. However, these provisions must be reconciled with the Insolvency Act, particularly Section 340 (7). For the full enjoyment of the privilege without giving priority to those creditors listed in Section 340 of the Insolvency Act, a landlord must enforce the right within three months next prior to the winding up order.
- In the present case, a winding up order was made by this court on 10 June 2022. A letter dated 14 October 2022 (Exhibit P2) signed by the Respondent, manager Ms Kerai, was sent to the liquidator stipulating that assets of the Petitioner within the leased premises ‘have been encumbered’ for purposes of recovering outstanding debts owed to the landlord. In the reply to the petition, the director of the respondent company averred that the letter was to simply inform the liquidator that assets were distrained and not intended to provide evidence on when the distraining occurred.
- It is not in dispute that rent owed to the Respondent is admitted though the quantum is denied, therefore a privilege under Article 2102 (1) (a) of the Civil Code does exist. However, such privilege must be enjoyed in accordance with the law, in particular the clear provisions of Section 340 (7) of the Insolvency Act. The affidavit in reply by the Respondent does not stipulate when the distraining occurred, neither does the testimony of Ms Kerai specifically refer to a particular date. Although, she orally states she gave notice, there was no proof of any written notice being served on the Petitioner. There is also no proof that the Petitioner was served notice of the distraining of furniture and equipment in accordance with the privilege enjoyed by the Respondent under Article 2102 of the Civil Code. Therefore, to this court, there is no evidence that the distraining occurred within three months next prior to the winding up order contemplated by Section 340 (7) of the Insolvency Act to warrant the respondent company to enjoy fully its privilege in Article 2102 of the Civil Code.
- On the evidence and testimonies, it is apparent to me that the distraining occurred at an unspecified date which can only be attributed to 14 October 2022 or shortly prior to that as the letter P2 shows. In view of the above, the petition succeeds and the Court orders as follows:
- The Respondent must provide an inventory of all assets belonging to the Petitioner and left in its custody when the Petitioner closed shop in 2020. This must be done within three months from the date hereof.
- The Respondent must also make inventory of all other assets belonging to the Petitioner and disposed of by the Respondent. This must be done within three months from the date hereof.
- The Respondent must surrender all of the assets and movable property in its custody, belonging to the Petitioner, to liquidator, Mr Jivan, within a period of three months from the date hereof.
- The Petitioner is entitled to costs.
Signed, dated and delivered at Ile du Port on 13 September 2024.
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M Burhan J