Local London Residential Ltd, Re

Where liquidators administer property claimed by others, the court may permit access to income generated by that property for liquidation purposes. Access to disputed capital proceeds is not automatic and requires careful control. The court may continue an existing income-flow order while the property remains unsold and impose a financial cap. Ordinary administration and sale costs may be paid from the property, but investigation costs and litigation expenses require separate justification. Creditors should ordinarily be consulted and invited to provide a fighting fund where the liquidator wishes to pursue litigation concerning disputed assets.

The company was being wound up, while competing claims were made by Mrs Mitchell and the trustee in bankruptcy of Mr Mitchell to a caravan park held in the company's name. Earlier relief permitted the liquidator to receive rental income from the park and to market and sell it. The liquidator sought further authority to fund ongoing liquidation work and pending litigation from the sale proceeds, or alternatively to continue receiving funds pending sale.

The central issue was the extent to which the court should permit a liquidator to use disputed assets or their proceeds to fund administration and litigation where beneficial ownership remained unresolved.

1. The application was allowed only to the extent that the earlier order permitting receipt of the rental income was continued while the property remained unsold.
2. The court adopted the approach previously taken by Lindsay J and declined to give the liquidator general permission to take the proceeds of sale of the disputed property.
3. Costs directly relating to administration and sale of property which might or might not belong to the company were payable from the property. Investigation costs incurred in determining beneficial ownership were not allowed because the liquidator should have appreciated from the outset that she was litigating against competing claimants.
4. Liquidation expenses and the costs of defending the company's position in the pending county court proceedings were not expenses which could be paid from disputed assets without more. The normal course was for the liquidator to consult the creditors and seek a fighting fund from them.
5. A cap of £50,000 was imposed. If the rental income ceased before that amount had been received, the liquidator could recoup the shortfall from the sale proceeds. If the income exceeded £50,000 before sale, she could continue to receive it. A further application for access to the proceeds remained possible if the funds proved insufficient.