Securing an Eviction Order against a Bankrupt Tenant

An Eviction Order against a Bankrupt

An owner of premises who has rented it to a tenant, either contractual or statutory, may have a claim for rents in arrear which also gives him the right to claim the re-possession of the premises. The status of the tenant, whether he is contractual or statutory, is related to the jurisdiction of the Court where the claim will be entertained. Another important issue for the owner to examine is whether the tenant has become bankrupt and a receiving order was issued against him.

According to the provisions of the Bankruptcy Law, after a receiving order is issued, no person who is a creditor of the bankrupt can commence any action or other legal proceedings against the bankrupt for any debt which is provable in the bankruptcy, except with the permission of the Court and on such terms the Court may impose. Therefore, the owner who has a claim for rents in arrear against his tenant that has become bankrupt must prove his claim before the receiver, unless he obtains an order of the Court prior to the filing of the action allowing him to proceed against the bankrupt.

The claim of the owner may not only be for the rents in arrear but also for the re-possession of the premises. In such a case, the owner should refer the matter to the receiver claiming the rents as well as the re-possession of the premises. If the owner is not satisfied, he may apply to the Court for leave to file an action or take the proper legal proceedings for the recovery of both the possession of the premises and the rents. According to the law, when a person is adjudicated bankrupt, his estate, if any, will be distributed in priority, among others, for the payment of the rents of the last four months prior to the issue of the receiving order. If there are more rents in arrear, the owner must prove the debt in order to be satisfied proportionally with any other unsecured debt of the bankrupt.

The aforesaid legal issue was examined recently by the Rent Control Court, whereby the owner of certain shops applied to the Court claiming the rents in arrear by his tenant as well as an order for his eviction. During the hearing of the case, it was revealed that a receiving order had been issued against the tenant before the filing of the application. The Court dealt with the matter finding that the owner did not apply for leave before filing the application against the bankrupt tenant. Despite the omission, the Court made a distinction between the recovery of the rents in arrear, being a provable debt, and the recovery of the possession of the shops, being kept by the tenant.

Therefore, it refused to issue an order regarding the rents in arrear, stating that it could not issue a judgment since the rents constituted a debt recoverable from the receiver. With regard to the eviction order, the Court took into consideration the fact that the bankrupt tenant was in possession of the shops and such a remedy could not be given by the receiver; consequently, it issued the eviction order against the tenant.

However, the owner may find that the dispute was not resolved in the event the tenant appeals against the eviction order. He paid the rents and he may continue to do so, claiming that the Court erred in its judgment. His submission may be that the eviction order shouldn’t have been issued because of the existence of the receiving order against him. Moreover, the owner did not apply to the Court for leave to file his application and the receiver was not made a party to the proceedings. Under the circumstances, the eviction order may be stayed until this legal issue is resolved by the Supreme Court.