A liquidator can disclaim onerous property under section 178 of the Insolvency Act 1986, which ends the company’s rights and liabilities in a lease, an unprofitable contract or an asset that is unsaleable or carries ongoing costs. The other party loses the benefit of the arrangement but is treated as a creditor for its loss and can prove for it in the liquidation. Anyone with an interest in the property, or still liable for it, can ask the court to have it vested in them.

This page covers companies being wound up in England and Wales, whether in a creditors’ voluntary liquidation or a compulsory liquidation. It explains the liquidator’s side of the process and what landlords, suppliers and guarantors can do in response.

What counts as onerous property?

Section 178(3) defines onerous property as:

  • any unprofitable contract; and
  • any other property of the company which is unsaleable or not readily saleable, or which may give rise to a liability to pay money or perform any other onerous act.

Typical examples are a lease of premises the company no longer uses, where rent and service charges would keep running; a long term supply or hire agreement the company cannot perform profitably; contaminated or derelict property with clean up or repair obligations; and shares in a subsidiary with liabilities. The test is about the burden on the liquidation, not whether the asset once had value.

Section 178(2) lets the liquidator disclaim even after taking possession of the property, trying to sell it or otherwise acting as owner. A liquidator can therefore market a lease first and disclaim it if no buyer comes forward.

How does the liquidator disclaim?

The process is set out in Part 19 of the Insolvency (England and Wales) Rules 2016.

  1. Notice. Rule 19.2 requires a notice headed “Notice of disclaimer under section 178 of the Insolvency Act 1986”. It must identify the company and the liquidator, describe the property so it can be easily identified and state that the liquidator disclaims all the company’s interest in it. Where the property is buildings or other real property, the nature of the interest must be stated, and for registered property the title number.
  2. Date of disclaimer. The disclaimer takes effect from the date the liquidator authenticates the notice (rule 19.2(7)).
  3. Filing. As soon as reasonably practicable the liquidator must deliver a copy to the registrar of companies and, for registered property, to HM Land Registry.
  4. Copies to interested parties. Rule 19.3 requires copies within seven business days to everyone the liquidator knows claims an interest in the property, is under a liability for it that the disclaimer does not discharge, or, for an unprofitable contract, is a party to it or has an interest under it.

Rule 19.10 says a disclaimer is presumed valid and effective unless the liquidator is proved to have breached the duties about giving notice or the statutory rules.

What extra rules apply to leases?

Leases get added protection for people who hold interests through the company. Under section 179, a disclaimer of leasehold property does not take effect until a copy has been served on every person the liquidator knows of who claims under the company as underlessee or mortgagee. It then takes effect only if no application for a vesting order is made within 14 days of the last of those notices, or if the court directs that it should. Rule 19.4 requires those copies to be served within seven business days of the date of the notice.

So a subtenant in part of the premises, or a bank with a charge over the lease, has a short window to apply to court before the disclaimer bites.

Can a landlord or supplier force the liquidator to decide?

Yes. Under section 178(5) a person interested in the property can apply in writing to the liquidator requiring a decision on whether to disclaim. If 28 days pass from the application, or any longer period the court allows, without a notice of disclaimer, the liquidator can no longer disclaim that property. Rule 19.9 says the applicant must deliver the application to the liquidator and provide proof of delivery if requested.

For a landlord this brings certainty. Either the lease is disclaimed and the premises can be relet, or the liquidator keeps it. Whether any rent falls to be paid as an expense of the liquidation while the liquidator keeps the lease is a separate question. See liquidation costs for how expenses rank.

What is the effect of a disclaimer?

Section 178(4) says a disclaimer:

  • ends, from the date of the disclaimer, the company’s rights, interests and liabilities in or in respect of the property; but
  • does not affect anyone else’s rights or liabilities, except so far as necessary to release the company.

The second limb is important for third parties. A director who personally guaranteed a lease, or a former tenant who assigned the lease to the company, should not assume the disclaimer releases them. The statute only releases the company, and anyone in that position needs advice on the terms of their own obligation.

What can the other party claim?

Section 178(6) treats anyone who suffers loss or damage because of the disclaimer as a creditor of the company to the extent of that loss, and allows them to prove for it in the winding up. The claim is made in the usual way, by submitting a proof of debt. Rent arrears from before the liquidation are a separate debt, also provable under rule 14.2, which makes all claims by creditors provable whether present or future, certain or contingent.

If the creditor also owes money to the company, the claim may be reduced by insolvency set off before any dividend is calculated.

Vesting orders

Section 181 lets anyone who claims an interest in the disclaimed property, or who remains liable in respect of it, apply to the court for the property to be vested in or delivered to them. The court will only vest property in a person because of their continuing liability where that would be just to compensate them (section 181(4)). Any vesting order is taken into account in measuring the loss that can be proved for under section 178(6).

Rule 19.11 requires the application within three months of the applicant becoming aware of the disclaimer or receiving the notice, whichever is earlier, supported by a witness statement setting out the basis of the claim and the order sought.

For leases, section 182 says an underlessee or mortgagee can only take a vesting order on terms that make them subject to the same liabilities as the company had under the lease at the commencement of the winding up, or, if the court thinks fit, as if the lease had been assigned to them at that date. If they decline those terms they are excluded from all interest in the property, and the court can vest the lease in someone liable to perform the tenant’s covenants, such as a guarantor.

How does this work in practice?

Illustration only. A retailer in liquidation holds a lease of a shop with six years left at a rent of £40,000 a year. The shop has closed and the liquidator cannot find an assignee.

  1. The landlord writes to the liquidator under section 178(5) asking for a decision.
  2. Within 28 days the liquidator authenticates a notice of disclaimer, files it with the registrar and HM Land Registry, and serves copies on the landlord and on a bank with a charge over the lease.
  3. The bank does not apply for a vesting order within 14 days, so the disclaimer takes effect and the landlord recovers the shop.
  4. The landlord relets after nine months. It proves in the liquidation for its loss caused by the disclaimer, which reflects the rent it would have received less what it now receives, alongside a separate proof for arrears before the liquidation.
  5. The landlord also holds a personal guarantee from the former managing director, and pursues that separately.

What mistakes are common?

  • Landlords waiting for the liquidator to act, instead of serving a written application under section 178(5) to start the 28 day clock.
  • Subtenants and lenders missing the 14 day window under section 179 or the three month limit for a vesting application.
  • Guarantors assuming the disclaimer cancels their guarantee.
  • Creditors proving only for arrears and forgetting the separate claim for loss caused by the disclaimer.
  • Liquidators sending copies late or to the wrong parties, which opens the disclaimer to challenge under rule 19.10.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 19 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.