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Court of Appeal to Reconsider Goldacre Decision

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In an often hotly debated area of Insolvency Law, the Court of Appeal looks set to review the current status quo between a company’s landlords and its Administrators over the payment of rent as an expense of a company's Administration. To the extent rent is an expense, it gets paid in priority to most other claims including the Administrator’s own claim for his costs so this isn’t just of academic interest.

After a succession of high-profile retail administrations, in a case involving the computer games retailer, ‘Game’, landlords have been given permission by the High Court to challenge the most recent cases of Goldacre  and Luminar.

Prior to Goldacre and Luminar, any rent payable by a company in an insolvency process was payable as an expense of the administration on a pro-rata basis for such periods and such parts of the property as the office-holder was actively 'using' to either trade on or sell the business as a going concern.

The current position under Goldacre and Luminar is that:-

  • Post-Administration rent is payable as an expense in full as and when it falls due for payment
  • Where it falls due, all of that rent is payable even where only part of the property is being used or occupied
  • Pre-appointment rent is not payable as an expense
  • It is unclear whether dilapidations and other additional liabilities under a lease are included in the Goldacre and Luminar principles, but may well be

The key point to this is the contractual date for payment has to fall due in the administration period. If the appointment takes effect a day after the rent quarter fell due for payment, then that rent payment isn’t an expense but an unsecured claim. If then the Administrator continues to occupy when another rent payment date falls due then that payment, in full, is an expense, irrespective of how much longer he occupies the premises for.

This has led to Administrators actively mitigating rent as an expense by choosing their timing carefully. It has set Landlords at odds with Administrators who they feel are acting cynically to their detriment and indeed Administrators themselves feel it unhelpful to be constricted on timing when their key concern is achieving a successful trading period and getting the business and assets sold for best value.

The moratorium prevents a landlord from exercising his rights of forfeiture or distraint without the Court’s permission and accordingly, the landlord is bound to accept whatever the Administrator is obliged to pay during the period of the Administration.

Our view is it is in both Administrators and Landlords interests to have a clear position and this seems best served by a ‘pay for what you use’ policy. However, it is unlikely a Court decision will achieve this and any change may have to come from Parliament.

Any appeal to Game is unlikely to be publicised until early 2014 and hlw Keeble Hawson will keep you notified of further developments in this case.

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