A fashion retailer in administration had unpaid rates of over £2.6 million across its many outlets. The court was asked to consider whether the administrators were liable to pay the accrued rates as "expenses of the administration", meaning that they would take priority over sums due to other unsecured creditors.

In a recent decision issued by Lord Drummond Young, one of the Scottish insolvency judges in the Court of Session, useful guidance has been issued which will be of interest to practitioners having to deal with the, not uncommon, situation of a retiring practitioner and replacement with a current partner in the same firm.

The Powerhouse CVA, which sought to strip away guarantees provided by the parent company to landlords of Powerhouse, has been struck down as unfairly prejudicial by the High Court. However, certain aspects of the judgement remain unclear and could be subject to future appeal…

BACKGROUND TO THE POWERHOUSE CVA

Powerhouse (an electrical retailer) proposed a CVA on 1 February 2006 with the intention of closing 35 of its stores (the Closed Premises).

In an important decision for commercial property landlords, the High Court in Prudential Assurance Co Ltd and Others v PRG Powerhouse Limited and Others has ruled that a CVA (defined below) cannot operate so as to prevent landlords from enforcing a parent company guarantee. The Court's decision however was reached on the basis that to determine otherwise would have been "unfairly prejudicial" to the landlords.

Case summary:

When a contractor failed to pay certain agreed invoices the sub-contractor issued a winding up petition. The contractor applied to halt the advertising of the petition on the grounds that the debts were bona fide disputed on substantial grounds as there was a cross claim which exceeded the amount claimed. The court refused to halt proceedings because the absence of a withholding notice under the HGCRA meant that there were no substantial grounds for disputing the petition.

Comment:

A landmark ruling has paved the way for companies to restructure without necessarily making their pension scheme ineligible for the Pension Protection Fund (PPF). Trustees in the case of L v M sought the court’s support (and that of the Pensions Regulator) for a plan to prevent the insolvency of the sponsoring employer which would result in an apportionment of the debt due to the scheme from the employers, the winding up of the scheme and would take the scheme into the PPF.

On 2 March 2007 the High Court handed down the first decision on whether non-domestic rates are payable by an administrator as an expense, and in priority to his remuneration, under Rule 2.67 Insolvency Rules 1986 ("IR"). The judge determined that rates in respect of occupied business premises are a "necessary disbursement" (Rule 2.67(f) IR) of an administration.

Although it was not argued, the judge also expressed the view that this liability to pay rates incurred during the period of the administration would be unaltered if the property were unoccupied during this time.

In a decision handed down on February 23, the High Court granted a winding-up petition brought by the Financial Services Authority under section 367 of the Financial Services and Markets Act 2000 (FSMA).

The High Court has considered the payment of business rates as expenses in new-style administrations. Business rates in respect of premises occupied by a company during the course of its administration are ‘necessary disbursements’ under rule 2.67(1)(f) and payable as expenses of the administration, as they are in a liquidation under rule 4.218(1)(m). Rates for unoccupied premises would also appear to be payable as administration expenses, although not as liquidation expenses.

In a recent opinion – In re Heritage Home Group LLC, et al., Case No. 18-11736 (KG), 2018 WL 4684802 (Bankr. D. Del. Sept. 27, 2018) – the Delaware Bankruptcy Court addressed the longstanding issue of which professional persons must be retained under section 327(a) of the Bankruptcy Code.