• Decision will be welcomed by insurers

The Scottish Appeal Court has allowed the appeal by Scottish Lion Insurance against the judgment of Lord Glennie on whether it would ever be fair for a court to sanction a solvent scheme in the face of creditor opposition, says City law firm Reynolds Porter Chamberlain LLP (RPC).

The case of Goldacre v Nortel, decided in December, has clarified the circumstances in which an administrator is liable to pay rent under a lease as an expense of an administration. If rent is an expense of the administration, the landlord will almost certainly be paid in full for as long as the administrator uses the property. If it is not such an expense, the landlord will be an unsecured creditor who will be lucky to receive a few pence in the pound.

1. Can I lock the tenant out of the property until they pay?

No. If a tenant has been placed in administration then there will be a moratorium in place. This gives a company some breathing space. Rights against the company, such as forfeiture or conducting legal proceedings, can only be pursued with either the consent of the administrator or a court order. As noted last week, changing the locks is likely to forfeit the lease. Unless you intend to forfeit and obtain the necessary permission to do so, you should not change the locks.  

In the last edition of Real Estate Update, we considered the position of a landlord wishing to keep the lease of premises to a company in administration ongoing and in what circumstances he will receive the full rent (ie 100 pence in the pound). If, however, the tenant is in administration and the landlord would like to bring the lease to an end, he would only be entitled to forfeit the lease if the administrator consents or the court grants an order giving him permission to do so.1

In the current recession landlords are among the fi rst to lose out when a company goes into insolvency, be it a pre-pack sale or a conventional administration process. It is important, therefore, for landlords to know what rights they retain when confronted with the administration of their tenant in order to ensure the full rent is paid - if they are still entitled to it - or, at the very least, to increase their bargaining position. In this article, we look at the circumstances where an administrator is obliged to pay the landlord’s rent in full.

• Consultation ends September 7 2009
• Likely to re-ignite controversy over 'pre-pack' administrations

New proposals by the Government to improve access to rescue finance for small companies would allow larger or complex businesses to make private applications to the courts for an "administration-type" regime without creditors necessarily knowing. Proposals in the same consultation on lending to insolvent companies could drive up the cost of borrowing, says Reynolds Porter Chamberlain LLP (RPC), the City law firm.

The draft Legislative Reform (Insolvency) (Miscellaneous Provisions) Order 2009 has now been published detailing the proposed changes to the Insolvency Act 1986. The aim of the changes is to reduce costs and the administrative burden on users of the legislation and subsequently benefi t the creditors of insolvent companies and individuals through more fl exible procedures and increased dividends.  

In the current climate, both landlords and tenants could be forgiven for wondering what would happen if the other became a victim of the recession. For both parties, a rent deposit deed can provide some comfort. Such a deed would mean the landlord has immediate access to cold hard cash if the tenant fails to pay the rent, while a struggling tenant may get valuable breathing space before the landlord turns to other remedies.  

The European High Yield Association's proposals for reforming the UK insolvency laws risk pushing the UK towards the US litigation-heavy model says Reynolds Porter Chamberlain LLP, the City law firm.

In proposals submitted to HM Treasury, the trade body for the high yield debt industry called for a "court supervised restructuring process" where:

One pioneer in this area is Toby Duthie, the founder-director of Forensic Risk Alliance, a forensic accounting and investigations business. Duthie became familiar with the US litigation system while assisting European companies responding to US-based litigation. Duthie recognised that there were many differences between the US and the various EU legal systems. For example, unlike in the UK, the application of contingency fees to plaintiff actions is permissible in the US (see above).