On 24 February 2014 the Court of Appeal delivered its long awaited judgment in the GAME Group litigation (Pillar Denton Limited & Ors -v- Jervis & Ors).
This is an extremely important decision and will affect every trading administration where the company is a tenant.
In its decision on the Game Station1 appeal, the Court of Appeal has overturned the cases of Goldacre2 and Luminar3 holding that office holders of insolvent companies must pay rent of property occupied for the benefit of creditors on a “pay as you go” basis irrespective of when rent falls due under the lease.
The facts
Key points
- Section 306 of the Insolvency Act 1986 (“1986 Act”) provides that a bankrupt’s estate shall vest immediately in the trustee in bankruptcy and no registration is required to effect that vesting;
- A bankrupt’s tenancy had vested in the trustee so that the bankrupt was no longer the qualifying tenant for the purposes of enfranchisement under the Leasehold Reform Act 1967 (“1967 Act”).
The facts
18 December 2013
[2013] EWCA Civ 1626
Court of Appeal (Rimer, Kitchin, Christopher Clarke LJJ)
Whether landlords' rights to seek specific performance of an agreement to surrender leases survived an intervening insolvency
The UK Court of Appeal has swept aside existing rules governing when administrators have to pay advance rents falling due before their appointment.
In what will be seen as a significant victory for landlords, the Court held on 24 February 2014 that it was not open for administrators to enjoy a rent free period simply because they were appointed just after a quarter day. The decision will have major implications for the planning and implementation of corporate insolvencies and looks set to transform the relationship between insolvency practitioners and the property industry.
Commercial landlords will be familiar with the practice that has grown up since the 2010 case of Goldacre of putting companies into administration immediately following a quarter day. By adopting this tactic, administrators have been able to avoid paying rent as an administration expense until the next quarter day while continuing to use the premises for the benefit of the administration.
The recent Court of Appeal decision in the Game Station case has established that administrators should pay rent on a daily basis while they are using the property. This overturns the earlier High Court decisions in the Luminar and Goldacre cases and is in keeping with the recent trend of flexibility and fairness in insolvency situations.
Leasehold property in an administration
Bristol Alliance Nominee No 1 Ltd v Bennett [2013] EWCA Civ 1626; [2013]PLSCS 316 (A/Wear UK Limited)
Background
The case relates to the insolvency of a women’s fashion retailer and their shops in Bristol and Leicester.
The Court of Appeal has decided that rent accruing during a period of administration should be treated as an expense of the administration, irrespective of the date on which it falls due for payment. Administration expenses are paid by administrators in priority to liabilities owed to holders of security.
The Court of Appeal delivered judgment on Monday morning in the much anticipated appeal in Jervis & Others v Pillar Denton & Others on the treatment of rent payable under a lease held by a corporate tenant that enters administration. The case involved the Game Administration.