In June 2007 we reported on the decision in Prudential Assurance Company Ltd v PRG Powerhouse Limited. Although the case has given rise to a great deal of debate, until now there has been no subsequent reported case in which the court has had to consider whether and how a company voluntary arrangement (CVA) might fairly effect a compromise of a landlord's claim against a guarantor of its tenant.

Last week the High Court of England and Wales revoked a company voluntary arrangement (CVA) promoted by retailer Miss Sixty in a damning judgment that called into question the conduct of the practitioners involved. The case of Mourant & Co Trustees Limited v Sixty UK Limited (in administration) [2010] could end so-called guarantee stripping – where the CVA purports to discharge guarantees given by a third party – and provide powerful ammunition to landlords seeking to negotiate future CVAs with tenant companies.

We first reported on The Trustee in Bankruptcy of Louise St John Poulton v Ministry of Justice in the October 2009 banking update. In short, the Court Service had failed to give notice of a bankruptcy petition to the Chief Land Registrar. As a result, no pending action had been registered against the name of the debtor and no notice had been registered against the debtor's property.

Re Johnson Machine and Tool Co 6

The company was the subject of a “pre-pack” administration, whereby it was placed into administration and its assets immediately transferred to a new company controlled by the directors and owners of the existing company.

The recent English court decision in Goldacre (Offices) Limited v Nortel Networks UK Limited (in administration) [2009] EWCH 3389 (Ch) may be controversial and raises thorny practical issues, especially in relation to the restructurings of retail businesses.   

If an administration order is made and a pending winding-up petition is subsequently dismissed, the costs of that petition are payable as an expense of the administration.1

The Government has announced that it will shortly begin a consultation on important new measures designed to boost confidence in the ‘pre-pack’ administration procedure.

In the event of a tenant becoming insolvent, it is clearly important for a landlord to know where rent payable ranks in administration. A recent landmark decision handed down by the High Court strengthens the position of landlords by deciding that rent can now be more widely payable as an expense of the administrator.

Background

Simply, if rent is ranked as an expense of the administration1 then it is almost always discharged in full as a mandatory expense of the administrator, rather than being placed with lower priority creditors.

In December’s Real Estate Update, insolvency Partner Vivien Tyrell considered a landlord’s ability to forfeit a lease where the tenant is in administration. Closely linked to this is a landlord’s ability to recover rent from a tenant which is in administration and the recent decision in Goldacre (Offices) Limited v Nortel Networks UK Limited (in administration) will be welcomed by landlords everywhere.

On 7 December 2009, His Honour Judge Purle QC sitting as a high court judge, decided that where administrators were using, for the benefit of the company in administration, part of a site held by that company under two leases, the quarter's rent due under those leases falling due on the 25 December 2009 was payable in full from that date as one of the costs and expenses of the administration.