In the current economic climate, disputes, particularly payment disputes, are rife. Consider the following scenario. You arrive at work early on Monday morning, to discover that the supplier with whom you have been having a long-running but relatively minor dispute over payment, has secured a winding up order against your company and appointment of a liquidator from the court. Or, equally distressing, a sheriff officer appears at your door with another form of court order in his hand - an interdict - stopping you from carrying out a key part of your business activities.

In May 2009, the Treasury published a discussion paper entitled Developing effective resolution arrangements for investment banks. In this discussion paper the Treasury set out its initial thinking on the steps necessary to improve the regime around the failure of investment firms.

THE PERENNIAL PROBLEM OF UNPAID DEBTS – YOUR RECOVERY OPTIONS

The Joint Administrators (the “Administrators”) of Lehman Brothers International (Europe) (“LBIE”) have issued a notice, dated December 4, 2009 (the “Notice”), pursuant to Rule 2.95(1) of the U.K. Insolvency Rules 1986, announcing their intent to make a distribution (by payment of an interim dividend) to preferential creditors (if any) and unsecured, non-preferential creditors of LBIE. The Notice was authorized on December 2, 2009, by an order of the High Court of Justice (Companies Court) in London (the “U.K. Court Order”).

In Clydesdale Financial Services Ltd and others v Robert Smailes and others [2009] EWHC 3190 (Ch), the principal issues before the Court were whether the third claimant, Focus Insurance Company Ltd (Focus), had a real prospect of success in its claims to be, first, a creditor (under the Insolvency Act 1986) of the fifth defendant, Alexander Samuel LLP (LLP) in respect of unpaid premiums and, second, a "victim" under ss.423-425 of the Insolvency Act 1986 of the sale of LLP's business to Jiva Solicitors LLP (Jiva) effected around the same time as it went into administration.

At the urging of U.S. policyholders, a Scottish court recently rejected a Scottish insurance company’s efforts to close its books and avoid full liability for long-tail claims when the insurance company is solvent and entirely capable of paying claims.

The High Court has ruled in the case of Goldacre (Offices) Limited v Nortel Networks UK Limited (in administration) [2009] that rent for premises that continue to be used for the beneficial outcome of an administration must be paid as an expense of the administration. This decision confirms that the court has no discretion in these circumstances and that it does not matter if only part of the premises are being used. This contrasts with the position where a landlord wishes to take action against a tenant in administration such as bringing forfeiture or injunction proceedings.

Summary and implications

The court has clarified that administrators must pay rent as an expense of the administration when they use property.

The High Court has recently held* that:

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.

A decision by the High Court in December has strengthened the position of landlords who sometimes do not get paid during the administration even where the administrator is running the business from the property.

Certain categories of expense which may be incurred by the company after it has gone into administration, and which an administrator has to pay are known as "expenses of the administration" and the assets of the company in administration must be applied towards payment of these expenses ahead of any payment to creditors under floating charges or to unsecured creditors.