The recent Game Group litigation in the Court of Appeal case has re-defined a commercial landlord’s entitlement to claim in the administration procedure for rent accrued during a trading administration.
An administration, for the reader’s reference, is an insolvency procedure spear-headed by administrators (i.e. insolvency practitioners) which provides companies with a corporate rescue mechanism.
Prior to the Game-Group litigation, landlord and tenant case-law in relation to trading administrations was previously defined by Goldacre and the case of Luminar, which held that where an administrator continued to make use of commercial premises, rent was payable under the Insolvency Rules 1986 as either an expense or as an unsecured debt.
In relation to scenarios where administrators continued to use commercial premises before the next quarter day, the rent could be classified as a provable debt only and it failed to receive the elevated repayment status of an expense.
In relation to situations where the administrator had been appointed and were still in occupation of a company’s commercial premises after the following quarter day, the whole of the next quarter of rent became due as an expense. In doing so, administrators were required to treat this type of rent as a higher form of debt repayment priority.
Under those circumstances, the courts were not in a position to confirm what they considered to be a fair sum for the administrators to pay, based on the actual leasehold space used by the company, or to apportion the rent on account of when the company actually vacated the premises.
Furthermore, an administrator’s rental liability would only terminate thereafter if the company had fully left the premises before the following quarter day.
Following the case of Pillar Denton Limited & Ors v Jervis & Ors, aka ‘the Game Group litigation’, irrespective of when the rent falls due, administrators (and liquidators) are now required to pay landlords in full on a pay as you go daily basis for the on-going use of commercial premises.
Thus, the balance between commercial landlords and administrators has been re-adjusted and the old consideration of whether a trading administration (or liquidation) is in occupation on, between or following the next quarter day falls by the way.
In that case, the administrators were appointed on the day after a quarter day and had therefore sought to argue that the on-going rent was not an ‘expense’ of the administration but rather an unsecured debt. However, following the Court of Appeal judgment, the administrators were required to treat the rent for the whole period in question as an expense.
As a result of the Court of Appeal’s recent decision, insolvency practitioners, landlords and the legal community alike will all benefit from greater clarification in what was previously a confusing and perhaps misused area of the law.
