Out-Law News | 05 Nov 2014 | 12:06 pm | 2 min. read
The Court of Appeal's February 2014 decision overturned previous case law under which landlords were ranked among other unsecured creditors of an insolvent business, even where the administrators continued to trade from the premises. The Supreme Court's decision, published on its website, means that landlords will be entitled to recover rent as an expense of the administration, calculated on a day by day basis.
"The Supreme Court's decision not to allow an appeal is welcome both as a recognition of the clear and sensible decision reached by the Court of Appeal and because it brings to an end the uncertainty experienced by landlords and insolvency practitioners whilst a further change in the law was potentially afoot," said property litigation expert Dev Desai of Pinsent Masons, the law firm behind Out-Law.com.
"Practitioners can now conduct matters knowing that rent is apportioned on a day-to-day basis for the period that premises are used for the purposes of administration, regardless of when rent falls due under leases," he said.
In 2009, the High Court found that the full amount of rent falling due during administrators' beneficial use of an insolvent business' premises would automatically rank as an expense of the administration, even if the administrators only made partial use of the leased premises or for only part of the rent period. This appeared to be a victory for landlords, as administration expenses are typically paid in full; and became known as the 'Goldacre principle', after the company involved in the case.
However, in April 2012, the court confirmed the logical flip-side of the Goldacre decision in a case involving the collapsed nightclub chain Luminar. Here, the High Court held that any rent falling due before administrators are appointed must instead be classed as an unsecured debt, which will usually go unpaid, even if the administrators subsequently used the leased premises during that rent period. With commercial property rent usually due on a quarterly basis, this pair of decisions meant that administrators could legally trade the business from the rented premises for as long as three months, protected from landlord enforcement action and with landlords only able to recover payment in the same way as other unsecured creditors.
Game went into administration on 26 March 2012, one day after the company's quarterly rent payments were due. The timing meant that administrators did not have to pay that quarter's rent despite continuing to trade from the stores. The case, which was brought by four of Game's landlords, was ultimately fast-tracked to the Court of Appeal, which applied the equitable "salvage principle" to make the administrator liable for any rent accruing during the period that the property was being used for the benefit of winding up or administration.
Refusing leave to appeal, the Supreme Court said that Game's further challenge "does not raise an arguable point of law of general public importance ... bearing in mind that the case has already been the subject of judicial decision and reviewed on appeal".
Litigation expert Craig Connal QC of Pinsent Masons said that the Supreme Court's order meant that the principles set out in the Court of Appeal's decision would be likely to be followed in future cases in Scotland, as well as those in England and Wales.