Fair game for Insolvency case

The recent judgment given by the Court of Appeal in the ‘Game’ computer software store’s case has been hailed as a victory for common sense by both landlords and insolvency practitioners.

The Court held that where a liquidator or administrator, as the office holder, makes use of a leasehold property for the purpose of the liquidation or administration then rent is payable as an expense for the period in which the property is used.

Payment will now be determined by reference to the rent that accrues on a day to day basis rather than by reference to when the quarter days fall within the period in which the appointment of the office holder occurs.

This means that where a property is occupied by an office holder the rent due to the landlord, during that time, will be payable as a expense rather than the landlord finding itself in the unattractive position of having to attempt to recover the rent that has accrued during the office holder's occupation by proving within the administration or liquidation as an unsecured creditor.

The advantage for office holders is the fact that the landlord will no longer benefit from the previous case law whereby all of the rent for a quarter which had fallen due during the period in which the administration occurred became payable as an expense regardless of whether the office holder continued to occupy the property for the whole of that quarter.

The landlord is often a major creditor when a company enters into an insolvency event.  Previously the law meant that when the quarter days fell in relation to the date of an administration could dictate whether or not a business could be rescued. 

The law as it previously stood inevitably led to tactical decisions being made by Insolvency Practitioners in an attempt to avoid the financial burden of property they did not require for the entire quarter and yet still had to pay.  It has become common for companies to enter into administration on the day immediately following a quarter day as before the decision in Game the office holder could effectively use the property for that quarter at no cost. 

In the unfortunate but not uncommon circumstances in which insolvent companies  enter into administration there is now an element of certainty as to what the office holder can expect to pay for use of the property and what the landlord can expect to receive based upon a “pay as you go” arrangement.

This financial certainty for the landlord and office holder will facilitate continued trading until a rescue or an appropriate route out of the administration can be found.  This should, in turn, lead to a better result for the creditors and those affected by the insolvency event including the employees.

For these reasons the decision in the Game case is a positive step forward for landlords, creditors, and insolvency practitioners.

For advice and guidance relating to Insolvency and business related issues, please contact Fraser Brown on 0115 9888 777 or visit www.fraserbrown.com

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