Important court of appeal ruling for administrators

A business recovery expert has commented on a long-awaited decision that has provided final clarification to the position of when rent can be claimed by landlords as an expense of an administration, as opposed to it ranking as an unsecured claim.

Jane Haymes, partner in the business recovery team at Napthens, reports that the Court of Appeal has handed down a decision in a case involving high street retailer Game, which went into administration last year.

The appeal was brought by a group of landlords after it was confirmed at first instance that Game’s administrators were not liable to pay rent falling due prior to their appointment, estimated to be in excess of £3m.

As was common practice, prior to this decision, Game’s administrators had been appointed immediately following the quarter day where rent fell due in order to avoid rent for that period becoming due as an expense of the administration.

Under the old law, whether rent ranked as an expense or an unsecured claim depended largely on the timing of the administrator’s appointment. Previous case law had established that where administrators entered part way through a rent period they were not liable for rent that had become due for that period.

Conversely, where rent became due whilst the administrators were in occupation and the administrators exited part way through that period they were liable for the entire period.

The new principle, arising out of the Game decision known as ‘pay as you trade’, will mean that administrators are liable for rent as an expense of the administration for the period during which they occupy premises.

Jane Haymes of Napthens said: “The decision has introduced a common sense approach to determining when rent is payable as an expense of administration. “The old law was unsatisfactory for administrators and landlords. Administrators should now pay for what they use and I’m sure that both landlords and administrators will welcome this clarity.”