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Insolvency Law

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Guildhall Chambers , 03 MAR 2015

Re Game Station; Pillar Denton v Jervis [2014] EWCA Civ 180; [2015] BPIR forthcoming

Re Game Station; Pillar Denton v Jervis [2014] EWCA Civ 180; [2015] BPIR forthcoming
(Court of Appeal, Patten, Lewison and Sharp LJJ, 24 February 2014)

Administrators must pay the rent under the lease as an expense of the administration for the period during which they retain the leasehold property for the benefit of the administration (the rent being treated as accruing from day to day.

The tenant company was the lessee of hundreds of retail premises, paying rent quarterly in advance. It went into administration the day after £10 million in rent had become due. The issue, at first instance and on appeal, was whether that rent was no more than a provable debt or whether it was an expense in the administration.

At first instance the judge held that the rent was only a provable debt, following Goldacre v Nortel Networks [2010] Ch 455 (when rent payable in advance accrued during the administration the whole of that rent was payable as an expense of the administration whether or not the administrators actually used the property for the whole period for which the rent was due) and Re Luminar Lava Ignite [2014] Ch 165 (where rent payable in advance had accrued before the start of the administration none of it was capable of being an expense of the administration even if the administrators retained possession for the purposes of the administration).

The Court of Appeal reviewed at length the authorities on which the salvage principle was based and Lewison LJ (with whom Patton and Sharp LJJ agreed) held, overruling Goldacre and Luminar, that the Salvage principle (in Re Lundy Granite Co; Ex p Heavan (1871) LR 6 Ch App 462) compelled the conclusion that where administrators or other officer holders retained possession of property for the purposes of the administration they were liable to pay the landlord the full value of the property during that period. Since the principle was an equitable one, common law rules regarding the apportionment of rent did not apply. The duration of the period is a question of fact and it is not to be determined by reference to which rent days occur before, during or after that period.
Guildhall Chambers
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