Insolvency – Administration – Priority of debts – Companies entering into administration and vacating retail premises – Administrator incurring liability for supply of gas and electricity to premises – Charges owing pursuant to deemed contracts under gas and electricity legislation – Trial being ordered on preliminary issue – Whether charges ranking as expenses of administration or provable debts – Ruling in favour of applicants
Three companies owned and operated a chain of clothing stores. The respondent supplied gas and electricity to the stores under written contracts. Following the entry of the companies into administration in January 2012, the respondent served notices terminating the contracts pursuant under the terms of the contract on the ground of the companies’ administration. The respondent continued to supply gas and electricity to the stores under contracts deemed to arise under the Gas Act 1986 and the Electricity Act 1989 respectively and sent the tariffs for the deemed contracts to the applicant administrators.
In February 2012, the applicants sold a large number of stores and the companies subsequently ceased trading from the remaining 176 stores. The applicants said that the closed stores were then vacated and no further use of them was made by the companies, which no longer made any use of the supply by the respondent of gas or electricity. Following the order for the winding up of the companies, the leases of stores which had not already been surrendered or assigned by the companies were disclaimed by the applicants.
The applicants accepted that the price of gas and electricity supplied to the stores during the administration while the companies continued to trade was an expense of the administration and paid an agreed amount of £1,384,607.45 (excluding VAT) in respect of that liability. However, a dispute arose as to payment pursuant to the deemed contracts for supplies to the closed stores after they had been vacated. The respondent claimed that more than £1.2m (excluding VAT) was payable in respect of the post-trading liabilities. The applicants did not dispute that payment was due for post-trading liabilities but a dispute arose as to the priority of payment out of the assets of the companies. The applicants argued that any post-trading liabilities were provable as an ordinary unsecured debt. The respondent claimed that they were payable as expenses of the administration and so in priority to the debts of the general body of unsecured creditors.
Held: A preliminary ruling was made in favour of the applicants.
Liability under the deemed contracts was provable pursuant to rule 13.12(1)(b) as a liability to which the companies became subject after the date of administration by reason of an obligation incurred before that date. The three parts of the test suggested by Lord Neuberger PSC in Re Nortel GmbH [2014] AC 209 were satisfied. From the moment that gas or electricity was supplied to premises, and for the duration of such supply, the consumer, in the case of gas, and the owner or occupier, in the case of electricity, became bound by the statutory framework of the Gas Act 1986 and the Electricity Act 1989 which included a present or future, actual or contingent liability to pay for the supply pursuant to a deemed contract where the supply was otherwise than in pursuance of an actual contract. From the moment the supplies commenced the consumer, occupier or owners fell within the scope of the regime. Immediately prior to their administration the companies were vulnerable to the specific liability under a deemed contract since there was then a high probability or at the very least a distinct possibility that the respondent would terminate the contracts pursuant to the provisions enabling it to do so in the terms. Accordingly, prior to administration the companies came under an “obligation” within rule 13.12(1)(b). That obligation was necessarily more inchoate or imprecise than the “debt or liability” within rule 13.12(1)(b). It was the anterior source of that liability. Furthermore, the application of rule 13.12(1)(b) to the facts was consistent with the regime in the Gas Act 1986 and the Electricity Act 1989. Uncertainty over the amount of the future debt in relation to the future supply of gas and electricity to the stores did not render the liability of the companies to the respondent unprovable. The respondent was entitled to prove from time to time for the charges incurred following the commencement of the administration for supplies actually made to the date of proof.
Antony Zacaroli QC and Stephen Robins (instructed by Hogan Lovells Internaitonal LLP) appeared for the applicants; William Trower QC and Adam Goodison (instructed by Moon Beever Solicitors) appeared for the respondent.
Eileen O’Grady, barrister
