Where a company goes into administration, landlords cannot issue proceedings against it without the permission of either the administrator or the court. The requirement is designed to assist administrators to rescue companies as a going concern, or to achieve a better result for creditors than if a company were to be wound up.
Re SSRL Realisations Ltd (In Administration) [2015] EWHC 2590 (Ch); [2015] PLSCS 268 concerned a pre-pack administration of a chain of restaurants. There was already a buyer for some of the tenant’s assets, who went into possession of the property pursuant to a licence in breach of the terms of the tenant’s lease. The administrators made several applications to the landlord for permission to assign the lease to the buyer, a newly incorporated company. Alternatively, it offered to surrender the lease in return for a payment of £1.375m. The landlord rejected the applications for licence to assign on the grounds of lack of covenant strength and the absence of an authorised guarantee agreement, and was unwilling to pay the premium required for the surrender of the lease.
Meanwhile, nine months had passed. The landlord took the view that the administrators were trying to take advantage of the statutory moratorium for as long as they could and asked the court for permission to forfeit the lease, arguing that it had little or no value. The administrators arranged for the buyer to vacate the property, claimed to have received substantial offers for the lease from third parties (demonstrating that it had considerable value), pointed to the fact that they were paying rent in accordance with the lease, and suggested that the landlord wanted to recover the property early to re-let at a higher rent.
In Re Atlantic Computer Systems plc [1992] Ch 505, the Court of Appeal stated that, if it is unlikely that the exercise of a proprietary right will impede an administration, then the creditor should normally be given permission to repossess his land or goods. But, if the pursuance of such rights will hinder the administration, the court must conduct a balancing exercise between the interests of the landlord and other creditors.
The value of the lease was all-important – and the court accepted that the landlord’s assessment was more accurate because the lease derived much of its value from a separate licence to use a seating area outside the property, which was personal to the tenant. The landlord had terminated the licence when the buyer moved in and was entitled to refuse to renew it in favour of prospective assignees introduced by the tenant, even though renewal of the licence would assist the administration. And since the value of the lease was negligible, the judge concluded that it would not impede the administration to grant the landlord the permission it sought.
Had he concluded otherwise, the judge indicated that the scales would have been more heavily weighted in favour of the landlord. Administration is intended to be only an interim and temporary regime and the chronology counted against the administrators. Furthermore, any premium payable for the lease would be so small in comparison to the estimated shortfall that its lack of recoverability would be inconsequential. And, finally, the landlord stood to lose more than the tenant because, while the moratorium continued, it was unable to have the property used and occupied by a tenant that was financially sound.
Allyson Colby is a property law consultant
