Property – Sale and leaseback – Enforcement of security – Respondent providing company with funding for sale and leaseback of residential properties – Company falling into arrears with mortgage payments and going into administration – Respondent applying for permission to enforce security over company’s assets – Whether administrators taking on liability for final payments – Whether respondent entitled to enforce security – Application granted
The company was incorporated in 2006 and carried on business as a property company engaged in the sale and lease-back of residential properties to vendors on assured shorthold tenancies (ASTs) for a term of ten years. The sales contracts provided for the company to pay 70% of the purchase price on completion and the remaining 30% at the end of the term of the AST. The respondent provided funding to the company under a loan agreement dated May 2007. A debenture made on the same day as the loan agreement secured the facility by providing the respondent with security, including legal mortgages over properties and a floating charge. The company made losses and fell into arrears with its interest payments to the respondent which concluded that the company’s business plan was no longer viable and resolved to place it into administration.
In June 2010, the respondent appointed the claimants as joint administrators over the company in the exercise of its powers under the floating charge contained in the debenture. The claimants subsequently sought the directions of the court pursuant to paragraph 63 of schedule B to the Insolvency Act 1986 as to whether, by collecting rents paid by the AST tenants, and repairing, maintaining and insuring the secured properties, they had adopted the liability for all future final payments. The claimants contended that the final payment was an expense of the administration on account of the so-called Lundy Granite principle: In re Lundy Granite Company, ex parte Heaven (1871) LR 6 Ch. App 462.
The respondent argued that the final payment and any future final payments were not to be treated as administration expenses. They all ranked as unsecured claims which were provable in the administration in the usual way. In any event, the respondent contended that it should be permitted to enforce its security and applied for permission under paragraph 43(2)(b) of Schedule. B1 to the 1986 Act to enforce its security over the company’s assets, including the secured properties.
Held: The application was granted.
(1) The principle established in Lundy Granite was that, in some cases between a landlord and a company, if the company, for its own purposes and with a view to the realisation of the property to better advantage, remained in possession of the estate, which the lessor was, therefore, not able to obtain possession of, common sense and ordinary justice required the court to see that the landlord received the full value of the property. He had to have the same rights as any other creditor and, if the company chose to keep the estates for its own purposes, it ought to pay the full value to the landlord, as it ought to pay any other person for anything else, and the court ought to take care that he received it. If the official liquidator, for the convenience of the winding up, did not surrender the lease, but continued to keep possession for the purpose of obtaining a better price for the goods, the landlord should not be deprived of his right to recover his rent.
In a case such as the present case, where the claimants had been turning to account the company’s own property in the form of rents, rather than the property of others, to apply the Lundy Granite principle would not only be contrary to principle, but would also result in great unfairness and heretically rewrite the parties’ arrangements. It would be inequitable for the application of Lundy Granite to result in the promotion of the interests of the AST tenants. Had the parties intended that the rents should be preserved in the form of a fund to meet future final payments, the court would have expected that intention to be spelled out in either the sale contract, the AST or both. Accordingly, the final payments were pre-administration debts, which were provable in the ordinary way in the administration: Lundy Granite not followed; Japan Leasing (Europe) Plc, Re [1999] BPIR 911, Lehman Brothers International (Europe) (in administration), Re [2009] EWHC 2545 (Ch) and Neumans LLP v. Andronikou [2013] Bus LR 374 (Ch); [2013] EWCA Civ 916 (CA) considered.
(2) The court habitually dealt flexibly with applications for permission by secured creditors of a company in administration to enforce their security, or by landlords to forfeit a lease of property to a company. In such circumstances it was commonplace for the creditor to be restrained, for the better functioning of the administration, provided that the administrator discharged otherwise unsecured liabilities, as they arose. That seemed to imply that the court would normally be unsympathetic to applications of this kind where it would not be for the better functioning of the administration to grant permission. In the present case, however, no serious attempt has been made by the company’s administrators to persuade the court that not permitting the respondent to enforce its security would advantage the administration.
The court was required when considering whether or not to exercise its jurisdiction to grant permission to enforce securities under paragraph 43 of Schedule B1 to balance the interests of the secured and unsecured creditors only if the relevant property was required for the purposes of the administration. In the present case no such case had been advanced. In any event normally permission would be given if significant loss would be caused by a refusal. The court was satisfied on the evidence that that would be the case even though there would be no depletions on account of the company’s administrators having to provide for the final payment or any future final payments on the basis they were expenses of its administration, which the court had held they were not. In the circumstances it was right to assimilate the respondent’s position with those of its creditors. Accordingly, it was just and expedient to grant permission to the respondent to enforce its securities: Atlantic Computer Systems plc, Re [1992] Ch 505 and Lehman Brothers International applied.
Stephen Robins (instructed by Pannone LLP) appeared for the claimants; Tom Smith (instructed by Freshfields Bruckhaus Deringer LLP) appeared for the defendant.
Eileen O’Grady, barrister
Mackay and others (joint administrators of UK Housing Alliance (North West) Ltd) v Kaupthing Singer & Friedlander Ltd (in administration)
Property – Sale and leaseback – Enforcement of security – Respondent providing company with funding for sale and leaseback of residential properties – Company falling into arrears with mortgage payments and going into administration – Respondent applying for permission to enforce security over company’s assets – Whether administrators taking on liability for final payments – Whether respondent entitled to enforce security – Application grantedThe company was incorporated in 2006 and carried on business as a property company engaged in the sale and lease-back of residential properties to vendors on assured shorthold tenancies (ASTs) for a term of ten years. The sales contracts provided for the company to pay 70% of the purchase price on completion and the remaining 30% at the end of the term of the AST. The respondent provided funding to the company under a loan agreement dated May 2007. A debenture made on the same day as the loan agreement secured the facility by providing the respondent with security, including legal mortgages over properties and a floating charge. The company made losses and fell into arrears with its interest payments to the respondent which concluded that the company’s business plan was no longer viable and resolved to place it into administration.In June 2010, the respondent appointed the claimants as joint administrators over the company in the exercise of its powers under the floating charge contained in the debenture. The claimants subsequently sought the directions of the court pursuant to paragraph 63 of schedule B to the Insolvency Act 1986 as to whether, by collecting rents paid by the AST tenants, and repairing, maintaining and insuring the secured properties, they had adopted the liability for all future final payments. The claimants contended that the final payment was an expense of the administration on account of the so-called Lundy Granite principle: In re Lundy Granite Company, ex parte Heaven (1871) LR 6 Ch. App 462. The respondent argued that the final payment and any future final payments were not to be treated as administration expenses. They all ranked as unsecured claims which were provable in the administration in the usual way. In any event, the respondent contended that it should be permitted to enforce its security and applied for permission under paragraph 43(2)(b) of Schedule. B1 to the 1986 Act to enforce its security over the company’s assets, including the secured properties.Held: The application was granted.(1) The principle established in Lundy Granite was that, in some cases between a landlord and a company, if the company, for its own purposes and with a view to the realisation of the property to better advantage, remained in possession of the estate, which the lessor was, therefore, not able to obtain possession of, common sense and ordinary justice required the court to see that the landlord received the full value of the property. He had to have the same rights as any other creditor and, if the company chose to keep the estates for its own purposes, it ought to pay the full value to the landlord, as it ought to pay any other person for anything else, and the court ought to take care that he received it. If the official liquidator, for the convenience of the winding up, did not surrender the lease, but continued to keep possession for the purpose of obtaining a better price for the goods, the landlord should not be deprived of his right to recover his rent.In a case such as the present case, where the claimants had been turning to account the company’s own property in the form of rents, rather than the property of others, to apply the Lundy Granite principle would not only be contrary to principle, but would also result in great unfairness and heretically rewrite the parties’ arrangements. It would be inequitable for the application of Lundy Granite to result in the promotion of the interests of the AST tenants. Had the parties intended that the rents should be preserved in the form of a fund to meet future final payments, the court would have expected that intention to be spelled out in either the sale contract, the AST or both. Accordingly, the final payments were pre-administration debts, which were provable in the ordinary way in the administration: Lundy Granite not followed; Japan Leasing (Europe) Plc, Re [1999] BPIR 911, Lehman Brothers International (Europe) (in administration), Re [2009] EWHC 2545 (Ch) and Neumans LLP v. Andronikou [2013] Bus LR 374 (Ch); [2013] EWCA Civ 916 (CA) considered.(2) The court habitually dealt flexibly with applications for permission by secured creditors of a company in administration to enforce their security, or by landlords to forfeit a lease of property to a company. In such circumstances it was commonplace for the creditor to be restrained, for the better functioning of the administration, provided that the administrator discharged otherwise unsecured liabilities, as they arose. That seemed to imply that the court would normally be unsympathetic to applications of this kind where it would not be for the better functioning of the administration to grant permission. In the present case, however, no serious attempt has been made by the company’s administrators to persuade the court that not permitting the respondent to enforce its security would advantage the administration.The court was required when considering whether or not to exercise its jurisdiction to grant permission to enforce securities under paragraph 43 of Schedule B1 to balance the interests of the secured and unsecured creditors only if the relevant property was required for the purposes of the administration. In the present case no such case had been advanced. In any event normally permission would be given if significant loss would be caused by a refusal. The court was satisfied on the evidence that that would be the case even though there would be no depletions on account of the company’s administrators having to provide for the final payment or any future final payments on the basis they were expenses of its administration, which the court had held they were not. In the circumstances it was right to assimilate the respondent’s position with those of its creditors. Accordingly, it was just and expedient to grant permission to the respondent to enforce its securities: Atlantic Computer Systems plc, Re [1992] Ch 505 and Lehman Brothers International applied.Stephen Robins (instructed by Pannone LLP) appeared for the claimants; Tom Smith (instructed by Freshfields Bruckhaus Deringer LLP) appeared for the defendant.Eileen O’Grady, barrister
