We know that, where rents are payable in advance, administrators must pay rents that fall due while they use or retain premises as an administration expense and that they cannot apportion them. However, they are not liable for rents that fell due before their appointment and need not apportion them: Goldacre (Offices) Ltd v Nortel Networks UK Ltd (in administration) [2009] EWHC 3389 (Ch); Leisure (Norwich) II Ltd v Luminar Lava Ignite Ltd (in administration) [2012] EWHC 951 (Ch).
The principles originate from Re Lundy Granite [1871] LR 6 Ch Appeals 462 and enable creditors to recover debts arising under contracts made before a debtor became insolvent as expenses of an administration or liquidation, if the contracts are continued for the benefit of the liquidation or administration. MK Airlines Property Ltd (in administration) v Katz [2012] PLSCS 110 confirms that the rules also apply where a provisional liquidator is appointed to preserve a company’s assets between the presentation of a winding up petition and the making of a winding up order by the court.
The decision is of interest for other reasons. The provisional liquidators were appointed on 22 June 2010 and took steps to secure the company’s assets immediately. The premises were guarded around the clock and, although some books and records were removed, others – relating to the Boeing 747 engines in the property – were left there. In due course, the provisional liquidators thought about moving the engines to other premises, but decided not to do so because of the cost and difficulty of removing them and because it would be equally expensive to arrange storage elsewhere. In the meantime, rent had fallen due on 24 June and 29 September.
The court will not treat rents as liquidation or administration expenses simply because liquidators or administrators have allowed leases to continue. They must either use the property or retain it in order to dispose of it for the purposes of the liquidation or administration.
The judge doubted whether the liquidators had decided, just two days after their appointment, to retain the premises and there was no evidence to suggest that they had done so. It was also unlikely that they could have obtained a court order allowing them to disclaim the lease before the rent fell due – but were they using the premises for the purposes of the liquidation on 24 June? The judge decided, with some hesitation, that they were not, even though they had secured assets there. The judge did not believe that the liquidators’ action was enough to give the landlord an advantage over other creditors – but did accept that the September rent should be treated as a liquidation expense, since the liquidators had then made a positive decision to retain the premises for the purposes of the liquidation.
Was the notice of disclaimer that the liquidators eventually served invalidated by their lack of intention – and failure – to give vacant possession at once? Worryingly for landlords, the court decided that it was not, but that the tenant was liable for damages for trespass calculated by reference to the letting value of the premises (which was less than the rent payable under the lease). The issue of whether the damages should be treated as an expense of the liquidation was left undetermined.
Allyson Colby: property law consultant
