The GAME Litigation and Rent as an Administration Expense - Goldacre and Luminar overturned

On 24 February 2014 the Court of Appeal delivered its long awaited judgment in the GAME Group litigation (Pillar Denton Limited & Ors v Jervis & Ors).

It overturned Goldacre and Luminar and held unanimously that rent falling due in an administration or liquidation accrues from day to day for the period during which the premises are retained and used for the purposes of the administration or liquidation.

This is an extremely important decision and will affect every trading administration where the company is a tenant. The perceived effect of the decisions in Goldacre and Luminar was the administrations (and to a lesser extent, liquidations) were timed tactically to commence after the quarter days for rent.

There are some practical issues to consider following this.

The timing of appointments is less likely to be dependent on the rental quarter days, particularly where the debtor has a large portfolio of properties. That should mean the decision to place a company into administration can be made without the complication of when the rent is due.

It also paves the way for a “pay as you trade” culture. All office holders now need to factor in rent, rates, and other costs associated with trading from the premises they intend to use.

This decision also applies to every administration (and liquidation) regardless of when it commenced, so it does have retrospective effect. So what if some rent has already been paid as an expense in line with Goldacre? In principle, any incorrect distribution made by an office holder can give rise to a claim for breach of duty or misfeasance, but whether that is actually possible (or beneficial to the creditors as a whole to do that) is another matter. Similarly it would be unrealistic to expect an administrator to make a provision for this on the off chance an unpaid landlord might chose to pursue a claim. It remains to be seen exactly how all of this plays out but it highlights the need to co-operate and communicate with landlords.

There are still some significant questions left unanswered by this decision.

The Court of Appeal had nothing to say on what constitutes “beneficial use”. For now at least, the statements in Goldacre dealing with partial use of a property triggering the expense regime remain relevant.

Nor did the Court of Appeal consider when rent, treated as an expense, should be paid. If we are moving towards a “pay as you trade” model then the common scenario, where a third party occupies under a licence and pays the administrators for that, could mean we see an expectation that the sums received by the administrators should be paid over straightaway to the landlord.

What this decision does do is bring some welcome clarification for both landlords and office holders who should hopefully allow both to work together to maximise all creditor returns.

If you have any queries please contact Helen Fyles.