Rent and insolvency – case law ruling

Year Published: 2014

The frustration felt by insolvency practitioners and landlords alike as a result of the decisions in Goldacre (Offices) Ltd v Nortel Networks UK Ltd (In Administration) [2009] and Leisure (Norwich) II Ltd v Luminar Lava Ignite Ltd (In Administration) [2012] has now been resolved following the decision in Pillar Denton Ltd & Ors v Jervis & Ors.

Lord Justice Patten in giving the lead judgment summed up the position under the current case law as follows:

‘The result of Goldacre and Luminar has left the law in a very unsatisfactory state. If rent is payable in arrears then the office holder must pay the rent as an expense of the liquidation or administration for any period during which he retains possession of the property for the benefit of the insolvency process. If appropriate, that liability will be apportioned so as to reflect, as precisely as possible, the true extent of the benefit. If, by contrast, the rent is payable in advance no such apportionment is possible. In some cases this will result in the office holder paying more than the true benefit (as in Goldacre). In other cases it will result in his paying less (as in Luminar).’

In a unanimous decision Lord Justices Patten and Lewison and Lady Justice Sharp, in overturning both Goldacre and Luminar, held that when dealing with rent payable in advance that rent should be treated as accruing day to day. That is where an insolvency practitioner retains possession of a property for the benefit of the insolvency process that rent should be treated as an expense of the administration or winding up.

As such, the treatment of rent following the winding up or administration of a company has been returned to the position as it was understood to be before the decision in Goldacre (as suggested as the equitable solution in my previous blog on this subject).

This decision is one which provides certainty and fairness to insolvency practitioners alike and more importantly removes the incentive for companies who are struggling to try and carry on trading until the next ‘quarter date’.

If you require any further information or assistance on insolvency matters please contact our Dispute Resolution team on 0161 475 7676 or email [email protected].

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