Innovate Logistics Ltd v Sunberry Properties Ltd

On an application for permission to bring proceedings against a company in administration, the court must balance the landlord’s legitimate proprietary interests against the interests of the company’s creditors. It must compare the landlord’s actual loss if permission is refused with the likely loss to creditors if permission is granted, applying the guidance in Re Atlantic Computer Systems plc [1992] Ch 505.

A going-concern sale does not necessarily achieve the purpose of an administration where collection of book debts remains essential. A temporary breach of a lease covenant does not dispense with the balancing exercise. A landlord also has no absolute right to contractual rent and interest as an administration expense.

The company entered administration on 30 June 2008. Its administrators immediately sold its cold-storage business as a going concern, while retaining the company’s book debts for collection. The purchaser, YHL, was granted a temporary occupational licence of the premises, although this breached the lease covenant against parting with possession or occupation.

The landlord obtained permission in the High Court to bring proceedings for a mandatory order requiring termination of the licence. The company appealed. The central issue was whether permission should be granted under paragraph 43(6) of Schedule B1 to the Insolvency Act 1986, notwithstanding the need to preserve occupation while the purchaser completed customer contracts and enabled collection of book debts.

Appeal allowed unanimously. The Court set aside the order granting the landlord permission to commence proceedings and dismissed its application.

1. The Court admitted the overlooked evidence. It was in the interests of justice to correct the first-instance judge’s misunderstanding of the administrators’ conduct. The missing evidence had been used when the administration order was made and its absence had materially affected the discretionary decision.

2. The purpose of the administration had not been achieved merely because the business had been sold. Collection of the company’s substantial book debts remained an object of the administration. YHL’s temporary occupation enabled performance of customer contracts and the orderly delivery of stored goods. A mandatory injunction terminating that occupation would seriously prejudice collection of the debts and thus the creditors.

3. The judge was required to conduct the balancing exercise stated in Re Atlantic Computer Systems plc [1992] Ch 505. Under paragraph 43(6) of Schedule B1 to the Insolvency Act 1986, the landlord had to show that it was inequitable to prevent the proposed proceedings. The breach of the lease covenant was a relevant matter, but it did not displace that exercise.

4. The balance plainly favoured refusing permission. The landlord would receive monthly sums equal to the passing rent, whereas an injunction threatened substantial loss to the creditors. The landlord’s asserted loss of bargaining power against YHL did not justify permission. Stanley Burnton LJ doubted whether that loss was relevant; the principal focus was the consequence of the injunction itself.

5. The landlord had no absolute entitlement to contractual rent or interest as an expense of the administration. The Court directed payment of the licence fees received from YHL, with interest earned on them, until 10 October 2008 or earlier delivery of possession. Leave to bring proceedings after that date was premature, subject to liberty to apply if required payments were not made.

• Court of Appeal (Civil Division): unanimously allowed the company’s appeal, set aside the grant of permission, and dismissed the landlord’s application under paragraph 43(6) of Schedule B1 to the Insolvency Act 1986.

• High Court of Justice, Chancery Division: HHJ Simon Brown QC, sitting as an additional judge, granted the landlord permission to commence proceedings seeking termination of YHL’s occupational licence.