Sunberry Properties Ltd v Innovate Logistics Ltd & Ors

In an administration, the court’s discretion to permit a lessor to enforce proprietary rights must be exercised by reference to the purpose for which the administration order was made. The moratorium provides a breathing space; it is not a licence to alter a landlord’s contractual position without notice. Where the administration purpose has already been achieved, the court need not proceed to the wider balancing exercise between the lessor and other creditors. The administrators’ conduct is a material consideration. An undisclosed licence granted in breach of an alienation covenant may justify leave to repossess, particularly where the purchaser could instead seek an assignment of the lease.

Sunberry Properties Limited sought leave under section 43(6) of Schedule B1 to the Insolvency Act to commence proceedings for immediate termination of an occupational licence relating to cold-store premises. Innovate Logistics Limited had entered administration on 30 June 2008. On the same day, its business was sold to the Yearsley companies, together with a six-month licence to occupy premises held under a 20-year lease containing an alienation covenant.

The landlord had not been told of the licence before the administration order or the sale. The application concerned how the court should exercise its discretion under the guidance in Re Atlantic Computer Systems Plc [1992] 1AER 476, including whether the administration purpose had been achieved and whether a wider balancing exercise was required.

1. Application granted. Leave was granted to the landlord to commence proceedings for an order terminating the occupational licence and recovering possession of the premises.
2. The purpose of the administration was to provide the administrators with a moratorium or breathing space in which to trade and pursue a sale as a going concern for the benefit of creditors. It was not a final conclusion. Under the second guideline in Re Atlantic Computer Systems Plc [1992] 1AER 476, where enforcement of a lessor’s proprietary rights is unlikely to impede that purpose, leave should normally be given.
3. On the facts, the administration purpose had been achieved on the day of the administration order because the business had already been sold as a going concern. The sale included a licence granted in breach of the lease’s alienation covenant, without informing the landlord or the court. The case therefore did not fall within the wider category requiring the balancing of the lessor’s legitimate interests against those of the company’s other creditors under guidelines 3 and 4.
4. Even if that balancing exercise had been required, substantial weight would ordinarily attach to the lessor’s proprietary interest. The purchaser’s practical alternative was to seek an assignment of the lease rather than retain the undisclosed licence.
5. The court treated the administrators’ conduct as highly material under guideline 8. Completing the transaction without engaging the landlord, and failing to disclose the circumstances when the administration order was sought, was reprehensible conduct supporting the grant of leave. The guidance in Environment Agency v Clark [2007] 1 EGLR 113 was noted as useful, non-exhaustive guidance.